| THE SECURITIES ACT OF 1933 | ||
| Pre‑Effective Amendment No. | ||
| Post-Effective Amendment No. |
| THE INVESTMENT COMPANY ACT OF 1940 | ||
| Amendment No. |
| NexPoint Real Estate Strategies Fund (Name and Address (Number, Street, City, State, Zip Code) of Agent for Service) |
Copies of Communications to: Jon‑Luc Dupuy, Esquire K&L Gates LLP 1 Congress Street, Suite 2900 Boston, Massachusetts 02114 |
| Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans. |
| Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan. |
| Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. |
| Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
| Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
| when declared effective pursuant to Section 8(c) of the Securities Act |
| immediately upon filing pursuant to paragraph (b) |
| on |
| 60 days after filing pursuant to paragraph (a) |
| on (date) pursuant to paragraph (a) |
| This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement]. |
| This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
| This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
| This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
| Registered Closed‑End Fund (closed‑end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)). |
| Business Development Company (closed‑end company that intends or has elected to be regulated as a business development company under the Investment Company Act). |
| Interval Fund (Registered Closed‑End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c‑3 under the Investment Company Act). |
| A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
| Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
| Emerging Growth Company (as defined by Rule 12b‑2 under the Securities Exchange Act of 1934 (“Exchange Act”). |
| ☐ | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
| New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
| • | the Fund does not currently intend to list its shares on any securities exchange; |
| • | there is no secondary market for the Fund’s shares, and the Fund does not expect that such a market will develop at this time; and |
| • | your investment in the Fund will be illiquid. |
| • | You may not have access to the money you invest for an extended period of time. |
| • | You may not be able to sell your shares at the time of your choosing regardless of how the Fund performs. |
| • | Because you may not be able to sell your shares at the time of your choosing, you may not be able to reduce your exposure in a market downturn. |
| • | An investment in the Fund may not be suitable for investors who may need the money they invested in a specified timeframe. |
| • | The amount of distributions that the Fund may pay, if any, is uncertain. |
| • | The Fund may pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Fund’s performance, such as from offering proceeds, borrowings, and amounts from the Fund’s affiliates that are subject to repayment by investors. All or a portion of a distribution may consist of a return of capital. Because a return of capital may reduce a shareholder’s tax basis, it will increase the amount of gain or decrease the amount of loss on a subsequent disposition of the shareholder’s shares. |
| Class A Shares |
Class C Shares |
Class Z Shares |
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| Public Offering Price Per Share |
$ | 15.83 | $ | 16.06 | $ | 16.06 | ||||||
| Maximum Sales Load as a Percentage of Purchase Amount1,2 |
6.08 | % | None | None | ||||||||
| Amount of Securities |
Unlimited | Unlimited | Unlimited | |||||||||
| (1) | For Class A shares, “maximum sales load” includes: (i) broker commissions of 5.00% of the Fund’s public offering price per Class A share; and (ii) distributor fees of 0.75% of the Fund’s public offering price per Class A share. See “Fees and Fund Expenses.” |
| (2) | The Adviser and/or its affiliates, in their discretion and from their own resources (which may include the Adviser’s legitimate profits from the management fee it receives from the Fund), may pay additional compensation to brokers or dealers in connection with the sale and distribution of Fund shares. There is no limit on the amount of additional compensation paid by the Adviser or its affiliates, subject to the limitations imposed by the Financial Industry Regulatory Authority (“FINRA”). In addition, the Fund, the Adviser and/or their respective affiliates may pay a servicing fee to the Distributor and to other selected broker-dealers and other financial industry professionals for providing ongoing services in respect of holders of Class A and Class C shares with whom they have distributed shares of the Fund. The Fund’s (and, indirectly, Class A and Class C holders’) share of such servicing fees will not exceed an annual rate of 0.25% of the Fund’s average daily net asset value attributable to Class A and Class C shares, respectively. See “Plan of Distribution.” |
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| • | CMBS, RMBS and other real estate credit investments, which include existing first and second mortgages on real estate, either originated or acquired in the secondary market, and secured, unsecured and/or convertible notes offered by REOCs and REITs; |
| • | publicly traded REITs managed by affiliated or unaffiliated asset managers and their foreign equivalents (“Public REITs”); |
| • | REOCs; |
| • | private real estate investment funds managed by affiliated or unaffiliated institutional asset managers (“Private Real Estate Investment Funds”); |
| • | registered closed-end funds that invest principally in real estate (collectively, “Public Investment Funds”); |
| • | real estate exchange traded funds (“ETFs”); and |
| • | publicly-registered non-traded REITs (“Non-Traded REITs”) and private REITs, generally wholly-owned by the Fund or wholly-owned or managed by an affiliate. |
| Class A Shares |
Class C Shares |
Class Z Shares |
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| Shareholder Transaction Expenses |
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| Maximum Sales Load ( |
% | |||||||||||
| Contingent Deferred Sales Charge2 |
% | % | ||||||||||
| Exchange Fee |
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| Annual Expenses ( |
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| Management Fees |
% | % | % | |||||||||
| Interest Payments on Borrowed Funds3 |
% | % | % | |||||||||
| Dividends and Fees on Securities Sold Short |
% | % | % | |||||||||
| Other Expenses3 |
% | % | % | |||||||||
| Distribution Fee4 |
% | |||||||||||
| Shareholder Servicing Fee5 |
% | % | ||||||||||
| Total Annual Expenses |
% | % | % | |||||||||
| Fee Waiver and Reimbursement6 |
% | % | % | |||||||||
| Total Annual Expenses (after fee waiver and reimbursement)7 |
% | % | % |
| 1. | |
| 2. | |
| 3. | |
| 4. | |
| 5. | |
| 6. | The Adviser and the Fund have entered into an Expense Limitation Agreement under which the Adviser has agreed contractually to waive its fees and to pay or absorb the ordinary annual operating expenses of the Fund (including organizational and offering expenses, but excluding distribution fees, interest, dividend expenses on short sales, brokerage commissions and other transaction costs, acquired fund fees and expenses, taxes, expenses payable by the Fund for third party administration services, litigation expenses |
| and extraordinary expenses), to the extent that they exceed 1.75% per annum of the Fund’s average Daily Gross Assets (the “Expense Limitation”). If the Fund incurs expenses excluded from the Expense Limitation Agreement, the Fund’s expense ratio would be higher and could exceed the Expense Limitation. In consideration of the Adviser’s agreement to limit the Fund’s expenses, the Adviser is entitled to recoup from the Fund the amount of any fees waived and Fund expenses paid or absorbed (other than organizational and initial offering expenses, which are those expenses incurred by the Fund in order to permit the Fund to be declared effective by the SEC and to commence operations) to the extent that: (1) the reimbursement for fees and expenses will be made only if payable not more than three years from the date on which such fees are foregone or expenses are incurred by the Adviser; and (2) such recoupment does not cause the Fund’s ordinary operating expenses plus recoupment to exceed the Expense Limitation in effect at the time the expenses were paid or waived or any Expense Limitation in effect at the time of recoupment. The Expense Limitation Agreement will remain in effect until at least May 1, 2027 unless and until the Board approves its modification or termination. The Expense Limitation Agreement may not be amended or terminated unless approved by the Board. See “Management of the Fund.” “Fee Waiver and Reimbursement” have been restated from fiscal year amounts to reflect current fees and expenses. |
| 7. | |
| Example | 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
| Class A Shares |
$ | $ | $ | $ | |||||||||||||
| Class C Shares |
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| If you do not sell your shares |
$ | $ | $ | $ | |||||||||||||
| If you sold all of your shares at the end of the period |
$ | $ | $ | $ | |||||||||||||
| Class Z Shares |
$ | $ | $ | $ | |||||||||||||
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 15.98 | $ | 17.51 | $ | 19.73 | $ | 21.31 | $ | 16.19 | $ | 20.36 | ||||||||||||
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| Income from Investment Operations: |
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| Net investment income(a)(h) |
— | 0.48 | 0.51 | 0.31 | 0.09 | 0.48 | ||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.47 | ) | (0.59 | ) | (1.31 | ) | (0.47 | ) | 6.46 | (3.23 | ) | |||||||||||||
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| Total from Investment Operations |
(1.47 | ) | (0.11 | ) | (0.80 | ) | (0.16 | ) | 6.55 | (2.75 | ) | |||||||||||||
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| Less Distributions Declared to shareholders: |
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| From net investment income |
(0.01 | ) | (0.57 | ) | (0.52 | ) | (0.30 | ) | (0.34 | ) | (0.39 | ) | ||||||||||||
| From return of capital |
(1.41 | ) | (0.85 | ) | (0.90 | ) | (1.12 | ) | (1.09 | ) | (1.03 | ) | ||||||||||||
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| Total distributions declared to shareholders |
(1.42 | ) | (1.42 | ) | (1.42 | ) | (1.42 | ) | (1.43 | ) | (1.42 | ) | ||||||||||||
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| Net Asset Value, End of year(b) |
$ | 13.09 | $ | 15.98 | $ | 17.51 | $ | 19.73 | $ | 21.31 | $ | 16.19 | ||||||||||||
| Total Return(b)(c) |
(9.70 | )% | (0.60 | )% | (4.30 | )% | (1.15 | )% | 42.42 | % | (12.98 | )% | ||||||||||||
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| Ratios to Average Net Assets / Supplemental Data:(d) |
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| Net Assets, End of Year (000’s) |
$ | 5,452 | $ | 7,555 | $ | 9,265 | $ | 9,288 | $ | 5,903 | $ | 2,273 | ||||||||||||
| Gross operating expenses(e) |
4.41 | % | 4.00 | % | 4.25 | % | 2.87 | % | 3.08 | % | 3.41 | % | ||||||||||||
| Net investment income (loss) |
(0.01 | )% | 2.88 | % | 2.66 | % | 1.42 | % | 0.51 | % | 2.97 | % | ||||||||||||
| Portfolio turnover rate |
3 | % | 13 | % | 10 | % | 41 | % | 41 | % | 42 | % | ||||||||||||
| Average commission rate paid(f) |
$ | 0.0154 | $ | — | $ | 0.0289 | $ | — | $ | 0.0225 | $ | 0.0348 | ||||||||||||
| (a) | Per share data was calculated using average shares outstanding during the year. |
| (b) | The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end. |
| (c) | Total return is at net asset value assuming all distributions are reinvested and no initial sales charge or CDSC. For periods with waivers/reimbursements, had the Fund’s Investment Adviser not waived or reimbursed a portion of expenses, total return would have been lower. |
| (d) | All ratios for the period have been annualized, unless otherwise indicated. |
| (e) | Supplemental expense ratios are shown below: |
| For the Years Ended December 31, | |||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | ||||||||||||||||||||
| Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses)(g) |
2.96 | % | 3.32 | % | 3.18 | % | 2.28 | % | 1.99 | % | 2.44 | % | |||||||||||||
| Interest expense and commitment fees |
0.47 | % | 0.80 | % | 0.77 | % | 0.25 | % | — | % | 0.34 | % | |||||||||||||
| Dividends and fees on securities sold short |
0.56 | % | 0.46 | % | 0.47 | % | 0.06 | % | 0.02 | % | — | % | |||||||||||||
| (f) | Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. |
| (g) | This includes the additional voluntarily elected waiver by the Investment Adviser during the year which resulted in a 0.07% impact to the net expenses ratio. |
| (h) | The per share amount for net investment income (loss) between classes does not accord the aggregate net investment income (loss) for the period due to class specific distribution fees charged to Class A and C. |
| For the Years Ended December 31, | ||||||||||||||||
| 2019 | 2018 | 2017 | 2016(a) | |||||||||||||
| Net Asset Value, Beginning of Period |
$ | 18.99 | $ | 20.65 | $ | 20.62 | $ | 20.00 | ||||||||
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| Income from Investment Operations: |
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| Net investment income(b) |
0.94 | 0.95 | 1.44 | 0.14 | ||||||||||||
| Net realized and unrealized gain/(loss) |
1.83 | (1.33 | ) | 0.19 | 0.68 | |||||||||||
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| Total from investment operations |
2.77 | (0.38 | ) | 1.63 | 0.82 | |||||||||||
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| Less Distributions Declared to Shareholders: |
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| From net investment income |
(0.91 | ) | (1.28 | ) | (1.39 | ) | (0.20 | ) | ||||||||
| From net realized gains |
(0.49 | ) | — | (0.21 | ) | — | ||||||||||
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| Total distributions declared to shareholders |
(1.40 | ) | (1.28 | ) | (1.60 | ) | (0.20 | ) | ||||||||
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| Net Asset Value, End of Period(c) |
$ | 20.36 | $ | 18.99 | $ | 20.65 | $ | 20.62 | ||||||||
| Total Return(c)(d) |
14.59 | % | (2.42 | )% | 8.18 | % | 4.12 | %(e) | ||||||||
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| Ratios to Average Net Assets/ Supplemental Data: (f) |
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| Net assets, end of period (in 000’s) |
$ | 1,546 | $ | 414 | $ | 126 | $ | 1 | ||||||||
| Gross operating expenses(g) |
4.33 | % | 4.20 | % | 4.75 | % | 10.78 | % | ||||||||
| Net investment income (loss) |
4.56 | % | 4.82 | % | 6.44 | % | 1.56 | % | ||||||||
| Portfolio turnover rate |
39 | % | 49 | % | 99 | % | 14 | %(e) | ||||||||
| Average commission rate paid(h) |
$ | 0.0222 | $ | 0.0111 | $ | 0.0155 | $ | 0.0295 | ||||||||
| (a) | Class commenced operations on July 21, 2016. |
| (b) | Net investment income (loss) per share was calculated using average shares outstanding during the period. |
| (c) | The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end. |
| (d) | Total return is at net asset value assuming all distributions are reinvested and no initial sales charge or CDSC. For periods with waivers/reimbursements, had the Fund’s investment adviser not waived or reimbursed a portion of expenses, total return would have been lower. |
| (e) | Not annualized. |
| (f) | All ratios for the period have been annualized, unless otherwise indicated. |
| (g) | Supplemental expense ratios are shown below: |
| For the Years Ended December 31, |
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| 2019 | 2018 | 2017 | 2016(a) | ||||||||||||||
| Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses) |
2.50 | % | 2.38 | % | 2.01 | % | 2.08 | %(f) | |||||||||
| Interest expense and commitment fees |
0.76 | % | 0.22 | % | — | % | — | % | |||||||||
| Dividends and fees on securities sold short |
— | % | 0.08 | % | 0.01 | % | — | % | |||||||||
| (h) | Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. |
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 16.20 | $ | 17.73 | $ | 19.96 | $ | 21.56 | $ | 16.37 | $ | 20.53 | ||||||||||||
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| Income from Investment Operations: |
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| Net investment income (loss)(a)(h) |
(0.12 | ) | 0.36 | 0.36 | 0.15 | (0.04 | ) | 0.36 | ||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.48 | ) | (0.60 | ) | (1.31 | ) | (0.49 | ) | 6.52 | (3.22 | ) | |||||||||||||
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| Total from Investment Operations |
(1.60 | ) | (0.24 | ) | (0.95 | ) | (0.34 | ) | 6.48 | (2.86 | ) | |||||||||||||
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| Less Distributions Declared to shareholders: |
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| From net investment income |
(0.03 | ) | (0.52 | ) | (0.47 | ) | (0.26 | ) | (0.32 | ) | (0.34 | ) | ||||||||||||
| From return of capital |
(1.28 | ) | (0.77 | ) | (0.81 | ) | (1.00 | ) | (0.97 | ) | (0.96 | ) | ||||||||||||
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| Total distributions declared to shareholders |
(1.31 | ) | (1.29 | ) | (1.28 | ) | (1.26 | ) | (1.29 | ) | (1.30 | ) | ||||||||||||
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| Net Asset Value, End of year(b) |
$ | 13.29 | $ | 16.20 | $ | 17.73 | $ | 19.96 | $ | 21.56 | $ | 16.37 | ||||||||||||
| Total Return(b)(c) |
(10.39 | )% | (1.36 | )% | (5.02 | )% | (1.93 | )% | 41.32 | % | (13.45 | )% | ||||||||||||
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| Ratios to Average Net Assets / Supplemental Data:(d) |
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| Net Assets, End of Year (000’s) |
$ | 1,585 | $ | 2,885 | $ | 3,964 | $ | 4,558 | $ | 2,706 | $ | 1,791 | ||||||||||||
| Gross operating expenses(e) |
5.16 | % | 4.74 | % | 4.98 | % | 3.64 | % | 3.85 | % | 4.13 | % | ||||||||||||
| Net investment income (loss) |
(0.79 | )% | 2.11 | % | 1.90 | % | 0.69 | % | (0.21 | )% | 2.14 | % | ||||||||||||
| Portfolio turnover rate |
3 | % | 13 | % | 10 | % | 41 | % | 41 | % | 42 | % | ||||||||||||
| Average commission rate paid(f) |
$ | 0.0154 | $ | — | $ | 0.0289 | $ | — | $ | 0.0225 | $ | 0.0348 | ||||||||||||
| (a) | Per share data was calculated using average shares outstanding during the year. |
| (b) | The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end. |
| (c) | Total return is at net asset value assuming all distributions are reinvested and no initial sales charge or CDSC. For periods with waivers/reimbursements, had the Fund’s Investment Adviser not waived or reimbursed a portion of expenses, total return would have been lower. |
| (d) | All ratios for the period have been annualized, unless otherwise indicated. |
| (e) | Supplemental expense ratios are shown below: |
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses)(g) |
3.71 | % | 4.07 | % | 3.93 | % | 3.05 | % | 2.74 | % | 3.18 | % | ||||||||||||
| Interest expense and commitment fees |
0.47 | % | 0.80 | % | 0.77 | % | 0.25 | % | — | % | 0.34 | % | ||||||||||||
| Dividends and fees on securities sold short |
0.56 | % | 0.46 | % | 0.47 | % | 0.06 | % | 0.02 | % | — | % | ||||||||||||
| (f) | Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. |
| (g) | This includes the additional voluntarily elected waiver by the Investment Adviser during the year which resulted in a 0.07% impact to the net expenses ratio. |
| (h) | The per share amount for net investment income (loss) between classes does not accord the aggregate net investment income (loss) for the period due to class specific distribution fees charged to Class A and C. |
| For the Years Ended December 31, | ||||||||||||||||
| 2019 | 2018 | 2017 | 2016(a) | |||||||||||||
| Net Asset Value, Beginning of Period |
$ | 19.10 | $ | 20.72 | $ | 20.58 | $ | 20.00 | ||||||||
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| Income from Investment Operations: |
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| Net investment income(b) |
0.79 | 0.83 | 1.12 | 0.04 | ||||||||||||
| Net realized and unrealized gain |
1.89 | (1.30 | ) | 0.46 | 0.71 | |||||||||||
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| Total from investment operations |
2.68 | (0.47 | ) | 1.58 | 0.75 | |||||||||||
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| Less Distributions Declared to Shareholders: |
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| From net investment income |
(0.83 | ) | (1.15 | ) | (1.23 | ) | (0.17 | ) | ||||||||
| From net realized gains |
(0.42 | ) | — | (0.21 | ) | — | ||||||||||
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| Total distributions declared to shareholders |
(1.25 | ) | (1.15 | ) | (1.44 | ) | (0.17 | ) | ||||||||
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|
|
|
|
|||||||||
| Net Asset Value, End of Period(c) |
$ | 20.53 | $ | 19.10 | $ | 20.72 | $ | 20.58 | ||||||||
| Total Return(c)(d) |
13.97 | % | (2.90 | )% | 7.94 | % | 3.78 | %(e) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ratios to Average Net Assets/ Supplemental Data: (f) |
||||||||||||||||
| Net assets, end of period (in 000’s) |
$ | 880 | $ | 511 | $ | 1 | $ | 1 | ||||||||
| Gross operating expenses(g) |
5.08 | % | 4.93 | % | 5.05 | % | 11.53 | % | ||||||||
| Net investment income (loss) |
3.81 | % | 4.08 | % | 5.39 | % | 0.45 | % | ||||||||
| Portfolio turnover rate |
39 | % | 49 | % | 99 | % | 14 | %(e) | ||||||||
| Average commission rate paid(h) |
$ | 0.0222 | $ | 0.0111 | $ | 0.0155 | $ | 0.0295 | ||||||||
| (a) | Class commenced operations on July 21, 2016. |
| (b) | Net investment income (loss) per share was calculated using average shares outstanding during the period. |
| (c) | The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end. |
| (d) | Total return is at net asset value assuming all distributions are reinvested and no initial sales charge or CDSC. For periods with waivers/reimbursements, had the Fund’s investment adviser not waived or reimbursed a portion of expenses, total return would have been lower. |
| (e) | Not annualized. |
| (f) | All ratios for the period have been annualized, unless otherwise indicated. |
| (g) | Supplemental expense ratios are shown below: |
| For the Years Ended December 31, |
||||||||||||||||
| 2019 | 2018 | 2017 | 2016(a) | |||||||||||||
| Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses) |
3.28 | % | 3.12 | % | 2.87 | % | 2.83 | %(f) | ||||||||
| Interest expense and commitment fees |
0.76 | % | 0.22 | % | — | % | — | % | ||||||||
| Dividends and fees on securities sold short |
— | % | 0.08 | % | 0.13 | % | — | % | ||||||||
| (h) | Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. |
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 16.21 | $ | 17.74 | $ | 19.97 | $ | 21.54 | $ | 16.36 | $ | 20.55 | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income from Investment Operations: |
||||||||||||||||||||||||
| Net investment income(a) |
0.04 | 0.53 | 0.57 | 0.36 | 0.14 | 0.53 | ||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.50 | ) | (0.60 | ) | (1.33 | ) | (0.46 | ) | 6.51 | (3.26 | ) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total from Investment Operations |
(1.46 | ) | (0.07 | ) | (0.76 | ) | (0.10 | ) | 6.65 | (2.73 | ) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Less Distributions Declared to shareholders: |
||||||||||||||||||||||||
| From net investment income |
(0.02 | ) | (0.58 | ) | (0.54 | ) | (0.31 | ) | (0.38 | ) | (0.44 | ) | ||||||||||||
| From return of capital |
(1.44 | ) | (0.88 | ) | (0.93 | ) | (1.16 | ) | (1.09 | ) | (1.02 | ) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total distributions declared to shareholders |
(1.46 | ) | (1.46 | ) | (1.47 | ) | (1.47 | ) | (1.47 | ) | (1.46 | ) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Asset Value, End of year(b) |
$ | 13.29 | $ | 16.21 | $ | 17.74 | $ | 19.97 | $ | 21.54 | $ | 16.36 | ||||||||||||
| Total Return(b)(c) |
(9.52 | )% | (0.34 | )% | (4.06 | )% | (0.85 | )% | 42.68 | % | (12.75 | )% | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Ratios to Average Net Assets / Supplemental Data:(d) |
||||||||||||||||||||||||
| Net Assets, End of Year (000’s) |
$ | 17,435 | $ | 24,109 | $ | 27,165 | $ | 25,711 | $ | 15,493 | $ | 12,709 | ||||||||||||
| Gross operating expenses(e) |
4.16 | % | 3.75 | % | 4.02 | % | 2.61 | % | 2.85 | % | 3.24 | % | ||||||||||||
| Net investment income (loss) |
0.25 | % | 3.12 | % | 2.95 | % | 1.66 | % | 0.78 | % | 3.24 | % | ||||||||||||
| Portfolio turnover rate |
3 | % | 13 | % | 10 | % | 41 | % | 41 | % | 42 | % | ||||||||||||
| Average commission rate paid(f) |
$ | 0.0154 | $ | — | $ | 0.0289 | $ | — | $ | 0.0225 | $ | 0.0348 | ||||||||||||
| (a) | Per share data was calculated using average shares outstanding during the year. |
| (b) | The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end. |
| (c) | Total return is at net asset value assuming all distributions are reinvested and no initial sales charge or CDSC. For periods with waivers/reimbursements, had the Fund’s Investment Adviser not waived or reimbursed a portion of expenses, total return would have been lower. |
| (d) | All ratios for the period have been annualized, unless otherwise indicated. |
| (e) | Supplemental expense ratios are shown below: |
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses)(g) |
2.71 | % | 3.07 | % | 2.94 | % | 2.03 | % | 1.73 | % | 2.19 | % | ||||||||||||
| Interest expense and commitment fees |
0.47 | % | 0.80 | % | 0.77 | % | 0.25 | % | — | % | 0.34 | % | ||||||||||||
| Dividends and fees on securities sold short |
0.56 | % | 0.46 | % | 0.47 | % | 0.06 | % | 0.02 | % | — | % | ||||||||||||
| (f) | Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. |
| (g) | This includes the additional voluntarily elected waiver by the Investment Adviser during the year which resulted in a 0.07% impact to the net expenses ratio. |
| For the Years Ended December 31, | ||||||||||||||||
| 2019 | 2018 | 2017 | 2016(a) | |||||||||||||
| Net Asset Value, Beginning of Period |
$ | 19.08 | $ | 20.73 | $ | 20.57 | $ | 19.95 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Income from Investment Operations: |
||||||||||||||||
| Net investment income(b) |
0.99 | 1.04 | 1.33 | 0.24 | ||||||||||||
| Net realized and unrealized gain |
1.93 | (1.36 | ) | 0.48 | 0.59 | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
2.92 | (0.32 | ) | 1.81 | 0.83 | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Less Distributions Declared to Shareholders: |
||||||||||||||||
| From net investment income |
(0.97 | ) | (1.33 | ) | (1.44 | ) | (0.21 | ) | ||||||||
| From net realized gains |
(0.48 | ) | — | (0.21 | ) | — | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total distributions declared to shareholders |
(1.45 | ) | (1.33 | ) | (1.65 | ) | (0.21 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net Asset Value, End of Period(c) |
$ | 20.55 | $ | 19.08 | $ | 20.73 | $ | 20.57 | ||||||||
| Total Return(c)(d) |
15.40 | % | (2.17 | )% | 9.12 | % | 4.17 | %(e) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ratios to Average Net Assets/ Supplemental Data:(f) |
||||||||||||||||
| Net assets, end of period (in 000’s) |
$ | 17,837 | $ | 13,132 | $ | 8,011 | $ | 7,279 | ||||||||
| Gross operating expenses(g) |
4.09 | % | 3.94 | % | 4.60 | % | 11.26 | % | ||||||||
| Net investment income (loss) |
4.80 | % | 5.08 | % | 6.44 | % | 2.45 | % | ||||||||
| Portfolio turnover rate |
39 | % | 49 | % | 99 | % | 14 | %(e) | ||||||||
| Average commission rate paid(h) |
$ | 0.0222 | $ | 0.0111 | $ | 0.0155 | $ | 0.0295 | ||||||||
| (a) | Class commenced operations on July 1, 2016. |
| (b) | Net investment income per share was calculated using average shares outstanding during the period. |
| (c) | The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end. |
| (d) | Total return is at net asset value assuming all distributions are reinvested and no initial sales charge or CDSC. For periods with waivers/reimbursements, had the Fund’s investment adviser not waived or reimbursed a portion of expenses, total return would have been lower. |
| (e) | Not annualized. |
| (f) | All ratios for the period have been annualized, unless otherwise indicated. |
| (g) | Supplemental expense ratios are shown below: |
| For the Years Ended December 31, |
||||||||||||||||
| 2019 | 2018 | 2017 | 2016(a) | |||||||||||||
| Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses) |
2.30 | % | 2.13 | % | 1.87 | % | 1.83 | % | ||||||||
| Interest expense and commitment fees |
0.76 | % | 0.22 | % | — | % | — | % | ||||||||
| Dividends and fees on securities sold short |
— | % | 0.08 | % | — | % | — | % | ||||||||
| (h) | Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. |
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Borrowings at end of year |
||||||||||||||||||||||||
| Aggregate Amount Outstanding |
$ | 305,000 | $ | 2,988,000 | $ | 6,036,000 | $ | 3,966,000 | $ | 29,000 | $ | 31,000 | ||||||||||||
| Asset Coverage Per $1,000 |
81,098.22 | 12,551.77 | 771.07 | 1,036.22 | 832,099.72 | 542,072.06 | ||||||||||||||||||
| For the Years Ended December, 31 | ||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | |||||||||||||
| Borrowings at end of period |
||||||||||||||||
| Aggregate Amount Outstanding including Preferred Shares |
$ | 6,459,135 | $ | 3,354,013 | — | — | ||||||||||
| Asset Coverage Per $1,000 |
4,137.16 | 5,191.05 | N/A | N/A | ||||||||||||
| • | CMBS, RMBS and other real estate credit investments, which include existing first and second mortgages on real estate, either originated or acquired in the secondary market, and secured, unsecured and/or convertible notes offered by REOCs and REITs; |
| • | Public REITs; |
| • | REOCs; |
| • | Private Real Estate Investment Funds; |
| • | Public Investment Funds; |
| • | Real estate ETFs; and |
| • | Non-Traded REITs and private REITs, generally wholly-owned by the Fund or wholly-owned or managed by an affiliate. |
| • | Diversified Equities. A long/short investment strategy of investing in equity, equity-related and other securities. |
| • | Debt and Equity Opportunities. A long/short investment strategy in corporate debt and equity securities of leveraged companies and financially distressed firms and other investments. |
| • | Credit Opportunities. A long/short investment strategy in corporate debt and equity securities to capture credit opportunities in all market environments. |
| • | Structured Credit. A long/short investment strategy in structured mortgage-backed securities. |
| • | Managed Futures. A strategy that generates returns from convergent and divergent trends in the financial and currency futures markets. |
| • | Land. Land may be affected by development risks including insufficient tenant demand to build or construction delays as well as adverse changes in local and national economic and market conditions. |
| • | Development Issues. Certain real estate companies may engage in the development or construction of real estate properties. These companies in which the Fund invests (“portfolio companies”) are exposed |
| to a variety of risks inherent in real estate development and construction, such as the risk that there will be insufficient tenant demand to occupy newly-developed properties, and the risk that prices of construction materials or construction labor may rise materially during the development. |
| • | Lack of Insurance. Certain of the portfolio companies may fail to carry comprehensive liability, fire, flood, earthquake extended coverage and rental loss insurance, or insurance in place may be subject to various policy specifications, limits and deductibles. Should any type of uninsured loss occur, the portfolio company could lose its investment in, and anticipated profits and cash flows from, a number of properties and, as a result, adversely affect the Fund’s investment performance. |
| • | Dependence on Tenants. The value of the Fund’s portfolio companies’ properties and the ability to make distributions to their shareholders depend upon the ability of the tenants at their properties to generate enough income in excess of their operating expenses to make their lease payments. Changes beyond the control of our portfolio companies may adversely affect their tenants’ ability to make their lease payments and, in such event, would substantially reduce both their income from operations and ability to make distributions to our portfolio companies and, consequently, the Fund. |
| • | Financial Leverage. Real estate companies may be highly leveraged and financial covenants may affect the ability of real estate companies to operate effectively. |
| • | Environmental Issues. In connection with the ownership (direct or indirect), operation, management and development of real properties that may contain hazardous or toxic substances, a portfolio company may be considered an owner, operator or responsible party of such properties and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and liabilities for injuries to persons and property. The existence of any such material environmental liability could have a material adverse effect on the results of operations and cash flow of any such portfolio company and, as a result, the amount available to make distributions on shares of the Fund could be reduced. |
| • | Financing Issues. Financial institutions in which the Fund may invest are subject to extensive government regulation. This regulation may limit both the amount and types of loans and other financial commitments a financial institution can make, and the interest rates and fees it can charge. In addition, interest and investment rates are highly sensitive and are determined by many factors beyond a financial institution’s control, including general and local economic conditions (such as inflation, recession, money supply and unemployment) and the monetary and fiscal policies of various governmental agencies such as the Federal Reserve Board. These limitations may have a significant impact on the profitability of a financial institution since profitability is attributable, at least in part, to the institution’s ability to make financial commitments such as loans. Profitability of a financial institution is largely dependent upon the availability and cost of the institution’s funds, and can fluctuate significantly when interest rates change. |
| • | competition from other multifamily properties in the markets in which a borrower operates; |
| • | over-building of multifamily properties in the markets in which a borrower operates, which results in increased supply and will adversely affect occupancy and revenues at such borrower’s multifamily properties; |
| • | requirements for periodic capital reinvestment to repair and upgrade multifamily properties; |
| • | increases in operating costs due to inflation and other factors that may not be offset by increased rental rates; |
| • | changes in interest rates; |
| • | changes in the availability, cost, and terms of financing; |
| • | changes in governmental laws and regulations, fiscal policies, and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies, and ordinances; |
| • | adverse effects of international, national, regional and local economic and market conditions; and |
| • | risks generally associated with the ownership of multifamily properties and real estate, as discuss in some greater detail below. |
| • | The market value of each security listed or traded on any recognized securities exchange or automated quotation system will be the last reported sale price at the relevant valuation date on the composite tape or on the principal exchange on which such security is traded. If no sale is reported on that date, or for over-the-counter securities, the Adviser utilizes, when available, pricing quotations from principal market makers. Such quotations may be obtained from third-party pricing services or directly from investment brokers and dealers in the secondary market. Generally, the Fund’s loan and bond positions are not traded on exchanges and consequently are valued based on market prices received from third-party pricing services or broker-dealer sources. |
| • | Dividends declared but not yet received, and rights in respect of securities which are quoted ex-dividend or ex-rights, will be recorded at the fair value thereof, as determined by the Adviser, which may (but need not) be the value so determined on the day such securities are first quoted ex-dividend or ex-rights. |
| • | Listed options, or over-the-counter options for which representative brokers’ quotations are available, will be valued in the same manner as listed or over-the-counter securities as hereinabove provided. Premiums for the sale of such options written by the Fund will be included in the assets of the Fund, and the market value of such options shall be included as a liability. |
| • | The Fund’s non-marketable investments for which market quotations are not readily available will generally be valued in such manner as the Adviser determines in good faith to reflect their fair values under procedures approved by the Board. The Valuation Committee has been established to provide |
| oversight of the valuation policies, processes and procedures, and is comprised of personnel from the Adviser and its affiliates. The Valuation 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. |
| • | The pricing of all assets that are fair valued in this manner will be subsequently reported to the Board. Pursuant to the Fund’s pricing procedures, securities for which market quotations are not readily available may include securities that are subject to legal or contractual restrictions on resale, securities for which no or limited trading activity has occurred for a period of time, or securities that are otherwise deemed to be illiquid (i.e., securities that cannot be disposed of within seven days at approximately the price at which the security is currently priced by the Fund). Swaps and other derivatives would generally fall under this category. |
| • | Investments by the Fund in any other mutual fund are valued at their respective NAVs as determined by those mutual funds each business day. The prospectuses for those mutual funds explain the circumstances under which those funds will use fair value pricing and the effects of using fair value pricing. |
| • | which fund has available cash (including availability under lines of credit) to acquire the investment; |
| • | whether there are any positive or negative income tax effects on any of the funds relating to the purchase; |
| • | whether the investment opportunity creates geographic, asset class or tenant concentration / diversification concerns for any of the funds; |
| • | how the investment size, potential leverage, transaction structure and anticipated cash flows affect each fund, including earnings and distribution coverage; and |
| • | whether one or more of the funds has an existing relationship with the tenant(s), operator, facility or system associated with the investment, or a significant geographic presence that would make the investment strategically more important. |
| Title of Class | Amount Authorized |
Amount Held by Fund or for its Account |
Amount Outstanding Excluding Amount Shown Under |
|||||||||
| |
Unlimited | |||||||||||
| |
Unlimited | |||||||||||
| |
Unlimited | |||||||||||
| • | which share classes are available to you; |
| • | how much you intend to invest; |
| • | how long you expect to own the shares; and |
| • | total costs and expenses associated with a particular share class. |
| • | a minimum initial investment of $500 for regular accounts and $50 for retirement plan accounts, and a minimum subsequent investment of: (i) $50 under the Fund’s automatic investment program; and (ii) $50 if not made pursuant to the automatic investment program; |
| • | a monthly shareholder servicing fee at an annual rate of up to 0.25% of the average daily net assets of the Fund attributable to Class A shares; and |
| • | shareholders tendering Class A shares fewer than 18 months after the original purchase date may be subject to a CDSC of 1.00%, which will be deducted from repurchase proceeds, if: (i) the original purchase was for amounts of $500,000 or more; and (ii) the shares were purchased without an initial sales charge. |
| Amount Invested | Dealer Reallowance |
Distributor Fee |
Total Sales Load as a % of Offering Price |
Total Sales Load as a % of Amount Invested |
||||||||||||
| Under $50,000 |
5.00 | % | 0.75 | % | 5.75 | % | 6.10 | % | ||||||||
| $50,000 to $99,999 |
4.50 | % | 0.50 | % | 5.00 | % | 5.26 | % | ||||||||
| $100,000 to $249,999 |
3.50 | % | 0.50 | % | 4.00 | % | 4.17 | % | ||||||||
| $250,000 to $499,999 |
2.50 | % | 0.50 | % | 3.00 | % | 3.09 | % | ||||||||
| $500,000 and above* |
* | * | None | * | * | see below | ||||||||||
| * | Class A Shares bought without an initial sales charge in accounts aggregating $500,000 or more at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of purchase. Subsequent Class A Share purchases that bring a shareholder’s account value above $500,000 are not subject to a front-end sales charge, but are subject to a CDSC if redeemed within 18 months of purchase. The 18-month period begins on the day the purchase is made. The CDSC does not apply to load waived shares purchased for certain retirement plans or other eligible fee-based programs. |
| ** | A selling broker may receive a commission on purchases of Class A shares of $500,000 or above as detailed below: |
| Amount Invested | Dealer Reallowance |
|||
| Less than $5,000,000 |
1.00 | % | ||
| $5,000,000 to less than $25,000,000 |
0.50 | % | ||
| $25,000,000 or more |
0.25 | % | ||
| • | reinvesting dividends or distributions; |
| • | participating in an investment advisory or agency commission program under which you pay a fee to an investment advisor or other firm for portfolio management or brokerage service; |
| • | exchanging an investment in Class A (or equivalent type) shares of another fund for an investment in the Fund; |
| • | a current or former director or Trustee of the Fund; |
| • | an employee (including the employee’s spouse, domestic partner, children, grandchildren, parents, grandparents, siblings or any dependent of the employee, as defined in section 152 of the Code) of the Fund’s Adviser or its affiliates or of a broker-dealer authorized to sell shares of the Fund; |
| • | purchasing shares through the Fund’s Adviser; or |
| • | purchasing shares through a financial services firm (such as a broker-dealer, investment adviser or financial institution) that has a special arrangement with the Fund. |
| • | an individual; |
| • | an individual and spouse purchasing shares for your own account or trust or custodial accounts for your minor children; or |
| • | a fiduciary purchasing for any one trust, estate or fiduciary account, including employee benefit plans created under Sections 401, 403 or 457 of the Code, including related plans of the same employer. |
| • | a minimum initial investment of $500 for regular accounts and $50 for retirement plan accounts, and a minimum subsequent investment of: (i) $50 under the Fund’s automatic investment program; and (ii) $50 if not made pursuant to the automatic investment program; |
| • | a monthly shareholder servicing fee at an annual rate of up to 0.25% of the average daily net assets of the Fund attributable to Class C shares; |
| • | a Distribution Fee which will accrue at an annual rate equal to 0.75% of the average daily net assets of the Fund attributable to Class C shares; and |
| • | a CDSC equal to 1.00% of the original purchase price of Class C shares repurchased by the Fund for repurchases of Class C shares within 18 months following such shareholder’s initial purchase. |
| • | The Distributor will pay your financial advisor an up-front commission of 1.00% on sales of Class C shares. |
| 1. | Account applications and other forms, which may include your name, address and social security number, written and electronic correspondence and telephone contacts; |
| 2. | Web site information, including any information captured through our use of “cookies”; and |
| 3. | Account history, including information about the transactions and balances in your accounts with us or our affiliates. |
STATEMENT OF ADDITIONAL INFORMATION
NEXPOINT REAL ESTATE STRATEGIES FUND
Principal Executive Offices
300 Crescent Court
Suite 700
Dallas, Texas 75201
(833) 697-6246
This Statement of Additional Information (“SAI”) is not a prospectus. This SAI should be read in conjunction with the prospectus of NexPoint Real Estate Strategies Fund (the “Fund”), dated April 30, 2026 (the “Prospectus”), as it may be supplemented from time to time. The Prospectus is hereby incorporated by reference into this SAI (legally made a part of this SAI). Capitalized terms used but not defined in this SAI have the meanings given to them in the Prospectus. This SAI does not include all information that a prospective investor should consider before purchasing the Fund’s securities.
You should obtain and read the Prospectus and any related Prospectus supplement prior to purchasing any of the Fund’s securities. A copy of the Prospectus may be obtained without charge by calling the Fund toll-free at (844) 485-9167 or by visiting the Fund’s website at https://www.nexpoint.com/funds/nexpoint-real-estate-strategies-fund/. Information on the website is not incorporated herein by reference. The registration statement of which the Prospectus is a part can be reviewed and copied at the Public Reference Room of the U.S. Securities and Exchange Commission (“SEC”) at 100 F Street NE, Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 202-551-8090. The Fund’s filings with the SEC are also available to the public on the SEC’s Internet web site at www.sec.gov. Copies of these filings may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street NE, Washington, D.C. 20549-0102.
April 30, 2026
TABLE OF CONTENTS
| S-1 | ||||
| S-1 | ||||
| S-15 | ||||
| S-22 | ||||
| S-22 | ||||
| S-22 | ||||
| S-24 | ||||
| S-29 | ||||
| S-31 | ||||
| S-33 | ||||
| S-45 | ||||
| S-45 | ||||
| S-46 | ||||
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GENERAL INFORMATION AND HISTORY
The Fund is a continuously offered, non-diversified, closed-end management investment company that operates as an interval fund. The Fund is a non-diversified investment company, which means that the Fund is not limited by the Investment Company Act of 1940, as amended (the “1940 Act”) with respect to the proportion of its assets that may be invested in the securities of a single issuer. As a registered investment company (a “RIC”), however, the Fund will be required to comply with certain asset diversification tests at the end of each quarter of its taxable year. The Fund was organized as a Delaware statutory trust on January 11, 2016. The Fund’s principal office is located at 300 Crescent Court, Suite 700, Dallas, Texas 75201, and its telephone number is (833) 697-6246. The Fund is advised by NexPoint Advisors, L.P. (“NexPoint” or the “Adviser”). The investment objective and principal investment strategies of the Fund, as well as the principal risks associated with the Fund’s investment strategies, are set forth in the Prospectus. Certain additional investment information is set forth below.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund’s investment objective is to seek long-term total return with an emphasis on current income. The Fund seeks to achieve this objective by primarily investing in a broad range of private and public real estate-related debt, equity and preferred equity investments across multiple real estate sectors. There can be no assurance that the Fund will achieve this objective. The Fund’s investment objective is non-fundamental and may be changed by the Board of Trustees (the “Board”) without shareholder approval. Shareholders will, however, receive at least 60 days’ prior notice of any change in this investment objective.
Fundamental Policies
The Fund’s stated fundamental policies, which may only be changed by the affirmative vote of a majority of the outstanding voting securities of the Fund (the shares), are listed below. For the purposes of this SAI, “majority of the outstanding voting securities of the Fund” means the vote, at an annual or special meeting of shareholders, duly called: (a) of 67% or more of the shares present at such meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy; or (b) of more than 50% of the outstanding shares, whichever is less.
The Fund may not:
| (1) | Borrow money, except to the extent permitted by the 1940 Act (which currently limits borrowing to no more than 33-1/3% of the value of the Fund’s total assets, including the value of the assets purchased with the proceeds of its indebtedness, if any). The Fund may borrow for investment purposes, for temporary liquidity, or to finance repurchases of its shares. |
| (2) | Issue senior securities, except to the extent permitted by Section 18 of the 1940 Act (which currently limits the issuance of a class of senior securities that is indebtedness to no more than 33-1/3% of the value of the Fund’s total assets or, if the class of senior security is stock, to no more than 50% of the value of the Fund’s total assets). |
| (3) | Purchase securities on margin. |
| (4) | Underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the disposition of its portfolio securities. The Fund may invest in restricted securities (those that must be registered under the Securities Act before they may be offered or sold to the public). |
| (5) | Invest 25% or more of the value of its total assets in the securities of companies or entities engaged in any one industry or group of industries, except that, under normal circumstances, the Fund will invest |
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| over 25% of its total assets in the securities of companies in the real estate industry. This limitation does not apply to investment in the securities of the U.S. Government, its agencies or instrumentalities. For purposes of this limitation, the Fund will define an industry or group of industries by reference to Standard & Poor’s Global Industry Classification Standard codes for industry classifications. |
| (6) | Purchase or sell commodities, unless acquired as a result of ownership of securities or other investments, except that the Fund may purchase and sell forward and futures contracts and options to the full extent permitted under the 1940 Act, sell foreign currency contracts in accordance with any rules of the Commodity Futures Trading Commission (the “CFTC”), invest in securities or other instruments backed by or linked to commodities, and invest in companies that are engaged in a commodities business or have a significant portion of their assets in commodities, and may invest in commodity pools and other entities that purchase and sell commodities and commodity contracts. |
| (7) | Make loans to others, except (a) where each loan is represented by a note executed by the borrower, (b) through the purchase of debt securities in accordance with its investment objective and policies, (c) to the extent the entry into a repurchase agreement, in a manner consistent with the Fund’s investment policies or as otherwise permitted under the 1940 Act, is deemed to be a loan, and (d) by loaning portfolio securities. |
| (8) | Purchase or sell real estate, except that the Fund may invest in securities of companies that deal in real estate or are engaged in the real estate business, including real estate investment Funds and real estate operating companies, and instruments secured by real estate or interests therein and the Fund may acquire, hold and sell real estate acquired through default, liquidation, or other distributions of an interest in real estate as a result of the Fund’s ownership of such other assets. |
In addition, the Fund has adopted a fundamental policy that it will make quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value (“NAV”) less any repurchase fee, unless suspended or postponed in accordance with regulatory requirements, and each repurchase pricing shall occur no later than the 14th day after the Repurchase Request Deadline, or the next business day if the 14th is not a business day.
If a restriction on the Fund’s investments is adhered to at the time an investment is made, a subsequent change in the percentage of Fund assets invested in certain securities or other instruments, or change in average duration of the Fund’s investment portfolio, resulting from changes in the value of the Fund’s total assets, will not be considered a violation of the restriction; provided, however, that the asset coverage requirement applicable to borrowings shall be maintained in the manner contemplated by applicable law.
There can be no assurance that any leveraging strategy the Fund employs will be successful during any period in which it is employed. The Fund may also invest in private real estate investment funds (“Private Real Estate Investment Funds”), public real estate investment trusts (“REITs”), real estate operating companies (“REOCs”), and non-traded REITs, which may incur higher levels of leverage. Accordingly, the Fund, through these investments, may be exposed to higher levels of leverage than the Fund is permitted to. The Fund’s asset coverage was 8,507% as of March 31, 2026. See “Risk Factors – Leverage Risk”.
In addition to any indebtedness incurred by the Fund, any subsidiary of the Fund, including NRESF REIT Sub, LLC and NRESF REIT Sub II, LLC (the “REIT Subsidiaries”), may also utilize leverage, including by mortgaging properties held by special purpose vehicles, or by acquiring property with existing debt. Any such borrowings will generally be the sole obligation of each respective special purpose vehicle, without any recourse to any other special purpose vehicle, the REIT Subsidiaries, the Fund or its assets, and the Fund will not treat such non-recourse borrowings as senior securities (as defined in the 1940 Act) for purposes of complying with the 1940 Act’s limitations on leverage unless the financial statements of the special purpose vehicle, or the subsidiary of the Fund that owns such special purpose vehicle, will be consolidated in accordance with Regulation S-X and other accounting rules. If cash flow is insufficient to pay principal and interest on a special purpose vehicle’s borrowings, a default could occur, ultimately resulting in foreclosure of any security
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instrument securing the debt and a complete loss of the investment, which could result in losses to the REIT Subsidiaries and, therefore, to the Fund. To the extent that any subsidiaries of the Fund, including the REIT Subsidiaries, directly incur leverage in the form of debt (as opposed to non-recourse borrowings made through special purpose vehicles), the amount of such recourse leverage used by the Fund and such subsidiaries, including the REIT Subsidiaries, will be consolidated and treated as senior securities for purposes of complying with the 1940 Act’s limitations on leverage by the Fund.
Non-Fundamental Policies
The following are additional investment limitations of the Fund and may be changed by the Board without shareholder approval.
80% Investment Policy. The Fund has adopted a policy to invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in “real estate and real estate-related securities,” as defined in the Prospectus. Shareholders of the Fund will be provided with at least 60 days prior notice of any change in the Fund’s 80% policy.
If a restriction on the Fund’s investments is adhered to at the time an investment is made, a subsequent change in the percentage of Fund assets invested in certain securities or other instruments, or change in average duration of the Fund’s investment portfolio, resulting from changes in the value of the Fund’s total assets, will not be considered a violation of the restriction; provided, however, that the asset coverage requirement applicable to borrowings shall be maintained in the manner contemplated by applicable law.
Covered Obligations. Consistent with U.S. Securities and Exchange Commission (“SEC”) staff guidance, financial instruments that involve obligations to make future payments to third parties will not be viewed as creating any senior security provided that the Fund covers its obligations as described below.
Those financial instruments can include, among others: (i) securities purchased on a when-issued, delayed delivery, and to be announced basis; (ii) futures contracts; (iii) forward currency contracts; (iv) written options; and (vi) securities sold short. Consistent with SEC staff guidance, the Fund will consider its obligations involving such a financial instrument as “covered” when the Fund: (1) maintains an offsetting financial position; or (2) segregates liquid assets (constituting cash, cash equivalents or other liquid portfolio securities) equal to the Fund’s exposures relating to the financial instrument, as determined on a daily basis. Dedicated Fund compliance policies and procedures, which the Board has approved, govern the kinds of transactions that can be deemed to be offsetting transactions for purposes of (1) above, and the amounts of assets that need to be segregated for purposes of (2) above. The Fund will seek to value financial instruments on a mark-to-market basis but may also rely on the instrument’s notional value or upon valuations provided by third party pricing services, subject to the approval of the Board.
Short Selling. Although the Fund does not currently intend to engage in short sales as a principal investment strategy, the Fund may engage in short sales for hedging purposes.
Non-Principal Investment Strategies
Convertible Securities. The Fund may invest in convertible securities, which are typically issued as bonds or preferred shares with the option to convert to equities. As a result, convertible securities are a hybrid that have characteristics of both bonds and common stocks and are subject to risks associated with both debt securities and equity securities. The market value of bonds and preferred shares tend to decline as interest rates increase. Fixed-income and preferred securities also are subject to credit risk, which is the risk that an issuer of a security may not be able to make principal and interest or dividend payments as due. Convertible securities may have characteristics similar to common stocks especially when their conversion value is higher than their value as a
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bond. The price of equity securities into which a convertible security may convert may fall because of economic or political changes. Stock prices in general may decline over short or even extended periods of time. Additionally, the value of the embedded conversion option may be difficult to value and evaluate because the option does not trade separately from the convertible security.
Foreign Securities. The Fund may invest in non-U.S. real estate companies and other foreign securities. Purchases of foreign securities entail certain risks. For example, there may be less information publicly available about a foreign company than about a U.S. company, and foreign companies generally are not subject to accounting, auditing and financial reporting standards and practices comparable to those in the U.S. Other risks associated with investments in foreign securities include changes in restrictions on foreign currency transactions and rates of exchanges, changes in the administrations or economic and monetary policies of foreign governments, the imposition of exchange control regulations, the possibility of expropriation decrees and other adverse foreign governmental action, the imposition of foreign taxes, less liquid markets, less government supervision of exchanges, brokers and issuers, difficulty in enforcing contractual obligations, delays in settlement of securities transactions and greater price volatility. In addition, investing in foreign securities will generally result in higher commissions than investing in similar domestic securities.
Money Market Instruments. The Fund may invest, for defensive purposes or otherwise, some or all of its assets in high quality fixed-income securities, money market instruments and money market mutual funds, or hold cash or cash equivalents in such amounts as the Adviser deems appropriate under the circumstances. In addition, the Fund or a Private Real Estate Investment Fund or registered closed-end funds that invest principally in real estate may invest in these instruments pending allocation of its respective offering proceeds. Money market instruments are high quality, short-term fixed-income obligations, which generally have remaining maturities of one year or less and may include U.S. Government securities, commercial paper, certificates of deposit and bankers acceptances issued by domestic branches of U.S. banks that are members of the FDIC, and repurchase agreements.
Investment Companies. The Fund may invest in investment companies such as open-end funds (mutual funds), closed-end funds and exchange traded funds (also referred to as “Underlying Funds”). Such investments are subject to limitations prescribed by the 1940 Act unless a U.S. Securities and Exchange Commission (the “SEC”) exemption is applicable or as may be permitted by rules under the 1940 Act, including Section 12 of the 1940 Act, or SEC staff interpretations thereof. The Fund may invest in other investment companies beyond the statutory limits set forth in Section 12 of the 1940 Act to the extent permitted by an exemptive rule adopted by the SEC. The 1940 Act limitations currently provide, in part, that the Fund may not purchase shares of an investment company if: (a) such a purchase would cause the Fund to own in the aggregate more than 3% of the total outstanding voting stock of the investment company; (b) such a purchase would cause the Fund to have more than 5% of its total assets invested in the investment company; or (c) more than 10% of the Fund’s total assets would be invested in the aggregate in all investment companies. The Fund may invest in excess of the foregoing limitations in an exchange-traded fund (“ETF”) that is not part of the same group of investment companies (e.g., an unaffiliated ETF) if the ETF has obtained exemptive relief from the SEC and both the ETF and the Fund adhere to the conditions in the exemptive relief. Accordingly, when affiliated persons hold shares of any of the Underlying Funds, the Fund’s ability to invest fully in shares of those funds may be restricted, and the Adviser must then, in some instances, select alternative investments that would not have been its first preference.
The Fund may invest in investment companies that are advised by the Adviser or its affiliates, including ETFs, to the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC. These investment companies typically incur fees that are separate from those fees incurred directly by the Fund. The Fund’s purchase of such investment company securities results in the layering of expenses, such that shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees, in addition to paying Fund expenses.
The 1940 Act also provides that an Underlying Fund whose shares are purchased by the Fund will be obligated to redeem shares held by the Fund only in an amount up to 1% of the Underlying Fund’s outstanding securities
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during any period of less than 30 days. Shares held by the Fund in excess of 1% of an Underlying Fund’s outstanding securities therefore, will be considered not readily marketable securities, which, together with other such securities, may not exceed 15% of the Fund’s total assets.
Under certain circumstances an Underlying Fund may determine to make payment of a redemption by the Fund wholly or partly by a distribution in kind of securities from its portfolio, in lieu of cash, in conformity with the rules of the SEC. In such cases, the Fund may hold securities distributed by an Underlying Fund until the Adviser determines that it is appropriate to dispose of such securities.
Investment decisions by the investment advisers of the Underlying Funds are made independently of the Fund and its Adviser. Therefore, the investment advisor of one Underlying Fund may be purchasing shares of the same issuer whose shares are being sold by the investment advisor of another such fund. The result would be an indirect expense to the Fund without accomplishing any investment purpose. Because other investment companies employ an investment adviser, such investments by the Fund may cause shareholders to bear duplicate fees.
Hedge Funds. The Fund may invest up to 15% of its gross assets in “hedge funds,” which are private investment funds that would be required to register as investment companies but for an exemption under section 3(c)(1) or 3(c)(7) of the 1940 Act. Hedge funds are not subject to the requirements and protections of the 1940 Act and carry all of the risks associated with Private Real Estate Investment Funds, as disclosed in the Fund’s prospectus. In addition, investors should be aware that hedge funds often engage in leverage, short-selling, arbitrage, hedging, derivatives, and other speculative investment practices that may significantly increase investment loss. Hedge funds are highly illiquid, are not required to provide periodic pricing or valuation information to investors, and often charge high fees that can erode investment performance. Certain hedge funds charge performance fees that may create an incentive for its manager to make investments that are riskier or more speculative than those it might have made in the absence of a performance fee. Additionally, hedge funds need not have independent boards of trustees and do not require investor approval of advisory contracts.
Debtor-in-Possession (“DIP”) Loans. The Fund may invest in or extend loans to companies that have filed for protection under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”). DIP financings allow the entity to continue its business operations while reorganizing under Chapter 11 and such financings must be approved by the bankruptcy court. These DIP loans are most often working-capital facilities put into place at the outset of a Chapter 11 case to provide the debtor with both immediate cash and the ongoing working capital that will be required during the reorganization process. DIP financings are typically fully secured by a lien on the debtor’s otherwise unencumbered assets or secured by a junior lien on the debtor’s encumbered assets (so long as the loan is fully secured based on the most recent current valuation or appraisal report of the debtor). DIP financings are often required to close with certainty and in a rapid manner in order to satisfy existing creditors and to enable the issuer to emerge from bankruptcy or to avoid a bankruptcy proceeding. There is a risk that the borrower will not emerge from Chapter 11 bankruptcy proceedings and be forced to liquidate its assets under Chapter 7 of the United States Bankruptcy Code. In the event of liquidation, the Fund’s only recourse will be against the property securing the DIP financing.
Rights Offerings and Warrants to Purchase. The Fund may participate in rights offerings and may purchase warrants, which are privileges issued by corporations enabling the owners to subscribe to and purchase a specified number of shares of the corporation at a specified price during a specified period of time. Subscription rights normally have a short life span to expiration. The purchase of rights or warrants involves the risk that the Fund could lose the purchase value of a right or warrant if the right to subscribe to additional shares is not exercised prior to the rights’ and warrants’ expiration. Also, the purchase of rights and/or warrants involves the risk that the effective price paid for the right and/or warrant added to the subscription price of the related security may exceed the value of the subscribed security’s market price such as when there is no movement in the level of the underlying security.
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Special Situations. The Fund may invest in companies undergoing work-outs, liquidations, reorganizations, bankruptcies, insolvencies or other fundamental changes or similar transactions. In any investment opportunity involving any such type of special situation, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or new securities the value of which will be less than the purchase price to the Fund of the securities or other financial instruments in respect of which such distribution is received. Similarly, if an anticipated transaction does not in fact occur, the Fund may be required to sell its investment at a loss. The consummation of such transactions can be prevented or delayed by a variety of factors, including but not limited to: (i) intervention of a regulatory agency; (ii) market conditions resulting in material changes in securities prices; (iii) compliance with any applicable bankruptcy, insolvency or securities laws; and (iv) the inability to obtain adequate financing. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies in which the Fund intends to invest, there is a potential risk of loss by the Fund of its entire investment in such companies.
Certain Bankruptcy and Insolvency Issues. Some of the companies in which the Fund invests may be involved in a complex bankruptcy or insolvency proceeding in the United States or elsewhere. There are a number of significant risks inherent in the bankruptcy or insolvency process. The Fund cannot guarantee the outcome of any bankruptcy or insolvency proceeding.
Under U.S. bankruptcy proceedings or other insolvency proceedings, the Fund may risk taking a loss on its investment and having its claim released or discharged against the debtor and third parties. For example, under a plan of reorganization, the Fund could receive a cash distribution for less than its initial investment or receive securities or other financial instruments in exchange for its claims, which then could be discharged and released against the debtor or other third parties. In addition, under U.S. bankruptcy proceedings, a debtor can effectuate a sale of assets with a purchaser acquiring such assets free and clear of any claims or liens underlying the Fund’s investment with the Fund having only potential recourse to the proceeds of the sale.
Under certain circumstances, payments to the Fund may be reclaimed, recharacterized or avoided if any such payment or distribution is later determined by the applicable court to have been a fraudulent conveyance, fraudulent transfer, a preferential payment or otherwise subject to avoidance under applicable law. In addition, especially in the case of investments made prior to the commencement of bankruptcy proceedings, creditors can lose their ranking and priority if they exercise “domination and control” of a debtor and other creditors can demonstrate that they have been harmed by such actions.
Many events in a bankruptcy are often beyond the control of the creditors. While creditors may be given an opportunity to object to or otherwise participate in significant actions, there can be no assurance that a court in the exercise of its broad powers or discretion would not approve actions that would be contrary to the interests of the Fund as a creditor.
The duration of a bankruptcy or insolvency proceeding is difficult to predict. A creditor’s return on investment can be adversely impacted by delays while a plan of reorganization is being negotiated, approved by the creditors, confirmed by the bankruptcy court and until the plan ultimately becomes effective. Similar delays can occur while a court may be considering a sale or other restructuring transaction. In addition, the administrative costs in connection with a bankruptcy or insolvency proceeding are frequently high and will be paid out of the debtor’s estate prior to any return to unsecured creditors or equity holders. If a proceeding involves protracted or difficult litigation, or turns into a liquidation, substantial assets may be devoted to administrative costs. Also, in the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. Further, certain claims that have priority by law (for example, claims for taxes) may be quite substantial.
The effect of a bankruptcy filing on or by a portfolio company may adversely and permanently affect the portfolio company. The portfolio company may lose its market position, going concern value and key employees and otherwise become incapable of restoring itself as a viable entity. If for this or any other reason the
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proceeding is converted to a liquidation, the liquidation value of the portfolio company may not equal the liquidation value that was believed to exist at the time of the investment.
Co-Investments. Opportunities for co-investments may arise when the Adviser or its affiliates become aware of investment opportunities that may be appropriate for the Fund and its affiliates’ other clients. The Fund will only make investments in which the Adviser or an affiliate hold an interest to the extent permitted under the 1940 Act and SEC staff interpretations or pursuant to the terms and conditions of the exemptive order received by the Adviser and certain funds affiliated with the Fund, dated April 19, 2016. For example, exemptive relief is not required for the Fund to invest in syndicated deals and secondary loan market transactions in which the Adviser or an affiliate has an interest where price is the only negotiated point. The order applies to all “Investment Companies,” which includes future closed-end investment companies registered under the 1940 Act that are managed by the Adviser, which includes the Fund. The Fund, therefore, may in the future invest in accordance with the terms and conditions of the exemptive order.
Investment opportunities that are presented to an affiliate’s other clients may be referred to the Fund and vice versa. For each such referral, the Adviser intends to independently analyze and evaluate whether the co-investment transaction is appropriate for the Fund. In addition, co-investment transactions that are recommended and approved by the Adviser will generally be subject to the review and approval by a committee consisting of independent trustees on the Fund’s Board. For each type of co-investment transaction, the Fund intends to apply a specific protocol, which will be approved by the Fund’s independent trustees and be designed to ensure the fairness to the Fund of the specific type of co-investment transaction. However, neither the Fund nor any affiliates’ other clients will be obligated to invest or co-invest when investment opportunities are referred to by the Fund or them.
Short-Term Trading. The portfolio managers of the Fund may also give trading desk personnel of the Adviser general authorization to enter into a limited amount of short-term trades (purchases expected to be sold within 15 business days) in debt instruments on behalf of the Fund. Over time, it is expected that these trades will not exceed 2% of the Fund’s assets.
Derivatives
Generally. The Fund may invest up to 10% of its gross assets in transactions involving options, futures and other derivative financial instruments for speculative purposes or to hedge against risks or other factors and variables that may affect the values of the Fund’s portfolio securities. A hedging transaction may not perform as anticipated, and the Fund may suffer losses as a result of its hedging activities. Derivatives can be volatile and involve various types and degrees of risk. By using derivatives, the Fund may be permitted to increase or decrease the level of risk, or change the character of the risk, to which the portfolio is exposed.
A small investment in derivatives could have a substantial impact on the Fund’s performance. The market for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant and rapid changes in the prices for derivatives. If the Fund were to invest in derivatives at an inopportune time, or the Adviser evaluates market conditions incorrectly, the Fund’s derivative investment could negatively impact the Fund’s return, or result in a loss. In addition, the Fund could experience a loss if its derivatives were poorly correlated with its other investments, or if the Fund were unable to liquidate its position because of an illiquid secondary market.
Options and Futures. The Fund may engage in the use of options and futures contracts, so-called “synthetic” options, including options on baskets of specific securities, or other derivative instruments written by broker-dealers or other financial intermediaries. These transactions may be effected on securities exchanges or in the over-the-counter market, or they may be negotiated directly with counterparties. In cases where instruments are purchased over-the-counter or negotiated directly with counterparties, the Fund is subject to the risk that the counterparty will be unable or unwilling to perform its obligations under the contract. These transactions may also be illiquid and, if so, it might be difficult to close out the Fund’s position.
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The Fund may purchase call and put options on specific securities. The Fund may also write and sell covered or uncovered call and put options for both hedging and speculative purposes. A put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security at a stated price at any time before the option expires. Similarly, a call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying security at a stated price at any time before the option expires.
In a covered call option, the Fund owns the underlying security. The sale of such an option exposes the Fund to a potential loss of opportunity to realize appreciation in the market price of the underlying security during the term of the option. Using covered call options might expose the Fund to other risks, as well. For example, the Fund might be required to continue holding a security that the Fund might otherwise have sold to protect against depreciation in the market price of the security.
In a covered put option, cash or liquid securities are placed in a segregated account on the Fund’s books. The sale of such an option exposes the seller, during the term of the option, to a decline in price of the underlying security while also depriving the seller of the opportunity to invest the segregated assets.
When writing options, the Fund may close its position by purchasing an option on the same security with the same exercise price and expiration date as the option that it has previously written on the security. If the amount paid to purchase an option is less or more than the amount received from the sale, the Fund will, accordingly, realize a profit or loss. To close out a position as a purchaser of an option, the Fund would liquidate the position by selling the option previously purchased.
The use of derivatives that are subject to regulation by the CFTC under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), by the Fund could cause the Fund to be a commodity pool, which, absent an available exemption would require the Fund to comply with certain rules of the CFTC. In connection with its management of the Fund, the Adviser has claimed an exclusion from the definition of commodity pool operator under the Commodity Exchange Act (“CEA”) and is therefore not currently subject to registration or regulation as a pool operator.
The Fund may enter into futures contracts in U.S. domestic markets or on exchanges located outside the United States. Foreign markets may offer advantages, such as trading opportunities or arbitrage possibilities not available in the United States, but they also may subject the Fund to greater risk than domestic markets. For example, common clearing facilities may not exist in markets where foreign exchanges are the principal markets, and investors may look only to the broker to perform the contract. Adverse changes in the exchange rate could eliminate any profits that might be realized in trading, or a loss could be incurred as a result of those changes. Transactions on foreign exchanges may include both commodities traded on domestic exchanges and those that are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges is not regulated by the CFTC.
Engaging in these transactions involves risk of loss, which could adversely affect the value of the Fund’s gross assets. No assurance can be made that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit, or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions, and potentially subjecting the Fund to substantial losses.
Successful use of futures also is subject to the Adviser’s ability to correctly predict movements in the relevant market and to evaluate the appropriate correlation between the transaction being hedged and the price movements of the futures contract.
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The Fund may also purchase and sell stock index futures contracts. A stock index futures contract obligates the Fund to pay or receive an amount of cash equal to a fixed dollar amount specified in the futures contract, multiplied by the difference between the settlement price of the contract on the contract’s last trading day, and the value of the index based on the stock prices of the securities that comprise it at the opening of trading in those securities on the next business day. The Fund may purchase and sell interest rate futures contracts, which represent obligations to purchase or sell an amount of a specific debt security at a future date at a specific price. In addition, the Fund may purchase and sell currency futures or commodity futures. A currency future creates an obligation to purchase or sell an amount of a specific currency at a future date at a specific price. A commodity future creates an obligation to purchase or sell an amount of a specific commodity at a future date at a specific price.
Options on Securities Indexes. The Fund may purchase and sell call and put options on stock indexes listed on national securities exchanges or traded in the over-the-counter market for hedging and speculative purposes. A stock index fluctuates with changes in the market values of the stocks included in the index. Accordingly, successful use of options on stock indexes will be subject to the Adviser’s ability to correctly evaluate movements in the stock market generally, or of a particular industry or market segment.
Swap Agreements. The Fund may enter into a swap agreements, which generally include equity, interest rate, and index and currency rate swap agreements. The Fund is not limited to any particular form of swap agreement if the Adviser determines that other forms are consistent with the Fund’s investment objective and policies. Swap agreements are contracts entered into by two parties (primarily institutional investors) for periods ranging from a few weeks to more than a year. In a standard swap transaction, the parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index. Additional forms of swap agreements include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates exceed a specified rate or “cap”; (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates fall below a specified level or “floor”; and (iii) interest rate collars, under which a party sells a cap and purchases a floor (or vice versa) in an attempt to protect itself against interest rate movements exceeding certain minimum or maximum levels.
Generally, the Fund’s obligations (or rights) under a swap agreement will be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by the parties. The risk of loss is limited to the net amount of interest payments that a party is contractually required to make. As such, if the counterparty to a swap defaults, the Fund’s risk of loss consists of the net amount of payments that it is entitled to receive.
Derivatives Rule. The regulation of the U.S. and non-U.S. derivatives markets has undergone substantial change in recent years and such change may continue. In particular, on October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4” or the “Derivatives Rule”). Funds were required to implement and comply with Rule18f-4 by August 19, 2022. Rule 18f-4 eliminates the asset segregation framework formerly used by funds to comply with Section 18 of the 1940 Act, as amended.
The Derivatives Rule mandates that a fund adopt and/or implement: (i) value-at-risk limitations (“VaR”); (ii) a written derivatives risk management program; (iii) new board oversight responsibilities; and (iv) new reporting and recordkeeping requirements. In the event that a fund’s derivative exposure is 10% or less of its net assets, excluding certain currency and interest rate hedging transactions, it can elect to be classified as a limited derivatives user (“Limited Derivatives User”) under the Derivatives Rule, in which case the fund is not subject to the full requirements of the Derivatives Rule. Limited Derivatives Users are excepted from VaR testing,
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implementing a derivatives risk management program, and certain board oversight and reporting requirements mandated by the Derivatives Rule. However, a Limited Derivatives User is still required to implement written compliance policies and procedures reasonably designed to manage its derivatives risks.
The Derivatives Rule also provides special treatment for reverse repurchase agreements, similar financing transactions and unfunded commitment agreements. Specifically, a fund may elect whether to treat reverse repurchase agreements and similar financing transactions as “derivatives transactions” subject to the requirements of the Derivatives Rule or as senior securities equivalent to bank borrowings for purposes of Section 18 of the 1940 Act. Repurchase agreements are not subject to the Derivatives Rule, but are still subject to other provisions of the 1940 Act. In addition, when-issued or forward settling securities transactions that physically settle within 35-days are deemed not to involve a senior security.
Additional legislation may be enacted subsequent to the date of this SAI that could negatively affect the assets of the Fund. Legislation or regulation may change the way in which the Fund itself is regulated. The Adviser cannot predict the effects of any new governmental regulation that may be implemented, and there can be no assurance that any new governmental regulation will not adversely affect the Fund’s performance or ability to achieve its investment objectives.
In addition, regulations adopted by the prudential regulators that took effect with regards to most funds in 2019 require certain banks to include in a range of financial contracts, including derivative and short-term funding transactions, terms delaying or restricting a counterparty’s default, termination and other rights in the event that the bank and/or its affiliates become subject to certain types of resolution or insolvency proceedings. The regulations could limit the Fund’s ability to exercise a range of cross-default rights if its counterparty, or an affiliate of the counterparty, is subject to bankruptcy or similar proceedings. Such regulations could further negatively impact the Fund’s use of derivatives.
Valuation of Derivative Instruments. The Fund will seek to value financial instruments on a mark-to-market basis, but may also rely on valuations provided by third party pricing services.
Portfolio Turnover
The Fund’s portfolio turnover rate is not expected to exceed 100%, but may vary greatly from year to year and will not be a limiting factor when the Adviser deems portfolio changes appropriate. Although the Fund generally does not intend to trade for short-term profits, the Fund may engage in short-term trading strategies, and securities may be sold without regard to the length of time held when, in the opinion of the Adviser, investment considerations warrant such action. These policies may have the effect of increasing the annual rate of portfolio turnover of the Fund. Higher rates of portfolio turnover would likely result in higher brokerage commissions and may generate short-term capital gains taxable as ordinary income. If securities are not held for certain applicable holding periods, dividends paid on them will not qualify for the advantageous federal tax rates applicable to “qualified dividend income.” See “Tax Status.”
For the fiscal year ended December 31, 2024, the Fund’s portfolio turnover rate was 13%. For the fiscal year ended December 31, 2025, the Fund’s portfolio turnover rate was 3%.
Repurchases and Transfers of Shares
Repurchase Offers. The Board has adopted a resolution setting forth the Fund’s fundamental policy that it will conduct quarterly repurchase offers (the “Repurchase Offer Policy”). The Repurchase Offer Policy sets the interval between each repurchase offer at one quarter and provides that the Fund shall conduct a repurchase offer each quarter (unless suspended or postponed in accordance with regulatory requirements). The Repurchase Offer Policy also provides that the repurchase pricing shall occur not later than the 14th day after the Repurchase Request Deadline or the next business day if the 14th day is not a business day. Under normal circumstances, it is
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expected that the repurchase pricing date will be the Repurchase Request Deadline and that the repurchase price will be the Fund’s NAV determined after the close of business on the Repurchase Request Deadline. The Fund’s Repurchase Offer Policy is fundamental and cannot be changed without shareholder approval. The Fund may, for the purpose of paying for repurchased shares, be required to liquidate portfolio holdings earlier than the Adviser would otherwise have liquidated these holdings. Such liquidations may result in losses, and may increase the Fund’s portfolio turnover.
Repurchase Offer Policy Summary of Terms.
| 1. | The Fund will make repurchase offers at periodic intervals pursuant to Rule 23c-3 under the 1940 Act, as that rule may be amended from time to time. Rule 23c-3 establishes requirements that closed-end funds must follow when making repurchase offers to their shareholders. |
| 2. | The repurchase offers will be made in March, June, September and December of each year. |
| 3. | The Fund must receive repurchase requests submitted by shareholders in response to the Fund’s repurchase offer within 21 to 42 days of the date the repurchase offer is made (or the preceding business day if the New York Stock Exchange is closed on that day), as specified by the Fund (the “Repurchase Request Deadline”). |
| 4. | The maximum time between the Repurchase Request Deadline and the next date on which the Fund determines the NAV applicable to the purchase of shares (the “Repurchase Pricing Date”) is 14 calendar days (or the next business day if the fourteenth day is not a business day). |
The Fund may not condition a repurchase offer upon the tender of any minimum amount of shares. The Fund may deduct from the repurchase proceeds only a repurchase fee that is paid to the Fund and is reasonably intended to compensate the Fund for expenses directly related to the repurchase. The repurchase fee may not exceed 2% of the proceeds. However, the Fund does not currently charge a repurchase fee. The Fund may rely on Rule 23c-3 only so long as the Board satisfies the fund governance standards defined in Rule 0-1(a)(7) under the 1940 Act.
Procedures. All periodic repurchase offers must comply with the following procedures:
Repurchase Offer Amount. Each quarter, the Fund may offer to repurchase at least 5% and no more than 25% of the Fund’s outstanding shares on the Repurchase Request Deadline (the “Repurchase Offer Amount”). The Board shall determine the quarterly Repurchase Offer Amount. In determining the Repurchase Offer Amount, the Board, or a committee thereof, may consider any information it deems necessary or appropriate, including the percentage of the Fund’s outstanding shares tendered in previous repurchase offers; the Adviser’s assessment of the liquidity of the Fund’s investment portfolio; the potential impact of the Repurchase Offer Amount on Fund shareholders who do not tender their shares; and the potential impact of the Repurchase Offer Amount on the Fund’s ability to achieve its investment objective.
Shareholder Notification. Thirty days before each Repurchase Request Deadline, the Fund shall send to each shareholder of record and to each beneficial owner of the shares that are the subject of the repurchase offer a notification (“Shareholder Notification”) providing the following information:
| 1. | A statement that the Fund is offering to repurchase its shares from shareholders at NAV; |
| 2. | Any fees applicable to such repurchase, if any; |
| 3. | The Repurchase Offer Amount; |
| 4. | The dates of the Repurchase Request Deadline, Repurchase Pricing Date, and the date by which the Fund must pay shareholders for any shares repurchased (which shall not be more than seven days after the Repurchase Pricing Date) (the “Repurchase Payment Deadline”); |
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| 5. | The risk of fluctuation in NAV between the Repurchase Request Deadline and the Repurchase Pricing Date, and the possibility that the Fund may use an earlier Repurchase Pricing Date; |
| 6. | The procedures for shareholders to request repurchase of their shares and the right of shareholders to withdraw or modify their repurchase requests until the Repurchase Request Deadline; |
| 7. | The procedures under which the Fund may repurchase such shares on a pro rata basis if shareholders tender more than the Repurchase Offer Amount; |
| 8. | The circumstances in which the Fund may suspend or postpone a repurchase offer; |
| 9. | The NAV of the shares computed no more than seven days before the date of the notification and the means by which shareholders may ascertain the NAV thereafter; and |
| 10. | The market price, if any, of the shares on the date on which such NAV was computed, and the means by which shareholders may ascertain the market price thereafter. |
The Fund must file a Form N-23c-3 (“Notification of Repurchase Offer’’) and three copies of the Shareholder Notification with the SEC within three business days after sending the notification to shareholders.
Notification of Beneficial Owners. Where the Fund knows that shares subject to a repurchase offer are held of record by a broker, dealer, voting trustee, bank, association or other entity that exercises fiduciary powers in nominee name or otherwise, the Fund must follow the procedures for transmitting materials to beneficial owners of securities that are set forth in Rule 14a-13 under the Securities Exchange Act of 1934.
Repurchase Requests. Repurchase requests must be submitted by shareholders by the Repurchase Request Deadline. The Fund shall permit repurchase requests to be withdrawn or modified at any time until the Repurchase Request Deadline, but shall not permit repurchase requests to be withdrawn or modified after the Repurchase Request Deadline.
Repurchase Requests in Excess of the Repurchase Offer Amount. If shareholders tender more than the Repurchase Offer Amount, the Fund may, but is not required to, repurchase an additional amount of shares not to exceed 2% of the outstanding shares of the Fund on the Repurchase Request Deadline. If the Fund determines not to repurchase more than the Repurchase Offer Amount, or if shareholders tender shares in an amount exceeding the Repurchase Offer Amount plus 2% of the outstanding shares on the Repurchase Request Deadline, the Fund shall repurchase the shares tendered on a pro rata basis. This policy, however, does not prohibit the Fund from:
| 1. | Accepting all repurchase requests by persons who own, beneficially or of record, an aggregate of not more than 100 shares and who tender all of their stock for repurchase, before prorating shares tendered by others, or |
| 2. | Accepting by lot shares tendered by shareholders who request repurchase of all shares held by them and who, when tendering their shares, elect to have either: (i) all or none; or (ii) at least a minimum amount or none accepted, if the Fund first accepts all shares tendered by shareholders who do not make this election. |
Suspension or Postponement of Repurchase Offers. The Fund shall not suspend or postpone a repurchase offer except pursuant to a vote of a majority of the Board, including a majority of the Trustees who are not interested persons of the Fund, and only:
| 1. | If the repurchase would cause the Fund to lose its status as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”); |
| 2. | If the repurchase would cause the shares that are the subject of the offer that are either listed on a national securities exchange or quoted in an inter-dealer quotation system of a national securities association to be neither listed on any national securities exchange nor quoted on any inter-dealer quotation system of a national securities association; |
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| 3. | For any period during which the New York Stock Exchange or any other market in which the securities owned by the Fund are principally traded is closed, other than customary weekend and holiday closings, or during which trading in such market is restricted; |
| 4. | For any period during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or during which it is not reasonably practicable for the Fund fairly to determine the value of its net assets; or |
| 5. | For such other periods as the SEC may by order permit for the protection of shareholders of the Fund. |
If a repurchase offer is suspended or postponed, the Fund shall provide notice to shareholders of such suspension or postponement. If the Fund renews the repurchase offer, the Fund shall send a new Shareholder Notification to shareholders.
Computing Net Asset Value. The Fund’s current NAV shall be computed no less frequently than weekly, and daily on the five business days preceding a Repurchase Request Deadline, on such days and at such specific time or times during the day as set by the Board. Currently, the Board has determined that the Fund’s NAV shall be determined daily following the close of the New York Stock Exchange. The Fund’s NAV need not be calculated on:
| 1. | Days on which changes in the value of the Fund’s portfolio securities will not materially affect the current NAV of the shares; |
| 2. | Days during which no order to purchase shares is received, other than days when the NAV would otherwise be computed; or |
| 3. | Customary national, local, and regional business holidays described or listed in the Prospectus. |
Liquidity Requirements. From the time the Fund sends a Shareholder Notification to shareholders until the Repurchase Pricing Date, a percentage of the Fund’s assets equal to at least 100% of the Repurchase Offer Amount (the “Liquidity Amount”) shall consist of assets that individually can be sold or disposed of in the ordinary course of business, at approximately the price at which the Fund has valued the investment, within a period equal to the period between a Repurchase Request Deadline and the Repurchase Payment Deadline, or of assets that mature by the next Repurchase Payment Deadline. This requirement means that individual assets must be salable under these circumstances. It does not require that the entire Liquidity Amount must be salable. In the event that the Fund’s assets fail to comply with this requirement, the Board shall cause the Fund to take such action as it deems appropriate to ensure compliance.
Liquidity Policy. The Board may delegate day-to-day responsibility for evaluating liquidity of specific assets to the Adviser, but shall continue to be responsible for monitoring the Adviser’s performance of its duties and the overall composition of the portfolio. Accordingly, the Board has approved this policy that is reasonably designed to ensure that the Fund’s portfolio assets are sufficiently liquid so that the Fund can comply with its fundamental policy on repurchases and comply with the liquidity requirements in the preceding paragraph.
| 1. | In evaluating liquidity, the following factors are relevant, but not necessarily determinative: |
| (a) | The frequency of trades and quotes for the security. |
| (b) | The number of dealers willing to purchase or sell the security and the number of potential purchasers. |
| (c) | Dealer undertakings to make a market in the security. |
| (d) | The nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offer and the mechanics of transfer). |
| (e) | The size of the fund’s holdings of a given security in relation to the total amount of outstanding of such security or to the average trading volume for the security. |
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| 2. | If market developments impair the liquidity of a security, the Adviser should review the advisability of retaining the security in the portfolio. The Adviser should report to the basis for its determination to retain a security at the next Board meeting. |
| 3. | The Board shall review the overall composition and liquidity of the Fund’s portfolio on a quarterly basis. |
| 4. | These procedures may be modified as the Board deems necessary. |
Registration Statement Disclosure. The Fund’s registration statement must disclose its intention to make or consider making such repurchase offers.
Annual Report Disclosure. The Fund shall include in its annual report to shareholders the following:
| 1. | Disclosure of its fundamental policy regarding periodic repurchase offers. |
| 2. | Disclosure regarding repurchase offers by the Fund during the period covered by the annual report, which disclosure shall include: |
| (a) | the number of repurchase offers, |
| (b) | the repurchase offer amount and the amount tendered in each repurchase offer, |
| (c) | and the extent to which in any repurchase offer the Fund repurchased stock pursuant to the procedures in Rule 23c-3(b)(5) under the 1940 Act. |
Advertising. The Fund, or any underwriter for the Fund, must comply, as if the Fund were an open-end company, with the provisions of Section 24(b) of the 1940 Act and the rules thereunder and file, if necessary, with FINRA or the SEC any advertisement, pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution to prospective investors.
Transfers of Shares. No person may become a substituted shareholder without the written consent of the Board, which consent may be withheld for any reason in the sole and absolute discretion of the Board. Shares may be transferred only: (i) by operation of law pursuant to the death, bankruptcy, insolvency or dissolution of a shareholder; or (ii) with the written consent of the Board, which may be withheld in its sole and absolute discretion. The Board may, in its discretion, delegate to the Adviser its authority to consent to transfers of shares. Each shareholder and transferee is required to pay all expenses, including attorneys and accountants fees, incurred by the Fund in connection with such transfer.
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MANAGEMENT OF THE FUND
The Board has overall responsibility to manage and control the business affairs of the Fund, including the complete and exclusive authority to oversee and to establish policies regarding the management, conduct and operation of the Fund’s business. The Board exercises the same powers, authority and responsibilities on behalf of the Fund as are customarily exercised by the board of directors of a registered investment company organized as a corporation. The business of the Fund is managed under the direction of the Board in accordance with the Agreement and Declaration of Trust and the Fund’s Bylaws (the “Governing Documents”), each as amended from time to time, which have been filed with the SEC and are available upon request.
The Board consists of four individuals, all of whom are not “interested persons” (as defined under the 1940 Act) of the Fund, the Adviser, or the Fund’s distributor (“Independent Trustees”). Interested Persons generally include affiliates, immediate family members of affiliates, any partner or employee of the Fund’s legal counsel, and any person who has engaged in portfolio transactions for the Fund or who has loaned the Fund money or property within the previous six months. Pursuant to the Governing Documents of the Fund, the Trustees shall elect officers including a President, a Secretary, a Treasurer, a Principal Executive Officer and a Principal Accounting Officer. The Board retains the power to conduct, operate and carry on the business of the Fund and has the power to incur and pay any expenses, which, in the opinion of the Board, are necessary or incidental to carry out any of the Fund’s purposes. The Trustees, officers, employees and agents of the Fund, when acting in such capacities, shall not be subject to any personal liability except for his or her own bad faith, willful misfeasance, gross negligence or reckless disregard of his or her duties.
Trustee Qualifications
Generally, the Fund believes that each Trustee is competent to serve because of their individual overall merits including: (i) experience; (ii) qualifications; (iii) attributes; and (iv) skills.
The Fund does not believe any one factor is determinative in assessing a Trustee’s qualifications, but that the collective experience of each Trustee makes them each highly qualified.
Following is a list of the Trustees and executive officers of the Fund and their principal occupation over the last five years.
The “Fund Complex,” as referred to herein consists of: the Fund, each series of NexPoint Funds I (“NFI”), Highland Global Allocation Fund (“GAF”), Highland Opportunities and Income Fund (“HFRO”), and NexPoint Capital, Inc. (the “BDC”), a closed-end management investment company that has elected to be treated as a business development company under the 1940 Act.
Trustees
| Name, Date of Birth, Position(s) with the Fund and Length of Time Served, Term of Office1 and Number of Portfolios in the Fund Complex Overseen by the Trustee |
Principal Occupations(s) During the Past Five Years and Other Directorships/ Trusteeships Held During the Past Five Years |
Experience, Qualifications, Attributes, Skills for Board Membership | ||
| Independent Trustees | ||||
| Dr. Bob Froehlich (4/28/1953)
Trustee since March 2016; Indefinite term 7 funds |
Retired.
Director of KC Concessions, Inc. (from January 2013 to March 2025); Director of American Sports Enterprise, Inc. (from January 2013 to March 2025); Chairman and owner, Kane County Cougars Baseball Club (from January 2013 |
Significant experience in the financial industry; significant managerial and executive experience; significant experience on other boards of directors, including as a member of several audit committees. | ||
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| Name, Date of Birth, Position(s) with the Fund and Length of Time Served, Term of Office1 and Number of Portfolios in the Fund Complex Overseen by the Trustee |
Principal Occupations(s) During the Past Five Years and Other Directorships/ Trusteeships Held During the Past Five Years |
Experience, Qualifications, Attributes, Skills for Board Membership | ||
| to March 2025); Director of The Midwest League of Professional Baseball Clubs, Inc. (from January 2013 to December 2021); Board Member of Kane County Cougars Foundation, Inc. (from October 2014 to March 2025); Director of Galen Robotics, Inc. (from August 2016 to September 2023); Director and Special Advisor to Vault Data, LLC (from February 2018 to December 2023); Director of American Association of Professional Baseball, Inc. (from February 2021 to March 2025); Director of National Amateur Fall Baseball Federation (since December 2023); Executive Director of Kane County Cougars Baseball Foundation Inc. (from July 2023 to March 2025); and Director of the Illinois Sports Hall of Fame (since November 2025). | ||||
| Ethan Powell (6/20/1975)
Trustee since March 2016; Chairman of the Board since March 2016;
Indefinite term 7 funds |
Principal and CIO of Brookmont Capital Management, LLC (since May 2020); CEO, Chairman and Founder of Impact Shares LLC (from 2015 to 2025); Trustee/Director of the Fund Complex (from June 2012 until July 2013 and since December 2013); and Trustee of Strategic Trust (since June 2021).
Trustee of Tidal Trust III (formerly Impact Shares Trust I) (since May 2016). |
Significant experience in the financial industry; significant executive experience including past service as an officer of funds in the Fund Complex; significant administrative and managerial experience. | ||
| Dorri McWhorter (6/30/1973)
Trustee since May 2022; Indefinite term 7 funds |
President & CEO of the Executives’ Club of Chicago (since June 2025); President & CEO, YMCA of Metropolitan Chicago (from July 2021 to February 2025). Chief Executive Officer, YWCA Metropolitan Chicago (from 2013 to July 2021).
Board Director of William Blair Funds (since 2019); Board Director of Skyway Concession Company, LLC (since 2018); Board Director of Illinois CPA Society (from 2017 to 2022); Board Director of Lifeway Foods, Inc. (since 2020); Board |
Significant managerial and executive experience, including experience as president and chief executive officer; significant background and experience in financial accounting; significant experience on other boards of directors, including for other registered investment companies. | ||
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| Name, Date of Birth, Position(s) with the Fund and Length of Time Served, Term of Office1 and Number of Portfolios in the Fund Complex Overseen by the Trustee |
Principal Occupations(s) During the Past Five Years and Other Directorships/ Trusteeships Held During the Past Five Years |
Experience, Qualifications, Attributes, Skills for Board Membership | ||
| Director of Green Thumb Industries, Inc. (from February 2022 to October 2022); Member of Financial Accounting Standards Advisory Council (since 2021); Board Director of LanzaTech Global, Inc. (since 2023). | ||||
| John Honis2 (6/16/1958)
Trustee since March 2016; Indefinite term 7 funds |
President of Rand Advisors, LLC (August 2013 – August 2022); CEO of Valience Group, LLC (since July 2021) and Consultant of Rand Advisors, LLC (since August 2022). | Significant experience in the financial industry; significant managerial and executive experience, including experience as president, chief executive officer or chief restructuring officer of five telecommunication firms; experience on other boards of directors. | ||
| 1 | On an annual basis, as a matter of Board policy, the Governance and Compliance Committee reviews each Trustee’s performance and determines whether to extend each such Trustee’s service for another year. The Board has adopted a retirement policy wherein the Governance and Compliance Committee shall not recommend the continued service as a Trustee of a Board member who is older than 80 years of age at the time the Governance and Compliance Committee reports its findings to the Board. |
| 2 | Since December 5, 2025, Mr. Honis has been treated as an Independent Trustee of the Fund. Prior to that date, Mr. Honis was treated as an Interested Trustee in light of certain relationships between Mr. Honis and historically affiliated entities of the Adviser, including Highland Capital Management, L.P. (“HCMLP”), arising out of HCMLP’s pending Chapter 11 proceedings, from January 28, 2020 to December 5, 2025. |
Officers*
| Name, Date of Birth, Position(s) held with the Trust and Length of Time Served, Term of Office |
Principal Occupations(s) During the Past Five Years | |
| James Dondero (6/29/1962)
President and Principal Executive Officer since March 2016; Indefinite Term |
Founder of NexPoint; Co-founder of HCMLP and NexPoint Asset Management, L.P. (“NAM”); Chairman of the Board of NexPoint Residential Trust, Inc (“NXRT”). since 2015; NexPoint Hospitality Trust (“NHT”), NexPoint Real Estate Finance, Inc. (“NREF”), Texmark Timber Treasury, L.P. since 2015; Portfolio Manager of GAF, HFRO, NexPoint Event Driven Fund, NexPoint Merger Arbitrage Fund and NexPoint Credit Catalyst Fund (each a series of NFI); the BDC; and NRESF. | |
| Frank Waterhouse (4/14/1971)
Treasurer since March 2016; Principal Financial and Accounting Officer since April 2021; Indefinite Term |
Chief Financial Officer of Skyview (since February 2021); CFO of NexPoint (since March 2021); Treasurer of the Fund Complex (since May 2015); Treasurer of NexPoint (since November 2012). | |
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| Name, Date of Birth, Position(s) held with the Trust and Length of Time Served, Term of Office |
Principal Occupations(s) During the Past Five Years | |
| Dustin Norris (1/6/1984)
Executive Vice President since April 2019; Indefinite Term |
Head of Distribution (since November 2017) and Chief Product Strategist (since September 2015) at NexPoint; President of NexPoint Securities, Inc. (since April 2018); Officer of the Fund Complex (since November 2012). | |
| Stephanie Vitiello (6/21/1983)
Secretary since April 2021; Chief Compliance Officer and Anti-Money Laundering Officer since November 2021; Indefinite Term |
Chief Compliance Officer and Counsel of and NexPoint Advisors, L.P. Previously Chief Compliance Officer and Counsel of Skyview Group (from February 2021 to May 2025). | |
| Will Mabry (7/2/1986)
Assistant Treasurer since April 2021; Indefinite Term |
Chief Accounting Officer of NexPoint Advisors, L.P. and Skyview. Previously Director, Fund Analysis of Skyview and NexPoint (February 2021 to March 2025). | |
| * | The address for each Trustee and Officer is c/o NexPoint Advisors, L.P., 300 Crescent Court, Suite 700, Dallas, Texas 75201. |
Board Committees
Audit and Qualified Legal Compliance Committee. The members of the Audit and Qualified Legal Compliance Committee are Dr. Froehlich and Messrs. Powell and Honis and Ms. McWhorter, each of whom is independent for purposes of the 1940 Act. Ms. McWhorter serves as Chairperson of the Audit and Qualified Legal Compliance Committee. The Audit and Qualified Legal Compliance Committee is responsible for: (i) approving the Fund’s independent accountants; (ii) reviewing with the Fund’s independent accountants the plans and results of the audit engagement and reviewing the adequacy of the Fund’s internal accounting controls; and (iii) approving professional services provided by the Fund’s independent accountants. The Audit and Qualified Legal Compliance Committee is charged with compliance with Rules 205.2(k) and 205.3(c) of Title 17 of the Code of Federal Regulations regarding alternative reporting procedures for attorneys representing the Fund who appear and practice before the SEC on behalf of the Fund. The Audit Committee also oversees valuations determined by the Adviser, who pursuant to Rule 2a-5 under the 1940 Act, has been designated by the Board as the Fund’s valuation designee to perform the fair valuation determination for securities and other assets held by the Fund in accordance with valuation policies and procedures established by the Adviser and approved by the Board. In addition, each member of the Audit and Qualified Legal Compliance Committee meets the current independence and experience requirements of Rule 10A-3 under the Exchange Act.
During the fiscal year ended December 31, 2025, the Audit and Qualified Legal Compliance Committee held four meetings.
The Governance and Compliance Committee. The Fund’s Governance and Compliance Committee’s function is to oversee and make recommendations to the full Board or the Independent Trustees, as applicable, with respect to the governance of the Fund, selection and nomination of Trustees, compensation of Trustees, and related matters, as well as to oversee and assist Board oversight of the Fund’s compliance with legal and regulatory requirements and to seek to address any potential conflicts of interest between the Fund and the Adviser in connection with any potential or existing litigation or other legal proceeding related to securities held by the Fund and the Adviser or another client of the Adviser. The Governance and Compliance
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Committee is also responsible for evaluating each Trustee and determining whether to recommend each Trustee’s continued service in that capacity. The Governance and Compliance Committee will consider recommendations for Trustee nominees from shareholders sent to the Secretary of the Fund, 300 Crescent Court, Suite 700, Dallas, Texas 75201. A nomination submission must include all information relating to the recommended nominee that is required to be disclosed in solicitations or proxy statements for the election of Trustees, as well as information sufficient to evaluate the recommended nominee’s ability to meet the responsibilities of a Trustee of the Fund. Nomination submissions must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by the shareholders, and such additional information must be provided regarding the recommended nominee as reasonably requested by the Governance and Compliance Committee. The Governance and Compliance Committee is currently comprised of Dr. Froehlich and Messrs. Honis and Powell and Ms. McWhorter, each of whom is independent for purposes of the 1940 Act. Dr. Froehlich serves as the Chairperson of the Governance and Compliance Committee. The Governance and Compliance Committee met five times during the fiscal year ended December 31, 2025.
The Administration and Operations Committee. The members of the Administration and Operations Committee are Dr. Froehlich and Messrs. Honis, and Powell and Ms. McWhorter. Mr. Honis serves as Chairperson of the Administration and Operations Committee. The Administration and Operations Committee is responsible for reviewing arrangements with financial intermediaries who provide service to the Fund, including Fund payments to financial intermediaries, and for overseeing any funds that, in the Board’s determination, employ alternative investment strategies. The Administration and Operations Committee met four times during the fiscal year ended December 31, 2025.
Board Leadership Structure
The Board is led by Ethan Powell, an Independent Trustee, who has served as the Chairman of the Board since March 2016. Under certain 1940 Act governance guidelines that apply to the Fund, the Independent Trustees will meet in executive session, at least quarterly. Under the Fund’s governing documents, the Chairman of the Board is responsible for: (a) presiding at board meetings; (b) calling special meetings on an as-needed basis; and (c) execution and administration of Fund policies, including: (i) setting the agendas for board meetings; and (ii) providing information to board members in advance of each board meeting and between board meetings. The Fund believes that the Chairman, and, as an entity, the full Board, provide effective leadership that is in the best interests of the Fund and each shareholder.
The Board periodically reviews its leadership structure, including the role of the Chairman. The Board also completes an annual self-assessment during which it reviews its leadership and Committee structure and considers whether its structure remains appropriate in light of the Fund’s current operations. The Board believes that its leadership structure, including the current percentage of the Board who are Independent Trustees is appropriate given its specific characteristics. These characteristics include: (i) the extent to which the work of the Board is conducted through the standing committees, and that the Audit and Qualified Legal Compliance Committee and the Governance and Compliance Committee meetings are each chaired by an Independent Trustee; (ii) the extent to which the Independent Trustees meet as needed, together with their independent legal counsel, in the absence of members of management and any member of the Board who is considered an “interested person” of the Fund; and (iii) Mr. Powell’s and Mr. Honis’s previous positions with historical affiliates of the Adviser which enhances the Board’s understanding of the operations of the Adviser.
Board Oversight of Risk Management
The Board’s role is one of oversight, rather than active management. This oversight extends to the Fund’s risk management processes. These processes are embedded in the responsibilities of officers of, and service providers to, the Fund. For example, the Adviser and other service providers to the Fund are primarily responsible for the management of the Fund’s investment risks. The Board has not established a formal risk oversight committee.
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However, much of the regular work of the Board and its standing Committees addresses aspects of risk oversight. For example, the Trustees seek to understand the key risks facing the Fund, including those involving conflicts of interest; how management identifies and monitors these risks on an ongoing basis; how management develops and implements controls to mitigate these risks; and how management tests the effectiveness of those controls.
In the course of providing that oversight, the Board will receive a wide range of reports on the Fund’s activities from the Adviser and other service providers, including reports regarding the Fund’s investment portfolio, the compliance of the Fund with applicable laws, and the Fund’s financial accounting and reporting. The Board will also meet periodically with the Fund’s Chief Compliance Officer to receive reports regarding the compliance of the Fund with the federal securities laws and the Fund’s internal compliance policies and procedures and meets with the Fund’s Chief Compliance Officer periodically, including at least annually, to review the Chief Compliance Officer’s annual report. The Board’s Audit and Qualified Legal Compliance Committee will also meet regularly with the Chief Financial Officer and Treasurer and the Fund’s independent public accounting firm to discuss, among other things, the internal control structure of the Fund’s financial reporting function. The Board will also meet periodically with the portfolio managers of the Fund to receive reports regarding the management of the Fund, including its investment risks.
The Board recognizes that not all risks that may affect the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals, that reports received by the Trustees with respect to risk management matters are typically summaries of the relevant information, and that the processes, procedures and controls employed to address risks may be limited in their effectiveness. As a result of the foregoing and other factors, risk management oversight by the Board and by the Committees is subject to substantial limitations.
Trustee Ownership
The following table indicates the dollar range of equity securities that each Trustee beneficially owned in the Fund and the aggregate dollar range of equity securities owned by the Trustees in all funds overseen by the Trustees in the Fund Complex as of December 31, 2025.
| Name of Trustee |
Dollar Range of Equity Securities in the Fund |
Aggregate Dollar Range of Equity Securities(1) Owned in All Funds of the Funds Complex Overseen by Trustee(2) |
||||||
| Independent Trustees |
||||||||
| Ethan Powell |
None | Over $100,000 | ||||||
| Dr. Bob Froehlich |
None | Over $100,000 | ||||||
| Dorri McWhorter |
None | $10,001-$50,000 | ||||||
| John W. Honis |
None | $10,001-$50,000 | ||||||
| 1 | Based on market value as of December 31, 2025. |
| 2 | Dollar ranges are as follows: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000 and over $100,000. |
Compensation
The executive officers of the Fund receive no direct remuneration from the Fund. Each Trustee who oversees all of the funds in the Fund Complex receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the Fund Complex based on relative net assets. Trustees are reimbursed for actual out-of-pocket expenses relating to attendance at Board meetings. The Trustees do not receive any separate compensation in connection with service on Committees or for attending Board or Committee meetings; however, the Chairman of the Board receives an additional annual payment of $20,000 and the Chairperson of the each Committee each receive an additional annual payment of $10,000 payable in quarterly installments and allocated among each portfolio in the Fund Complex based on relative net assets. The Trustees do not have any pension or retirement plan.
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The table below details the amount of compensation the Trustees received from the Fund during the fiscal year ended December 31, 2025. The Fund does not have a bonus, profit sharing, pension or retirement plan.
| Name of Trustee |
Aggregate Compensation From the Fund |
Pension or Retirement Benefits Accrued as Part of the Fund’s Expenses |
Estimated Annual Benefits Upon Retirement |
Aggregate Compensation From the Funds Complex |
||||||||||||
| Independent Trustees |
||||||||||||||||
| Dr. Bob Froehlich |
$ | 2,231 | $ | 0 | $ | 0 | $ | 160,000 | ||||||||
| Bryan A. Ward1 |
$ | 1,504 | $ | 0 | $ | 0 | $ | 107,836 | ||||||||
| Ethan Powell |
$ | 2,370 | $ | 0 | $ | 0 | $ | 170,000 | ||||||||
| Dorri McWhorter |
$ | 2,091 | $ | 0 | $ | 0 | $ | 150,000 | ||||||||
| John W. Honis |
$ | 2,231 | $ | 0 | $ | 0 | $ | 160,000 | ||||||||
1 Effective September 3, 2025, Bryan A. Ward no longer serves as Trustee of the Fund.
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CODES OF ETHICS
The Fund and the Adviser have adopted codes of ethics under Rule 17j-1 of the 1940 Act. These codes permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the Fund. The codes of ethics are available on the EDGAR Database on the SEC’s web site (http://www.sec.gov), and copies of these codes may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102.
PROXY VOTING POLICIES AND PROCEDURES
The Board has delegated the voting of proxies for Fund securities to the Adviser pursuant to the Adviser’s proxy voting policies and procedures. Under these policies and procedures, the Adviser will vote proxies related to Fund securities in the best interests of the Fund and its shareholders. A copy of the Adviser’s proxy voting policies and procedures is attached as Appendix A to this SAI. The Fund’s proxy voting record for the most recent 12-month period ended June 30 is available: (i) without charge, upon request, by calling 844-485-9167; and (ii) on the SEC’s web site (http://www.sec.gov).
CONTROL PERSONS AND PRINCIPAL HOLDERS
A principal shareholder is any person who owns (either of record or beneficially) 5% or more of the outstanding shares of a fund. A control person is one who owns, either directly or indirectly more than 25% of the voting securities of a company or acknowledges the existence of control. A control person may be able to determine the outcome of a matter put to a shareholder vote.
As of March 31, 2026, as a result of Mr. Dondero’s controlling interest in the Adviser, the Trustees and officers beneficially owned approximately 8.38% of the Fund’s outstanding shares.
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As of March 31, 2026, the only persons known by the Fund to own of record or beneficially 5% or more of any class of the outstanding shares of the Fund were as follows:
| Name and Address |
Outstanding Shares Held |
Percentage of Class (%) |
||||||
| NEXPOINT REAL ESTATE STRATEGIES FUND – CLASS A |
||||||||
| Pershing LLC PO Box 2052 Jersey City, NJ 07303-2052 |
36,596 | 9.07% | ||||||
| Calton & Associates, Inc. 2701 N Rocky Point Dr. Suite 1000 Tampa, FL 33607 |
25,343 | 6.28% | ||||||
| NEXPOINT REAL ESTATE STRATEGIES FUND – CLASS C |
||||||||
| Hilltop Securities Inc. 717 N Harwood Street Suite 3400 Dallas, TX 75201-6534 |
15,851 | 14.55% | ||||||
| Pershing LLC PO Box 2052 Jersey City, NJ 07303-2052 |
11,314 | 10.38% | ||||||
| NEXPOINT REAL ESTATE STRATEGIES FUND – CLASS Z |
||||||||
| Liberty CLO Holdco Ltd. c/o Campbell Corporate Services Limited Floor 4, Willow House, Cricket Square George Town, Grand Cayman, KY1-9010 Cayman Islands |
500,120 | 39.63% | ||||||
| Charles Schwab & Co. Inc. Special Custody Account FBO Customers Attn. Mutual Funds 211 Main Street San Francisco, CA 94105 |
346,192 | 27.43% | ||||||
| Axos Clearing LLC FBO #861 PB BOX 6503 Englewood, CO 80155-6503 |
91,316 | 7.24% | ||||||
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INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser
NexPoint Advisors, L.P. (the “Adviser”), which serves as the investment adviser of the Fund, is registered with the SEC as an investment adviser under the Advisers Act. NexPoint is owned by The Dugaboy Investment Trust, of which James Dondero is the beneficiary, and NexPoint Advisors GP, LLC, NexPoint’s general partner. Mr. Dondero is the President and sole member of NexPoint Advisors GP, LLC.
The Adviser also externally manages NexPoint Capital, Inc., a non-traded business development company. Affiliates of the Adviser manage NXDT, a diversified REIT whose share trades on the NYSE; NXRT, a publicly-traded REIT whose shares trade on the NYSE; VineBrook, a Private Real Estate Investment Fund that manages a portfolio of single-family housing properties in the Midwest U.S.; NHT, a REIT listed on the TSX Venture Exchange that manages a portfolio of hospitality assets located in the U.S.; NREF, an externally managed publicly traded mortgage REIT; and certain wholly-owned REIT subsidiaries of other closed-end funds in the Fund Complex. NAM, an affiliate of the Adviser, manages HFRO and GAF, registered closed-end funds whose shares trade on the NYSE. The Adviser’s senior management team has experience across private lending, private equity, real estate investing and other investment strategies. Collectively, the Adviser and its affiliates managed approximately $16.7 billion in assets as of December 31, 2025, including approximately $12.3 billion in gross real estate assets.
Under the general supervision of the Board, the Adviser will carry out the investment and reinvestment of the net assets of the Fund, will furnish continuously an investment program with respect to the Fund, and determine which securities should be purchased, sold or exchanged. In addition, the Adviser will supervise and provide oversight of the Fund’s service providers. The Adviser entered into a Services Agreement (the “Services Agreement”) with Highgate Consulting Group, Inc., doing business as Skyview Group (“Skyview”), pursuant to which NexPoint receives administrative and operational support services to enable it to provide the required advisory services to the Fund.
In July 2022, the Adviser formed NexPoint Services, LLC (“NexPoint Services”) as a 100% wholly-owned subsidiary to perform administrative and accounting services for the Adviser. Certain Skyview personnel were dual-employees of NexPoint Services, with the same services being performed by the dual-employees. As of July 2025, the Adviser started transitioning certain Skyview and all NexPoint Services personnel back to the Adviser. The Adviser, and not the Fund, will compensate all Adviser, Skyview, and dual-employee personnel who provide services to the Fund. Pursuant to the Investment Advisory Agreement with the Fund, the Adviser receives a monthly fee at the annual rate of 1.25% of the Fund’s Daily Gross Assets. Daily Gross Assets is defined in the Investment Advisory Agreement as total assets, less any liabilities, but excluding liabilities evidencing leverage. A discussion regarding the basis for the Board’s approval of the Fund’s Investment Advisory Agreement is available in the Fund’s annual report for the period ended December 31, 2025.
The Adviser and the Fund have entered into the Expense Limitation Agreement under which the Adviser has agreed contractually to waive its fees and to pay or absorb the ordinary operating expenses of the Fund (including organizational and offering expenses, but excluding distribution fees, interest, dividend expenses on short sales, brokerage commissions and other transaction costs, acquired fund fees and expenses, taxes, expenses payable by the Fund for third party administration services, litigation expenses and extraordinary expenses), to the extent that they exceed 1.75% per annum of the Fund’s average Daily Gross Assets (the “Expense Limitation”). “Daily Gross Assets” is defined in the Expense Limitation Agreement as an amount equal to total assets, less any liabilities, but excluding liabilities evidencing leverage. If the Fund incurs expenses excluded from the Expense Limitation Agreement, the Fund’s expense ratio would be higher and could exceed the Expense Limitation. In consideration of the Adviser’s agreement to limit the Fund’s expenses, the Adviser is entitled to recoup from the Fund the amount of any fees waived and Fund expenses paid or absorbed (other than organizational and initial
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offering expenses, which are those expenses incurred by the Fund in order to permit the Fund to be declared effective by the SEC and to commence operations) to the extent that: (1) the reimbursement for fees and expenses will be made only if payable not more than three years from the date on which such fees are foregone or expenses are incurred by the Adviser; and (2) such recoupment does not cause the Fund’s ordinary operating expenses plus recoupment to exceed the Expense Limitation in effect at the time the expenses were paid or waived or any Expense Limitation in effect at the time of recoupment. The Expense Limitation Agreement may not be amended or terminated for one year from the date of the Prospectus, unless approved by the Board. See “Management of the Fund.” During the fiscal year ended December 31, 2023, the Fund paid $535,940 in advisory fees. The Adviser waived $461,692 in advisory fees during that same period. During the fiscal year ended December 31, 2024, the Fund paid $479,153 in advisory fees. The Adviser waived $331,916 in advisory fees during that same period. During the fiscal year ended December 31, 2025, the Fund paid $377,899 in advisory fees. The Adviser waived $377,899 in advisory fees and reimbursed $58,275 in additional fund expenses during that same period.
Other Services. Pursuant to the Investment Advisory Agreement, the Adviser provides administration services to the Fund, provides executive and other personnel necessary to administer the Fund and furnishes office space. The Adviser waived its fees for administration services for the fiscal year ended December 31, 2017. Under a separate sub-administration agreement entered into as of October 1, 2018, the Adviser has delegated certain administrative functions to SEI Global Funds Services (“SEI”) and pays SEI a fee for administration services. Under the administration agreement, SEI has agreed to provide fund accounting services; asset data services; fund administration and reporting services; and regulatory administration services, including preparation and filing of various reports with the appropriate regulatory agencies and the SEC for the Fund. The Adviser generally assists in all aspects of the Fund’s administration and operations and furnishes offices, necessary facilities, equipment and personnel. SS&C Technologies, Inc. (“SS&C”) serves as the transfer agent of the Fund.
Conflicts of Interest
Because each portfolio manager manages other accounts, including accounts that may pay higher fees, potential conflicts of interest exist, including potential conflicts between the investment strategy of the Fund and the investment strategy of the other accounts managed by the portfolio manager and potential conflicts in the allocation of investment opportunities between the Fund and the other accounts. The Adviser has policies and procedures in place that are reasonably designed to mitigate these conflicts of interest, which are also described below.
The Adviser and/or its general partner, limited partners, officers, affiliates and employees provide investment advice to other parties and manage other accounts and investment vehicles similar to the Fund. For the purposes of this section, the term “NexPoint” shall include the Adviser and its affiliated investment advisors and all affiliates listed on its Form ADV, as filed with the SEC March 31, 2026 (CRD No. 163564).
In connection with such other investment management activities, the Adviser and/or its general partner, limited partners, officers, affiliates and employees may decide to invest the funds of one or more other accounts or recommend the investment of funds by other parties, rather than the Fund’s monies, in a particular security or strategy. In addition, the Adviser and such other persons will determine the allocation of funds from the Fund and such other accounts to investment strategies and techniques on whatever basis they consider appropriate or desirable in their sole and absolute discretion.
NexPoint has built a professional working environment, a firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. The Adviser has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, the Adviser furnishes advisory services to numerous clients in addition to the Fund, and the Adviser may, consistent with applicable
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law, make investment recommendations to other clients or accounts (including accounts that have performance or higher fees paid to the Adviser or in which portfolio managers have a personal interest in the receipt of such fees) that may be the same as or different from those made to the Fund. In addition, the Adviser, its affiliates and any of their partners, directors, officers, stockholders or employees may or may not have an interest in the securities whose purchase and sale the Adviser recommends to the Fund. Actions with respect to securities of the same kind may be the same as or different from the action that the Adviser, or any of its affiliates, or any of their partners, directors, officers, stockholders or employees or any member of their families may take with respect to the same securities. Moreover, the Adviser may refrain from rendering any advice or services concerning securities of companies of which any of the Adviser’s (or its affiliates’) partners, directors, officers or employees are directors or officers, or companies as to which the Adviser or any of its affiliates or partners, directors, officers and employees of any of them has any substantial economic interest or possesses material non-public information.
The Adviser, its affiliates or their partners, directors, officers or employees similarly serve or may serve other entities that operate in the same or related lines of business, including accounts managed by an investment adviser affiliated with the Adviser. Accordingly, these individuals may have obligations to investors in those entities or funds or to other clients, the fulfillment of which might not be in the best interests of the Fund. As a
result, the Adviser will face conflicts in the allocation of investment opportunities to the Fund and other funds and clients. In order to enable such affiliates to fulfill their fiduciary duties to each of the clients for which they have responsibility, the Adviser will endeavor to allocate investment opportunities in a fair and equitable manner, pursuant to policies and procedures adopted by the Adviser and its advisory affiliates that are designed to manage potential conflicts of interest, which may, subject to applicable regulatory constraints, involve pro rata co-investment by the Fund and such other clients or may involve a rotation of opportunities among the Fund and such other clients. The Fund will only make investments in which the Adviser or an affiliate hold an interest to the extent permitted under the 1940 Act and SEC staff interpretations or pursuant to the terms and conditions of the exemptive order received by the Adviser and certain funds affiliated with the Fund, dated April 19, 2016. For example, exemptive relief is not required for the Fund to invest in syndicated deals and secondary loan market transactions in which the Adviser or an affiliate has an interest where price is the only negotiated point. The order applies to all “Investment Companies,” including future closed-end investment companies registered under the 1940 Act that are managed by the Adviser, which includes the Fund. The Fund, therefore, may in the future invest in accordance with the terms and conditions of the exemptive order. To mitigate any actual or perceived conflicts of interest, allocation of limited offering securities (such as IPOs and registered secondary offerings) to principal accounts that do not include third party investors may only be made after all other client account orders for the security have been filled. However, there can be no assurance that such policies and procedures will in every case ensure fair and equitable allocations of investment opportunities, particularly when considered in hindsight.
Conflicts may arise in cases when clients and/or the Adviser and other affiliated entities invest in different parts of an issuer‘s capital structure, including circumstances in which one or more clients own private securities or obligations of an issuer and other clients may own public securities of the same issuer. In addition, one or more clients may invest in securities, or other financial instruments, of an issuer that are senior or junior to securities, or financial instruments, of the same issuer that are held by or acquired for, one or more other clients. For example, if such issuer encounters financial problems, decisions related to such securities (such as over the terms of any workout or proposed waivers and amendments to debt covenants) may raise conflicts of interests. In such a distressed situation, a client holding debt securities of the issuer may be better served by a liquidation of the issuer in which it may be paid in full, whereas a client holding equity securities of the issuer might prefer a reorganization that holds the potential to create value for the equity holders. In the event of conflicting interests within an issuer’s capital structure, the Adviser will generally pursue the strategy that the Adviser believes best reflects what would be expected to be negotiated in an arm’s length transaction, but in all instances with due consideration being given to NexPoint’s fiduciary duties to each of its accounts (without regard to the nature of the accounts involved or fees received from such accounts). This strategy may be recommended by one or more NexPoint investment professionals. A single person may make decisions with respect to more than one part of an
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issuer’s capital structure. Adviser personnel board members may still make recommendations to the applicable investment professional(s). A portfolio manager with respect to any applicable NexPoint registered investment company clients (“Retail Accounts”) will make an independent determination as to which course of action he or she determines is in the best interest of the applicable Retail Accounts. NexPoint may use external counsel for guidance and assistance.
The Adviser and its affiliates have both subjective and objective procedures and policies in place designed to manage potential conflicts of interest involving clients so that, for example, investment opportunities are allocated in a fair and equitable manner among the Fund and such other clients. An investment opportunity that is suitable for multiple clients of the Adviser and its affiliates may not be capable of being shared among some or all of such clients due to the limited scale of the opportunity or other factors, including regulatory restrictions imposed by the 1940 Act. There can be no assurance that the Adviser’s or its affiliates’ efforts to allocate any particular investment opportunity fairly among all clients for whom such opportunity is appropriate will result in an allocation of all or part of such opportunity to the Fund. Not all conflicts of interest can be expected to be resolved in favor of the Fund.
Another type of conflict may arise if one client account buys a security and another client account sells or shorts the same security. Currently, such opposing positions are generally not permitted within the same account without prior trade approval by the Chief Compliance Officer. However, a portfolio manager may enter into opposing positions for different clients to the extent each such client has a different investment objective and each such position is consistent with the investment objective of the applicable client. In addition, transactions in investments by one or more affiliated client accounts may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of other client accounts.
Because certain client accounts may have investment objectives, strategies or legal, contractual, tax or other requirements that differ (such as the need to take tax losses, realize profits, raise cash, diversification, etc.), an affiliated adviser may purchase, sell or continue to hold securities for certain client accounts contrary to other recommendations. In addition, an affiliated adviser may be permitted to sell securities or instruments short for certain client accounts and may not be permitted to do so for other affiliated client accounts.
As a result of the Fund’s arrangements with NexPoint, there may be times when NexPoint, the Adviser or their affiliates have interests that differ from those of the Fund’s shareholders, giving rise to a conflict of interest. NexPoint and the Adviser are under common ownership, and the Fund’s officers serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as the Fund does, or of investment funds managed by the Adviser or its affiliates. Similarly, the Adviser or its affiliates may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of the Fund or its shareholders. For example, the Fund’s officers have, and will continue to have, management responsibilities for other investment funds, accounts or other investment vehicles managed or sponsored by the Adviser and its affiliates. The Fund’s investment objective may overlap, in part or in whole, with the investment objective of such affiliated investment funds, accounts or other investment vehicles. As a result, those individuals may face conflicts in the allocation of investment opportunities among the Fund and other investment funds or accounts advised by or affiliated with the Adviser. The Adviser will seek to allocate investment opportunities among eligible accounts in a manner that is fair and equitable over time and consistent with its allocation policy. However, the Fund can offer no assurance that such opportunities will be allocated to it fairly or equitably in the short-term or over time.
In addition, it is anticipated that a significant portion of the Fund’s assets will be represented by securities sponsored, organized and/or managed by NexPoint and its affiliates, which may include REITs, asset-backed securities and/or structured finance securities. The Adviser will monitor for conflicts of interest in accordance with its fiduciary duties and will provide the independent trustees of the Fund with an opportunity to periodically review the Fund’s
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investments in such REITs, asset-backed securities and/or structured finance securities and assure themselves that continued investment in such securities remains in the best interests of the Fund and its shareholders.
The Adviser may direct the Fund to acquire or dispose of investments in cross trades between the Fund and other clients of the Adviser or its affiliates in accordance with applicable legal and regulatory requirements. In addition, to the extent permitted by the 1940 Act and SEC staff interpretations, the Fund may make and/or hold an investment, including an investment in securities, in which the Adviser and/or its affiliates have a debt, equity or participation interest, and the holding and sale of such investments by the Fund may enhance the profitability of the Adviser’s own investments in such companies.
Shareholder Service Expenses
The Fund has adopted a “Shareholder Servicing Plan and Agreement” (the “Plan”) under which the Fund may compensate financial industry professionals for providing ongoing services in respect of clients with whom they have distributed shares of the Fund. The Plan operates in a manner consistent with Rule 12b-1 under the 1940 Act, which regulates the manner in which an open-end investment company may directly or indirectly bear the expenses of distributing its shares. Although the Fund is not an open-end investment company, it has undertaken to comply with the terms of Rule 12b-1 as a condition of an exemptive order under the 1940 Act which permits it to have a multi-class structure, CDSCs and distribution and shareholder servicing fees. Such services may include electronic processing of client orders, electronic fund transfers between clients and the Fund, account reconciliations with the Fund’s transfer agent, facilitation of electronic delivery to clients of Fund documentation, monitoring client accounts for back-up withholding and any other special tax reporting obligations, maintenance of books and records with respect to the foregoing, and such other information and liaison services as the Fund or the Adviser may reasonably request. Under the Shareholder Servicing Plan and Agreement, the Fund may incur expenses on an annual basis equal to 0.25% of the average daily net assets of the Class A and Class C shares.
In addition to payments under the Plan, from time to time the Fund may pay broker-dealers and other intermediaries’ account-based fees for networking and account maintenance. In addition, the Adviser and/or the Distributor may, from time to time, at their own expense out of the revenues they receive from the Fund and/or its own financial resources, make cash payments to broker-dealers and other financial intermediaries (directly and not as an expense of the Fund) as an incentive to sell shares of the Fund and/or to promote retention of customer assets in the Fund. Such cash payments may be calculated on sales of shares of the Fund (“Sales-Based Payments”) or on the average daily net assets of the Fund attributable to that particular broker-dealer or other financial intermediary (“Asset-Based Payments”). Each of the Adviser and/or the Distributor may agree to make such cash payments to a broker-dealer or other financial intermediary in the form of either or both Sales-Based Payments and Asset-Based Payments.
The Adviser and/or the Distributor may also make other cash payments to broker-dealers or other financial intermediaries in addition to or in lieu of Sales-Based Payments and Asset-Based Payments, in the form of payment for travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives of those broker-dealers or other financial intermediaries and their families to places within or outside the United States; meeting fees; entertainment; transaction processing and transmission charges; advertising or other promotional expenses; allocable portions, based on shares of the Fund sold, of salaries and bonuses of registered representatives of an affiliated broker-dealer or other financial intermediary that is a financial advisor; or other expenses as determined in the Adviser or the Distributor’s discretion, as applicable. In certain cases these other payments could be significant to the broker-dealers or other financial intermediaries. Any payments described above will not change the price paid by investors for the purchase of the shares of the Fund, the amount that the Fund will receive as proceeds from such sales, or the amounts payable under the Plan.
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PORTFOLIO MANAGERS
As described in the prospectus, James Dondero and Matthew McGraner serve as portfolio managers and are primarily responsible for the day-to-day management of the Fund. In addition to the portfolio managers, Paul Richards serves as the Chief Financial Officer (CFO) of Real Estate for the Adviser and is responsible for the day-to-day management of the Fund.
Mr. Dondero is the founder and President of NexPoint and co-founder of NAM. Mr. Dondero has over 30 years of experience investing across the alternative landscape. In that time, he established a number of integrated businesses to manage investments in real estate, private equity, and high-yield and structured credit, among other areas. Mr. Dondero holds various leadership roles at NexPoint Advisors, L.P., NexPoint Asset Management, L.P., and other NexPoint affiliates. Mr. Dondero holds various leadership roles across the NexPoint businesses; he serves as a portfolio manager for several funds and is an officer and director at NexPoint’s publicly traded REITs. Additionally, Mr. Dondero holds director positions at several companies within financial services, real estate, and other industries. He is the chairman of NexBank Capital, Inc. and a director of NexBank. A dedicated philanthropist, Mr. Dondero actively contributes to initiatives in education, veterans’ affairs, and community and economic development, and has been instrumental in supporting a number of civic and cultural institutions in the Dallas-Fort Worth area. He is a member of the Southern Methodist University Cox School of Business Executive Board and the George W. Bush Presidential Center Executive Advisory Council. Mr. Dondero graduated from the University of Virginia where he earned highest honors (Beta Gamma Sigma, Beta Alpha Psi) from the McIntire School of Commerce with dual majors in accounting and finance. He received certification as a Certified Public Accountant (CPA) and a Certified Managerial Accountant (CMA) and is a holder of the right to use the Chartered Financial Analyst (CFA) designation.
Mr. McGraner has extensive experience in real estate and private equity transactions and currently leads the operations of the real estate platform of NexPoint and its affiliates, a suite of leading alternative investment managers he co-founded. In that role, he sources and executes investments, manages risk and develops potential business opportunities, including fundraising, private investments and joint ventures. In his role at NexPoint, Mr. McGraner has served as the Executive VP and Chief Investment Officer of NXRT, a multifamily real estate investment trust, since 2016; NREF, a mortgage REIT, since 2020; VineBrook Homes Trust, a single family rental REIT, since 2019; NexPoint Diversified Real Estate Trust, a diversified REIT, since 2022; and as a member of the board of directors and President of NexPoint Storage Partners, a self-storage REIT, since 2020. Mr. McGraner is also a licensed attorney and was formerly an attorney at an AmLaw 20 multinational law firm, where his practice primarily focused on private equity, real estate and mergers and acquisitions. Since 2013, Mr. McGraner has led the acquisition and financing of over $21.9 billion of real estate investments. Mr. McGraner holds a B.S. from Vanderbilt University and a J.D. from the Washington University School of Law.
Paul Richards oversees research and conducts due diligence on new investment ideas, performs valuation and benchmark analysis, monitors and manages investments in real estate portfolios, and provides industry support to the real estate platform of the Adviser and its affiliates. Mr. Richards serves as the CFO, Executive Vice President – Finance, Treasurer and Assistant Secretary of NXRT, NXDT, NREF, and NexPoint Real Estate Advisors, L.P., an affiliated registered investment advisor, CFO, Secretary and Treasurer of NSP, CFO, Assistant Secretary and Treasurer of Vinebrook, and CFO and Corporate Secretary of NHT. Mr. Richards has been with the Adviser and its affiliates since 2014. Mr. Richards hold a B.S. in Accounting and an M.S. in Finance from Texas A&M University. He received certification as a Certified Public Accountant (CPA) and is actively licensed as a CPA.
As of March 31, 2026, Mr. Dondero beneficially owned approximately 5.37% of the Fund’s outstanding shares, Mr. McGraner beneficially owned approximately 3.01% of the Fund’s outstanding shares. Of shares beneficially owned by Mr. Dondero, approximately 0.93% of such shares are held by the Dugaboy Investment Trust, of which Mr. Dondero is the beneficiary. Approximately 1.15% of such shares are held by NexPoint. Mr. Dondero is the President and sole member of NexPoint Advisors GP, LLC, NexPoint’s general partner, and may be deemed to be an indirect beneficial owner of shares held by NexPoint. Mr. Dondero disclaims beneficial ownership of all such shares except to the extent of his pecuniary interest therein.
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Compensation of Portfolio Managers
The Fund’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors, including the pre-tax relative performance of the portfolio manager’s underlying account, the pre-tax combined performance of the portfolio manager’s underlying accounts, and the pre-tax relative performance of the portfolio manager’s underlying accounts measured against other employees.
The principal components of compensation include a base salary, a discretionary bonus, and various retirement benefits.
Base compensation. Generally, the portfolio managers will receive base compensation based on his seniority and/or position with the Fund, which may include the amount of assets supervised and other management roles within the Fund. Base compensation is determined by taking into account current industry norms and market data to ensure that the Fund pays a competitive base compensation.
Discretionary compensation. In addition to base compensation, the portfolio managers may receive discretionary compensation, which can be a substantial portion of total compensation. Discretionary compensation can include a discretionary cash bonus paid to recognize specific business contributions and to ensure that the total level of compensation is competitive with the market.
Because the portfolio manager’s compensation is based on his individual performance, the Fund does not have a typical percentage split among base salary, bonus and other compensation. Senior portfolio managers who perform additional management functions may receive additional compensation in these other capacities. Compensation is structured such that key professionals benefit from remaining with the Fund.
As of December 31, 2025, the portfolio managers were responsible for the management of the following types of accounts other than the Fund:
James Dondero
| Type of Account |
Number of Accounts Managed |
Total Assets (millions) |
Number of Accounts Managed Subject to Performance-Based Advisory Fee |
Total Assets Subject to Performance- Based Advisory Fee (millions) |
||||||||||||
| Registered Investment Companies |
6 | $ | 2,517 | 1 | $ | 38 | ||||||||||
| Other Pooled Investment Vehicles |
3 | $ | 5,052 | 3 | $ | 5,052 | ||||||||||
| Other Accounts |
— | $ | — | — | $ | — | ||||||||||
Matthew McGraner
| Type of Account |
Number of Accounts |
Total Assets (millions) |
Number of Accounts Managed Subject to Performance-Based Advisory Fee |
Total Assets Subject to Performance- Based Advisory Fee (millions) |
||||||||||||
| Registered Investment Companies |
— | $ | — | — | $ | — | ||||||||||
| Other Pooled Investment Vehicles |
3 | $ | 5,052 | 3 | $ | 5,052 | ||||||||||
| Other Accounts |
— | $ | — | — | $ | — | ||||||||||
Distributor
NexPoint Securities, Inc. (the “Distributor”), located at 200 Crescent Court, Suite 700, Dallas, Texas 75201, serves as the Fund’s principal underwriter and acts as the distributor of the Fund’s shares on a reasonable efforts basis, subject to various conditions.
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ALLOCATION OF BROKERAGE
Specific decisions to purchase or sell securities for the Fund are made by the portfolio managers who are employees of the Adviser. The Adviser is authorized by the Trustees to allocate the orders placed on behalf of the Fund to brokers or dealers who may, but need not, provide research or statistical material or other services to the Fund or the Adviser for the Fund’s use. Such allocation is to be in such amounts and proportions as the Adviser may determine. Some of the services received as the result of Fund transactions may primarily benefit accounts other than the Fund, while services received as the result of portfolio transactions effected on behalf of those other accounts may primarily benefit the Fund. While such services are useful and important in supplementing its own research and facilities, the Adviser believes the value of such services is not determinable and does not significantly reduce its expenses. Any research or other benefits received by the Adviser from a broker-dealer, for transactions where the Fund will be “paying-up”, will qualify for the safe harbor provisions under Section 28(e) of the Securities Exchange Act of 1934.
In selecting a broker or dealer to execute each particular transaction, the Adviser will take the following into consideration:
| • | the best net price available; |
| • | the reliability, integrity and financial condition of the broker or dealer; |
| • | the size of and difficulty in executing the order; and |
| • | the value of the expected contribution of the broker or dealer to the investment performance of the Fund on a continuing basis. |
Brokers or dealers executing a portfolio transaction on behalf of the Fund may receive a commission in excess of the amount of commission another broker or dealer would have charged for executing the transaction if the Adviser determines in good faith that such commission is reasonable in relation to the value of brokerage and research services provided to the Fund. In allocating portfolio brokerage, the Adviser may select brokers or dealers who also provide brokerage, research and other services to other accounts over which the Adviser exercises investment discretion. Some of the services received as the result of Fund transactions may primarily
benefit accounts other than the Fund, while services received as the result of portfolio transactions effected on behalf of those other accounts may primarily benefit the Fund.
During the fiscal year ended December 31, 2023, the Fund paid brokerage commissions of $0, of which $0 was paid to NexBank.
During the fiscal year ended December 31, 2024, the Fund paid brokerage commissions of $0, of which $0 was paid to NexBank.
During the fiscal year ended December 31, 2025, the Fund paid brokerage commissions of $0, of which $0 was paid to NexBank.
During the fiscal year ended December 31, 2025, the Fund did not acquire any securities of its regular brokers or dealers. At that date, the Fund did not hold any securities of its regular brokers or dealers. For these purposes, regular brokers or dealers are: (a) the brokers or dealers that received the greatest dollar amount of brokerage commissions by virtue of direct or indirect participation in the Fund’s portfolio transactions during the Fund’s most recent fiscal year; (b) the brokers or dealers that engaged as principal in the largest dollar amount of portfolio transactions of the Fund during the Fund’s most recent fiscal year; or (c) the brokers or dealers that sold the largest dollar amount of securities of the Fund during the Fund’s most recent fiscal year.
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Affiliated Party Transactions
The Adviser and its affiliates will not purchase securities or other property from, or sell securities or other property to, the Fund, except that the Fund may in accordance with rules under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of common officers, directors, advisers, members, managing general partners or common control. These transactions would be effected in circumstances pursuant to policies adopted by the Trustees pursuant to Rule 17a-7 under the 1940 Act, in which the Adviser determined that it would be appropriate for the Fund to purchase and another client to sell, or the Fund to sell and another client to purchase, the same security or instrument on the same day.
If the Adviser places Fund trades through an affiliated broker, the trades will be executed under a policy adopted by the Trustees pursuant to Section 17(e) and Rule 17(e)(1) under the 1940 Act which places limitations on the securities transactions effected through affiliates. The policy of the Fund with respect to brokerage is reviewed by the Trustees from time to time. Because of the possibility of further regulatory developments affecting the securities exchanges and brokerage practices generally, the foregoing practices may be modified.
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TAX STATUS
The following discussion is general in nature and should not be regarded as an exhaustive presentation of all possible tax ramifications.
The discussion summarizes certain U.S. federal income tax consequences that may be relevant to a shareholder of the Fund that acquires, holds and/or disposes of shares of the Fund, and reflects provisions of the Code, existing Treasury regulations, rulings published by the IRS, and other applicable authority as of the date of this SAI. These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following discussion is only a summary of some of the important tax considerations generally applicable to investments in the Fund and the discussion set forth herein does not constitute tax advice. There may be other tax considerations applicable to particular investors such as those holding shares in a tax-advantaged account such as an IRA or 401(k) plan. In addition, income earned through an investment in the Fund may be subject to state, local and foreign taxes. All shareholders should consult a qualified tax adviser regarding their investment in the Fund.
The Fund has elected to be treated and intends to qualify each year for taxation as a RIC under Subchapter M of the Code, which requires compliance with certain requirements concerning the sources of its income, diversification of its assets, and the amount and timing of its distributions to shareholders (as described below). If the Fund so qualifies, the Fund will not be subject to federal income or excise tax on net investment income or net capital gain that are distributed to shareholders in accordance with the applicable timing requirements. Net investment income and net capital gain of the Fund will be computed in accordance with Section 852 of the Code. Very generally, net investment income consists of dividends and interest less expenses. Net capital gain for a fiscal year is computed by taking into account any capital loss carryforward of the Fund.
The Fund intends to distribute all of its net investment income, any excess of net short-term capital gains over net long-term capital losses, and any excess of net long-term capital gains over net short-term capital losses in accordance with the timing requirements imposed by the Code so as to avoid imposition of federal income or excise taxes. Distributions of net investment income will be made quarterly and net capital gain will be made no later than December 31 of each year. Both types of distributions will be in shares of the Fund unless a shareholder elects to receive cash.
In order to qualify for the favorable tax treatment accorded to RICs under Subchapter M of the Code, the Fund must: (a) derive at least 90% of its gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, net income from interests in “qualified publicly traded partnerships” and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such stock, securities or currencies, and net income derived from interests in “qualified publicly traded partnerships”; (b) diversify its holdings so that, at the end of each quarter of its taxable year: (i) at least 50% of the market value of the Fund’s assets is represented by cash, U.S. government securities and securities of other RICs, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the Fund’s assets and 10% of the outstanding voting securities of such issuer); and (ii) not more than 25% of the value of its assets is invested, including through corporations in which it owns a 20% or more voting stock interest, in the securities of (other than U.S. government securities or the securities of other RICs) any one issuer, two or more issuers which the Fund controls and which are determined to be engaged in the same or similar trades or businesses, or the securities of one or more “qualified publicly traded partnerships”; and (c) distribute to its shareholders with respect to each taxable year at least the sum of 90% of the Fund’s “investment company taxable income” (as that term is defined in the Code, without regard to the deduction for dividends paid — generally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and 90% of any net tax-exempt interest income (the excess of the Fund’s gross tax-exempt interest over certain disallowed deductions), for such year, in a manner qualifying for the dividends paid deduction.
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If the Fund qualifies and is eligible for treatment as a RIC (i.e., satisfies the source of income and diversification requirements described in (i) and (ii) above and satisfies the annual distribution requirement described in (iii) above), it will not be subject to U.S. federal income tax on income distributed in a timely manner to its shareholders in the form of dividends (including Capital Gain Dividends, as defined below). If the Fund were not a “publicly offered” RIC within the meaning of Code Section 67(c)(2)(B) for any year, certain of the Fund’s direct and indirect expenses, including management fees and certain other advisory expenses, would be subject to special “pass-through” rules. Such rules would treat these expenses as additional dividends to certain of the Fund’s direct or indirect shareholders (generally including individuals and entities that compute their taxable income in the same manner as an individual).
If, for any taxable year, the Fund were to fail to meet the income, diversification or distribution test described above, the Fund could in some cases cure such failure, including by paying a fund-level tax, paying interest, making additional distributions, or disposing of certain assets. If the Fund were ineligible to or otherwise did not cure such failure for any year, or if the Fund were otherwise to fail to qualify as a RIC accorded favorable tax treatment for such year, the Fund would be subject to tax on its taxable income at the applicable corporate income tax rate, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. Some portions of such distributions may be eligible for the dividends-received deduction in the case of corporate shareholders and may be eligible to be treated as “qualified dividend income” and thus taxable at the lower long-term capital gain rate in the case of shareholders taxed at individual rates, provided, in both cases, the shareholder meets certain holding period and other requirements in respect of the Fund’s shares (as described below). In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before re-qualifying as a RIC that is accorded favorable tax treatment.
If in a calendar year the Fund fails to distribute at least an amount equal to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of such year (unless an election is made to use the Fund’s taxable year), plus any such undistributed amounts from the prior year, the Fund will be subject to a nondeductible 4% excise tax on the undistributed amounts. For purposes of the required excise tax distribution, a RIC’s ordinary gains and losses from the sale, exchange or other taxable disposition of property that would otherwise be taken into account after October 31 of a calendar year generally (unless an election is made to use the Fund’s taxable year) are treated as arising on January 1 of the following calendar year. Also, for these purposes, the Fund will be treated as having distributed any amount on which the Fund has been subject to corporate income tax in the taxable year ending with the calendar year. The Fund reserves the right to pay the excise tax when circumstances warrant. Under ordinary circumstances, the Fund expects to make sufficient distributions so as to avoid liability for this tax.
The Fund is not permitted to deduct capital losses in excess of capital gains (“net capital losses”) against its net investment income. Instead, potentially subject to certain limitations, it may carry net capital losses from any taxable year forward to subsequent taxable years to offset capital gains, if any, realized during such subsequent taxable year. Capital loss carryforwards are reduced to the extent they offset current-year net realized capital gains, whether the Fund retains or distributes such gains. Net capital losses will be carried forward to one or more subsequent taxable years without expiration to offset capital gains realized during such subsequent taxable years; any such carryforward losses will retain their character as short-term or long-term.
Distributions of taxable net investment income and the excess of net short-term capital gain over net long-term capital loss are taxable to shareholders as ordinary income.
Distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss, in each case determined with reference to any loss carryforwards) properly reported by the Fund as capital gain dividends (“Capital Gain Dividends”) generally are taxable to shareholders as long-term capital gain, regardless of the length of time the shares of the Fund have been held by such shareholders.
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In order for some portion of the dividends received by one of the Fund’s shareholders to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to Fund shares. In general, a dividend will not be treated as qualified dividend income (at either the corporate or stockholder level): (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date); (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property; (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest; or (4) if the dividend is received from a foreign corporation that is: (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States); or (b) treated as a passive foreign investment company.
In general, distributions of investment income the Fund designates as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed at individual rates, provided the shareholder meets the holding period and other requirements described in the paragraph immediately above with respect to Fund shares. The Fund does not expect a significant portion of its distributions to constitute qualified dividend income.
“Qualified REIT dividends” (i.e., ordinary REIT dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income) are treated as eligible for a 20% deduction by non-corporate taxpayers. This deduction, if allowed in full, equates to a maximum effective tax rate of 29.6% (37% top rate applied to income after 20% deduction). Regulations allow a RIC to pass the character of its qualified REIT dividends through to its shareholders provided certain holding period requirements are met.
In general, dividends of net investment income received by the Fund’s corporate shareholders will qualify for the 50% dividends-received deduction generally available to corporations to the extent of the amount of eligible dividends the Fund receives from domestic corporations for the taxable year. A dividend the Fund receives will not be treated as a qualifying dividend: (i) if it has been received with respect to any share of stock that the Fund has held for less than 46 days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days before such date in the case of certain preferred stock); or (ii) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends-received deduction may be disallowed or reduced: (i) if the corporate stockholder fails to satisfy the foregoing requirements with respect to Fund shares; or (ii) by application of various provisions of the Code (for instance, the dividends-received deduction is reduced in the case of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). The Fund does not expect a significant portion of its distributions to be eligible for this corporate dividends-received deduction.
When the Fund makes a repurchase offer for its shares (as described in “Quarterly Repurchase of Shares”) and a shareholder tenders all shares he or she holds, or is considered to be holding, and such shareholder does not hold (directly or by attribution) any other of the Fund’s shares, such shareholder will be treated as having sold his or her shares and generally will realize a capital gain or loss (as described further below). If a shareholder tenders fewer than all of his or her shares or continues to hold (directly or by attribution) other units of the Fund’s shares, there is some risk that such shareholder may be treated as having received a dividend distribution under Section 301 of the Code (a “Section 301 distribution”) unless the redemption is treated as being either: (i) “substantially disproportionate”; or (ii) otherwise “not essentially equivalent to a dividend” under the relevant
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rules of the Code. A Section 301 distribution is not treated as a sale or exchange giving rise to a capital gain or loss, but rather is treated as a dividend to the extent supported by the Fund’s current and accumulated earnings and profits, with the excess treated as a return of capital reducing a shareholder’s tax basis in Fund shares, but not below zero, and thereafter as capital gain. Where a redeeming shareholder is treated as receiving a dividend, there is a risk that non-tendering shareholders whose interests in the Fund increase as a result of such tender will be treated as having received a taxable distribution from the Fund. Dividend treatment of a tender would also affect the amount and character of income that the Fund is required to distribute for the year in which the redemption occurred. It is possible that such a dividend would qualify as “qualified dividend income”; otherwise, it would be taxable as ordinary income. To the extent the Fund recognizes net gains on the liquidation of portfolio securities to meet such tenders, the Fund will be required to make additional distributions to its common shareholders.
A disposition of Fund shares by a shareholder treated as a sale or exchange will generally result in the recognition of taxable gain or loss in an amount equal to the difference between the amount realized and the shareholder’s tax basis in his or her Fund shares. Such gain or loss is treated as a capital gain or loss if the shares are held as capital assets. However, any loss realized upon the sale or exchange of shares within six months from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as Capital Gain Dividends during such six-month period. All or a portion of any loss realized upon the sale or exchange of shares may be disallowed under the “wash sale” rules of the Code to the extent shares are purchased (including shares acquired by means of reinvested dividends) within 30 days before or after such sale or exchange. In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Sales or exchanges of Fund shares are also subject to reporting requirements.
Distributions of taxable net investment income and net capital gain will be taxable as described above, whether received in additional cash or reinvested in additional shares. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of a share on the reinvestment date.
All distributions of taxable net investment income and net capital gain, whether received in shares or in cash, must be reported by each taxable shareholder on his or her federal income tax return. Dividends or distributions declared in October, November or December as of a record date in such a month, if any, will be deemed to have been received by shareholders on December 31, if paid during January of the following year.
Under the Code, the Fund will be required to report to the Internal Revenue Service all distributions of taxable income and capital gains as well as gross proceeds from the sale or exchange of Fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of taxable net investment income and net capital gain and proceeds from the sale or exchange of the shares of a RIC may be subject to withholding of federal income tax: (i) in the case of non-exempt shareholders who fail to furnish the Fund with their taxpayer identification numbers (“TIN”) and with required certifications regarding their status under the federal income tax law; or (ii) if the Fund is notified by the IRS or a broker that withholding is required due to an incorrect TIN or a shareholder’s previous failure to report taxable interest or dividends. If the backup withholding provisions are applicable, any such distributions and proceeds, whether received in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder’s federal income tax liability, provided the appropriate information is furnished to the IRS.
The Code imposes a 3.8% Medicare contribution tax on the “net investment income” of certain individuals, estates and trusts to the extent their income exceeds certain amounts. Net investment income generally includes for this purpose dividends the Fund pays, including any Capital Gain Dividends, and net capital gains recognized on the sale or exchange of Fund shares. Shareholders are advised to consult their tax advisors regarding the possible implications of this additional tax on their investment with the Fund.
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Return of Capital Distributions
If, for any taxable year, the Fund’s total distributions exceed both current and accumulated earnings and profits, the excess will generally be treated as a tax-free return of capital up to the amount of your tax basis in Fund shares. The amount treated as a tax-free return of capital will reduce your tax basis in Fund shares, thereby increasing your potential gain or reducing your potential loss on the subsequent sale of Fund shares. Any such amounts distributed to you in excess of your tax basis in Fund shares will be taxable to you as capital gain.
Distributions the Fund pays with respect to its shares are generally subject to U.S. federal income tax as described herein to the extent they do not exceed the Fund’s realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder’s investment. Such distributions are likely to occur in respect of shares purchased at a time when the Fund’s net asset value reflects either unrealized gains, or realized but undistributed income or gains, that were therefore included in the price the shareholder paid. Such distributions may reduce the value of Fund shares below the shareholder’s cost basis in those shares. As described above, the Fund is required to distribute realized income and gains regardless of whether its net asset value also reflects unrealized losses.
Tax Implications of Certain Investments
Some debt obligations with a fixed maturity date of more than one year from the date of issuance that the Fund acquires in the secondary market may be treated as having “market discount.” Very generally, market discount is the excess of the stated redemption price of a debt obligation (or in the case of an obligation issued with OID (as defined below), its “revised issue price”) over the purchase price of such obligation. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt obligation having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the “accrued market discount” on such debt obligation. Alternatively, a holder may elect to accrue market discount currently. If the Fund makes this election, it would be required to include currently any accrued market discount on such debt obligations in its taxable income (as ordinary income) and thus distribute it over the terms of the obligations, even though payment of those amounts is not received until a later time, upon partial or full repayment or disposition of the applicable debt obligations. The rate at which market discount accrues, and thus is included in the Fund’s income, will depend upon which of the permitted accrual methods it elects.
In addition, some debt obligations with a fixed maturity date of more than one year from the date of issuance (and zero-coupon debt obligations with a fixed maturity date of more than one year from the date of issuance) that the Fund originates or acquires will be treated as debt obligations that are issued originally at a discount. Generally, the amount of the original issue discount (“OID”) is treated as interest income and is included in taxable income (and the Fund is required to distribute it) over the term of the debt obligation, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt obligation. In addition, payment-in-kind (“PIK”) securities the Fund originates or acquires will give rise to income which is required to be distributed and is taxable even though the Fund receives no interest payment in cash on the security during the year in which the income was accrued.
Some debt obligations with a fixed maturity date of one year or less from the date of issuance that the Fund originates or acquires may be treated as having OID or, in certain cases, “acquisition discount” (very generally, the excess of the stated redemption price over the purchase price). Generally, the Fund will be required to include the OID or acquisition discount in income (as ordinary income) over the term of the debt obligation and thus distribute it over the term of the debt obligation, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt obligation. The rate at which OID or acquisition discount accrues, and thus is included in the Fund’s income, will depend upon which of the permitted accrual methods the Fund elects.
Some preferred securities may include provisions that permit the issuer, at its discretion, to defer the payment of distributions for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred
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security that is deferring the payment of its distributions, the Fund may be required to report income for U.S. federal income tax purposes to the extent of any such deferred distribution even though it has not yet actually received the cash distribution.
As a result of holding the foregoing kinds of obligations, the Fund may be required to pay out as an income distribution each year an amount which is greater than the total amount of cash interest (or dividends in the case of preferred securities) the Fund actually received. Such distributions may be made from, among other things, the Fund’s cash assets or cash generated from its liquidation of portfolio securities. The Fund may realize gains or losses from such liquidations. In the event the Fund realizes net long-term or short- term capital gains from such transactions, its shareholders may receive a larger capital gain or ordinary dividend, respectively, than they would in the absence of such transactions.
Investments in distressed debt obligations that are at risk of or in default present special tax issues. Tax rules are not entirely clear about issues such as whether and to what extent the Fund should recognize market discount on these debt obligations; when the Fund may cease to accrue interest, OID or market discount; when and to what extent the Fund may take deductions for bad debts or worthless securities and how the Fund should allocate payments received on obligations in default between principal and income. The Fund will address these and other related issues when, as and if it invests in such obligations, in order to seek to ensure that it distributes sufficient income to preserve its eligibility for treatment as a RIC and does not become subject to U.S. federal income or excise tax.
A portion of the OID accrued on certain high-yield discount obligations the Fund owns may not be deductible to the issuer and will instead be treated as a dividend paid by the issuer for purposes of the dividends-received deduction. In such cases, if the issuer of the obligation is a domestic corporation, dividend payments the Fund makes may be eligible for the dividends-received deduction to the extent of the deemed dividend portion of such OID.
The Fund’s transactions, if any, in options, futures contracts, hedging transactions, forward contracts, straddles and foreign currencies will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders.
Certain of the Fund’s hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the Fund’s book income exceeds its taxable income, the distribution (if any) of such excess book income will be treated as: (i) a dividend to the extent of the Fund’s remaining earnings and profits (including earnings and profits arising from tax-exempt income); (ii) thereafter, as a return of capital to the extent of the recipient’s basis in the shares; and (iii) thereafter, as gain from the sale or exchange of a capital asset. If the Fund’s book income is less than its taxable income, the Fund could be required to make distributions exceeding book income to qualify as a RIC that is accorded favorable tax treatment and to avoid an entity-level tax.
Because the tax rules applicable to derivative financial instruments are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether the Fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a RIC and avoid a fund-level tax.
Pursuant to a notice issued by the IRS and Treasury Regulations that have yet to be issued but may apply retroactively, a portion of the Fund’s income (including income allocated from certain pass-through entities) that is attributable to a residual interest in a real estate mortgage investment conduit or taxable mortgage pool (referred to in the Code as an “excess inclusion”) will be subject to U.S. federal income tax in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a RIC will be
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allocated to shareholders of the RIC in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. As a result, to the extent the Fund invests in any such interests, it may not be a suitable investment for certain tax-exempt shareholders. Although the Fund does not expect to make investments that generate or pass through excess inclusion income in the manner described above, the Fund may make such investments, and may need to make certain elections set forth in the IRS notice governing such matters.
In general, excess inclusion income allocated to shareholders: (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions); (ii) will constitute unrelated business taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a U.S. federal income tax return, to file such a tax return and pay tax on such income; and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction in U.S. federal withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such income tax otherwise available under the Code.
Passive Foreign Investment Companies
Equity investments by the Fund in certain “passive foreign investment companies” (“PFICs”) could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company, which tax cannot be eliminated by making distributions to Fund shareholders. However, the Fund may elect to treat a PFIC as a “qualified electing fund” (“QEF election”), in which case the Fund will be required to include its share of the company’s income and net capital gains annually, regardless of whether they receives any distribution from the company.
The Fund also may make an election to mark the gains (and to a limited extent losses) in such holdings “to the market” as though it had sold and repurchased its holdings in those PFICs on the last day of the Fund’s taxable year. Such gains and losses are treated as ordinary income and loss. The QEF and mark-to-market elections may accelerate the recognition of income (without the receipt of cash) and increase the amount required to be distributed for the Fund to avoid taxation. Making either of these elections therefore may require the Fund to liquidate other investments (including when it is not advantageous to do so) to meet its distribution requirement, which also may accelerate the recognition of gain and affect the Fund’s total return. Because it is not always possible to identify a foreign corporation as a PFIC, the Fund may incur the tax and interest charges described above in some instances.
Foreign Currency Transactions
The Fund’s transactions in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. Such ordinary income treatment may accelerate the Fund’s distributions to shareholders and increase the distributions taxed to shareholders as ordinary income. The Fund cannot carry forward any net ordinary losses so created to offset income or gains earned in subsequent years.
Foreign Taxation
Income received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax treaties and conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the value of the Fund’s total assets at the close of its taxable year consists of securities of foreign corporations, the Fund may be able to elect to “pass through” to the Fund’s shareholders the amount of eligible foreign income and similar taxes paid by the Fund. If this election is made, a shareholder generally will be required to include in gross income (in addition to taxable dividends actually
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received) his or her pro rata share of the foreign taxes paid by the Fund, and may be entitled either to deduct (as an itemized deduction), or claim a credit for, his or her pro rata share of such foreign taxes in computing his or her taxable income, subject to certain limitations. In particular, a shareholder must hold his or her shares (without protection from risk of loss) on the ex-dividend date and for at least 15 more days during the 30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a dividend. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each shareholder will be notified within 60 days after the close of the Fund’s taxable year whether the foreign taxes paid by the Fund will “pass through” for that year. If the Fund does not qualify for or does not make such election, shareholders generally will not be entitled to claim a credit or deduction with respect to foreign taxes paid by the Fund; in that case the foreign tax will nonetheless reduce the Fund’s taxable income.
Non-U.S. Shareholders
Distributions the Fund pays to shareholders that are not “U.S. persons” within the meaning of the Code (“foreign shareholders”) and that the Fund properly reports as: (1) Capital Gain Dividends; (2) interest-related dividends; and (3) short-term capital gain dividends, each as defined below and subject to certain conditions described below, generally are not subject to withholding of U.S. federal income tax.”
In general, the Code defines: (1) “short-term capital gain dividends” as distributions of net short-term capital gains in excess of net long-term capital losses; and (2) “interest-related dividends” as distributions from U.S. source interest income of types similar to those not subject to U.S. federal income tax if earned directly by an individual foreign shareholder, in each case to the extent such distributions are properly reported as such by the Fund in a written notice to shareholders. The exceptions to withholding for Capital Gain Dividends and short-term capital gain dividends do not apply to: (A) distributions to an individual foreign shareholder who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (B) distributions attributable to gain that is treated as effectively connected with the conduct by the foreign shareholder of a trade or business within the United States under special rules regarding the disposition of U.S. real property interests. The exception to withholding for “interest-related dividends” does not apply to distributions to a foreign shareholder: (A) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person; (B) to the extent that the dividend is attributable to certain interest on an obligation if the foreign shareholder is the issuer or is a 10% shareholder of the issuer; (C) that is within certain foreign countries that have inadequate information exchange with the United States; or (D) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign shareholder and the foreign shareholder is a controlled foreign corporation. The Fund is permitted to report such part of the Fund’s dividends as interest-related and/or short-term capital gain dividends as are eligible, but is not required to do so. In the case of shares held through an intermediary, the intermediary may withhold even if the Fund reports all or a portion of a payment as an interest-related or short-term capital gain dividend to shareholders.
Foreign shareholders should contact their intermediaries regarding the application of these rules to their accounts.
Distributions to foreign shareholders other than Capital Gain Dividends, interest-related dividends, and short-term capital gain dividends (e.g., dividends attributable to dividend and foreign-source interest income or to short-term capital gains or U.S. source interest income to which the exception from withholding described above does not apply) are generally subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate).
A foreign shareholder is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of the Fund’s shares unless: (i) such gain is effectively connected with the conduct of a trade or business carried on by such holder within the United States; (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale and certain other conditions are met; or (iii) certain special rules relating to gain attributable to the sale or exchange of U.S. real property interests apply to the foreign shareholder’s sale of the Fund’s shares.
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Foreign shareholders with respect to whom income from the Fund is effectively connected with a trade or business conducted by the foreign shareholder within the United States will in general be subject to U.S. federal income tax on the income derived from the Fund at the graduated rates applicable to U.S. citizens, residents or domestic corporations, whether such income is received in cash or reinvested in additional units of the Fund’s shares and, in the case of a foreign corporation, may also be subject to a branch profits tax. If a foreign shareholder is eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained by the shareholder in the United States. More generally, foreign shareholders who are residents of a country with an income tax treaty with the United States may obtain different tax results than those described herein, and are urged to consult their tax advisors.
Special rules would apply if the Fund were a qualified investment entity (“QIE”) because it is either a “U.S. real property holding corporation” (“USRPHC”) or would be a USRPHC but for the operation of certain exceptions to the definition of U.S. real property interests (“USRPIs”) described below. Very generally, a USRPHC is a domestic corporation that holds USRPIs the fair market value of which equals or exceeds 50% of the sum of the fair market values of the corporation’s USRPIs, interests in real property located outside the United States, and other trade or business assets. USRPIs generally are defined as any interest in U.S. real property and any interest (other than solely as a creditor) in a USRPHC or, very generally, an entity that has been a USRPHC in the last five years. A fund that holds, directly or indirectly, significant interests in REITs may be a USRPHC. Interests in domestically controlled QIEs, including REITs and RICs that are QIEs, not-greater-than-10% interests in publicly traded classes of stock in REITs and not-greater-than-5% interests in publicly traded classes of stock in RICs generally are not USRPIs, but these exceptions do not apply for purposes of determining whether the Fund is a QIE.
If an interest in the Fund were a USRPI, a greater-than-5% foreign shareholder, or any foreign shareholder if shares in the Fund are not considered regularly traded on an established securities market, generally would be required to file a U.S. tax return in connection with the sale of its Fund shares, and pay related taxes due on any gain realized on the sale.
Moreover, if the Fund were a USRPHC or, very generally, had been one in the last five years, it would be required to withhold on amounts distributed to a greater-than-5% foreign shareholder to the extent such amounts would not be treated as a dividend, i.e., are in excess of the Fund’s current and accumulated “earnings and profits” for the applicable taxable year. Such withholding generally is not required if the Fund is a domestically controlled QIE.
If the Fund were a QIE, under a special “look-through” rule, any distributions to a foreign shareholder attributable directly or indirectly to: (i) distributions received by the Fund from a lower-tier RIC or REIT that the Fund is required to treat as USRPI gain in its hands; and (ii) gains realized on the disposition of USRPIs by the Fund would retain their character as gains realized from USRPIs in the hands of the Fund’s foreign shareholders and would be subject to U.S. tax withholding. In addition, such distributions could result in the foreign shareholder being required to file a U.S. tax return and pay tax on the distributions at regular U.S. federal income tax rates. The consequences to a foreign shareholder, including the rate of such withholding and character of such distributions (e.g., as ordinary income or USRPI gain), would vary depending upon the extent of the foreign shareholder’s current and past ownership of the Fund.
Foreign shareholders of the Fund also may be subject to “wash sale” rules to prevent the avoidance of the tax-filing and -payment obligations discussed above through the sale and repurchase of Fund shares.
In order to have qualified for any exemption from withholding described above (to the extent applicable) or for lower withholding tax rates under income tax treaties, or to establish an exemption from backup withholding, a foreign shareholder must have complied with applicable certification and filing requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN, Form W-8BEN-E or substitute form). Foreign shareholders should contact their tax advisors in this regard.
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Special rules (including withholding and reporting requirements) apply to foreign partnerships and those holding Fund shares through foreign partnerships. Additional considerations may apply to foreign trusts and estates. Investors holding Fund shares through foreign entities should consult their tax advisors.
A foreign shareholder may be subject to state and local tax and to the U.S. federal estate tax in addition to the U.S. federal tax on income referred to above.
Other Reporting and Withholding Requirements
Sections 1471-1474 of the Code, and the U.S. Treasury Regulations and IRS guidance issued thereunder (collectively, “FATCA”), generally require the Fund to obtain information sufficient to identify the status of each of the Fund’s shareholders under FATCA or under an applicable intergovernmental agreement (an “IGA”). If a shareholder fails to provide the required information or otherwise fails to comply with FATCA or an IGA, the Fund or its agent may be required to withhold under FATCA 30% of the ordinary dividends that it pays to that shareholder. Proposed regulations (having current effect) eliminate the application of the withholding tax that was scheduled to take effect in 2019 with respect to the gross proceeds of the sale, redemption or exchange of Fund shares and certain Capital Gain Dividends it pays to that shareholder. If the Fund makes a payment that is subject to FATCA withholding, the Fund, or its agent, are required to withhold even if the payment would otherwise be exempt from withholding under rules applicable to non-U.S. shareholders (e.g., Capital Gain Dividends, short-term capital gain dividends and interest-related dividends). You are urged to consult your tax advisor regarding the applicability of FATCA and any other reporting requirements. In addition, foreign countries are considering, and may implement, laws similar in purpose and scope to FATCA.
REIT Subsidiary
Taxation of a REIT Subsidiary
As discussed above, the Fund may hold certain of its assets, including qualifying real estate investments in the form of debt securities, structured credit, preferred equity and mezzanine investments in real estate properties, through a REIT subsidiary, including the REIT Subsidiaries. The Fund intends to monitor the value of the shares of any REIT subsidiary such that not more than 25% of the value of the Fund’s total assets is invested in REIT subsidiaries.
The Fund intends that any REIT subsidiary would elect to be treated, and qualify annually, as a REIT under the Code beginning with the first year in which it commenced material operations. The Fund believes that if a REIT subsidiary were to satisfy the 50% Test (as defined below), that subsidiary would be able to qualify as a REIT. A REIT subsidiary’s ability to satisfy the 50% Test, is not certain. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in circumstances or applicable law, no assurance can be given that a REIT subsidiary would qualify as a REIT for any particular year.
Qualification and taxation as a REIT depends on a REIT subsidiary’s ability to meet, on a continuing basis, through actual results of operations, distribution levels, share ownership and various other qualification requirements imposed upon REITs by the Code. In addition, a REIT subsidiary’s ability to qualify as a REIT may depend in part upon the operating results, organizational structure and entity classification for U.S. federal income tax purposes of certain entities in which the REIT subsidiary invests. A REIT subsidiary’s ability to qualify as a REIT also requires that it satisfy certain asset and income tests, some of which depend upon the fair market value of assets directly or indirectly owned by it or which serve as security for loans made by it. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of a REIT subsidiary’s operations for any taxable year will satisfy the requirements for qualification and taxation as a REIT.
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Requirements for Qualification as a REIT
To qualify for the beneficial tax regime applicable to REITs, a REIT subsidiary must meet and continue to meet the requirements described below relating to organization, sources of income, nature of assets and distributions of income to its shareholders.
Organizational Requirements
The Code defines a REIT as a domestic corporation, trust or association:
| (1) | which is managed by one or more trustees or directors; |
| (2) | the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; |
| (3) | which would be taxable as a domestic corporation but for Sections 856 through 859 of the Code; |
| (4) | which is neither a financial institution nor an insurance company subject to certain provisions of the Code; |
| (5) | the beneficial ownership of which is held by 100 or more persons; |
| (6) | not more than 50.0% in value of the outstanding stock of which is owned, directly or indirectly applying various attribution rules, by or for five or fewer individuals (as defined in the Code to include for these purposes certain entities) (the “50% Test”); |
| (7) | which makes an election to be a REIT (or has made such election for a previous taxable year which has not been revoked or terminated) and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status; |
| (8) | which uses the calendar year as its taxable year; and |
| (9) | which meets certain other tests, described below, regarding the nature of its income and assets and the amount of its distributions. |
The Code provides that conditions (1) through (4), inclusive, must be met during the entire taxable year, that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months, and that condition (6) must be met during the last half of each taxable year. For purposes of condition (6), the beneficiaries of a pension or profit-sharing trust described in Section 401(a) of the Code, and not the pension or profit-sharing trust itself, are treated as REIT shareholders. Conditions (5) and (6) do not apply to a REIT until the second taxable year in which the REIT has made an election to be treated as such. A REIT subsidiary would be treated as having met condition (6) above for a taxable year if it complied with certain Treasury Regulations for ascertaining the ownership of its stock for such year and if it did not know (or after the exercise of reasonable diligence would not have known) that its stock was sufficiently closely held during such year to cause it to fail condition (6).
The Fund intends to structure and operate any REIT subsidiary and conduct its activities in a manner designed to satisfy all of these requirements. However, the application of such requirements is complex, and it is possible that the IRS may interpret or apply those requirements in a manner that jeopardizes the ability of a REIT subsidiary to satisfy all of the requirements for qualification as a REIT or that the REIT subsidiary may be unable to satisfy all of the applicable requirements.
To obtain the favorable tax treatment afforded to REITs under the Code, among other things, a REIT subsidiary generally will be required each year to distribute to its shareholders at least 90% of its REIT taxable income determined without regard to the dividends-paid deduction and excluding net capital gain. To the extent that it does not distribute all of its net capital gains, or distributes at least 90%, but less than 100%, of its REIT taxable income, as adjusted, it will have to pay an entity-level tax on amounts retained. Furthermore, if it fails to distribute during each calendar year at least the sum of: (a) 85% of its ordinary income for that year; (b) 95% of
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its capital gain net income for that year; and (c) any undistributed taxable income from prior periods, it would have to pay a 4% nondeductible excise tax on the excess of the amounts required to be distributed over the sum of (x) the amounts that it actually distributed and (y) the amounts it retained and upon which it paid income tax at the entity level.
These requirements could cause a REIT subsidiary to distribute amounts that otherwise would be spent on investments in real estate assets, and it is possible that the REIT subsidiary might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund the required distributions.
Investment in a REIT Subsidiary
Provided that a REIT subsidiary qualifies as a REIT, distributions made to the Fund out of the REIT subsidiary’s current or accumulated earnings and profits, and not designated as capital gain dividends, would generally be taken into account by the Fund as ordinary dividend income and would not be eligible for the dividends received deduction for corporations. In determining the extent to which a distribution with respect to a REIT subsidiary’s common shares constituted a dividend for U.S. federal income tax purposes, a REIT subsidiary’s earnings and profits would be allocated first to distributions with respect to the REIT subsidiary’s preferred stock, if any, and then to the REIT subsidiary’s common shares. Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend income rates applicable to individual U.S. shareholders who receive dividends from taxable subchapter C corporations.
The Code generally allows individuals and certain other non-corporate entities a deduction for 20% of qualified REIT dividends. Regulations allow a RIC to pass the character of its qualified REIT dividends through to its shareholders provided certain holding period requirements are met. As a result, a shareholder in the Fund will be eligible to receive the benefit of the same 20% deduction with respect to qualified REIT dividends included in Fund distributions that is available to direct investors in REITs.
In addition, distributions from a REIT subsidiary that are designated as capital gain dividends will be treated by the Fund as long-term capital gain income, to the extent that they do not exceed the actual net capital gain of the REIT subsidiary for the taxable year, without regard to the period for which the Fund has held the REIT subsidiary’s shares. To the extent that a REIT subsidiary elects under the applicable provisions of the Code to retain the REIT subsidiary’s net capital gains, the Fund would be treated as having received, for U.S. federal income tax purposes, the REIT subsidiary’s undistributed capital gains as well as a corresponding credit or refund, as the case may be, for taxes paid by the REIT subsidiary on such retained capital gains. The Fund would increase its adjusted tax basis in the REIT subsidiary’s common shares by the difference between its allocable share of such retained capital gain and its share of the tax paid by the REIT subsidiary.
Distributions from a REIT subsidiary in excess of the REIT subsidiary’s current or accumulated earnings and profits would not be taxable to the Fund to the extent that they do not exceed the Fund’s adjusted tax basis in the REIT subsidiary’s common shares in respect of which the distributions were made, but rather would reduce the adjusted tax basis of these shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the Fund of these shares. To the extent that such distributions exceed the adjusted tax basis of the Fund’s shares of the REIT subsidiary’s common shares, they would be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend declared by a REIT subsidiary in October, November or December of any year and payable to the Fund if it is the holder of record on a specified date in any such month would be treated as both paid by the REIT subsidiary and received by the Fund on December 31 of such year if the dividend is actually paid by the REIT subsidiary in January of the following calendar year.
To the extent that a REIT subsidiary has available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that must be made in order to comply with the REIT distribution requirements. Such losses, however, would not be passed through to the Fund and do not offset income of the Fund from other sources, nor do they affect the character of any distributions that are actually made by a REIT subsidiary, which are generally treated as taxable income in the hands of the Fund to the extent that the REIT subsidiary has current or accumulated earnings and profits.
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OTHER INFORMATION
Each share represents a proportional interest in the assets of the Fund. Each share has one vote at shareholder meetings, with fractional shares voting proportionally, on matters submitted to the vote of shareholders. There are no cumulative voting rights. Shares do not have pre-emptive or conversion or redemption provisions. In the event of a liquidation of the Fund, shareholders are entitled to share pro rata in the net assets of the Fund available for distribution to shareholders after all expenses and debts have been paid.
Legal Counsel
K&L Gates, LLP, located at 1 Congress Street, Suite 2900, Boston, Massachusetts 02114, acts as the Fund’s legal counsel.
Custodian
BNY Mellon (“BNY”), with principal offices at 240 Greenwich Street, New York, New York, 10286, serves as custodian for the securities and cash of the Fund’s portfolio. Under a Custodian Agreement, BNY holds the Fund’s assets in safekeeping and keeps all necessary records and documents relating to its duties.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Cohen & Company, Ltd. has been appointed the independent registered public accounting firm for the Fund. Cohen & Company, Ltd. is located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115.
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FINANCIAL STATEMENTS
The Fund’s audited financial statements appearing in the Fund’s annual shareholder report for the year ended December 31, 2025 are incorporated by reference in this Statement of Additional Information and have been so incorporated in reliance upon the report of Cohen & Company, Ltd., the independent registered public accounting firm for the Fund. The Fund’s annual and semiannual shareholder reports are available upon request and without charge by writing to the Fund at 300 Crescent Court, Suite 700, Dallas, Texas 75201 or by calling (844) 485-9167 and viewed on the Fund’s website at https://www.nexpoint.com/funds/nexpoint-real-estate-strategies-fund/.
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Part C
Other Information
Item 25. Financial Statements and Exhibits
1. Financial Statements
Part A — Financial Highlights.
2. Exhibits
| (1) | Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 22, 2016. |
| (2) | Incorporated by reference to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on June 17, 2016. |
| (3) | Incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on August 22, 2016. |
| (4) | Incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 28, 2017. |
| (5) | Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 26, 2018. |
| (6) | Incorporated by reference to Post-Effective Amendment No. 7 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on October 9, 2018. |
| (7) | Incorporated by reference to Post-Effective Amendment No. 8 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 29, 2019. |
| (8) | Incorporated by reference to Post-Effective Amendment No. 9 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 29, 2020. |
| (9) | Incorporated by reference to Post-Effective Amendment No. 10 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 30, 2021. |
| (10) | Incorporated by reference to Post-Effective Amendment No. 11 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 29, 2022. |
| (11) | Incorporated by reference to Post-Effective Amendment No. 12 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 28, 2023. |
| (12) | Incorporated by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on April 29, 2024. |
| (13) | Filed herewith. |
Item 26. Marketing Arrangements
Reference is made to the Distribution Agreement and Form of Selling Agreement included as Exhibits (h)(1) and (h)(2) hereto.
Item 27. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with all offerings described in this Registration Statement:
| SEC Registration Fee |
$ | 0 | ||
| FINRA Fee |
$ | 0 | ||
| Legal fees |
$ | 1,500,000 | ||
| Blue Sky fees |
$ | 100,000 | ||
| Accounting fees |
$ | 1,000,000 | ||
| Printing and Mailing |
$ | 2,500,000 | ||
|
|
|
|||
| Total |
$ | 5,100,000 |
Item 28. Persons Controlled by or Under Common Control with the Registrant
NRESF REIT Sub, LLC and NRESF REIT Sub II, LLC are wholly-owned subsidiaries of the Registrant. NRESF REIT Sub, LLC and NRESF REIT Sub II, LLC are organized under the laws of Delaware and have elected to be treated as real estate investment trusts.
Item 29. Number of Holders of Shares
The following table sets forth the approximate numbers of record holders of the Registrant’s outstanding shares as of March 31, 2026:
| Title of Class |
Number of Record Holders |
|||
| Common Shares of Beneficial Interest |
||||
| Class A |
174 | |||
| Class C |
112 | |||
| Class Z |
262 | |||
Item 30. Indemnification
Reference is made to Article VIII, Section 2 of the Registrant’s Amended and Restated Agreement and Declaration of Trust (the “Declaration of Trust”), incorporated by reference hereto, and to Section 8 of the Registrant’s Distribution Agreement, incorporated by reference hereto. The Registrant hereby undertakes that it will apply the indemnification provisions of the Declaration of Trust and Distribution Agreement in a manner consistent with Release 40-11330 of the Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), so long as the interpretation therein of Sections 17(h) and 17(i) of the 1940 Act remains in effect. The Registrant maintains insurance on behalf of any person who is or was an independent trustee, officer, employee, or agent of the Registrant against certain liability asserted against and incurred by, or arising out of, his or her position. However, in no event will the Registrant pay that portion of the premium, if any, for insurance to indemnify any such person for any act for which the Registrant itself is not permitted to indemnify.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of Investment Advisor
A description of any other business, profession, vocation, or employment of a substantial nature in which the investment adviser of the Registrant, and each member, director, executive officer, or partner of any such investment adviser, is or has been, at any time during the past two fiscal years, engaged in for his or her own account or in the capacity of member, trustee, officer, employee, partner or director, is set forth in the Registrant’s prospectus and statement of additional information in the sections entitled “Management of the Fund.” Information as to the members and officers of the Adviser is included in its Form ADV as filed with the SEC (CRD No. 163564), and is incorporated herein by reference.
Item 32. Location of Accounts and Records
(1) SS&C Technologies, Inc. (formerly DST Asset Manager Solutions, Inc.), 30 Braintree Hill Office Park, Suite 400, Braintree, MA 02184 (records relating to its function as transfer agent).
(2) Bank of New York Mellon, 240 Greenwich Street, New York, NY 10286 (records relating to its function as custodian).
(3) NexPoint Advisors, L.P., 300 Crescent Court, Suite 700, Dallas, Texas 75201 (records relating to its function as adviser and administrator).
(4) SEI Investments Global Fund Services, One Freedom Valley Drive, Oaks, Pennsylvania 19456 (records relating to its function as sub-administrator).
(5) NexPoint Securities, Inc., 200 Crescent Court, Suite 700, Dallas, Texas 75201 (records relating to its function as distributor).
(6) Skyview Group, 2711 N Haskell Avenue, Suite 2980 Dallas, Texas 75204 (records relating to its function as administrator).
Item 33. Management Services
Not Applicable.
Item 34. Undertakings
1. The Registrant undertakes to suspend the offering of Shares until the prospectus is amended if (1) subsequent to the effective date of its registration statement, the net asset value of the Fund declines more than ten percent from its net asset value as of the effective date of the registration statement or (2) the net asset value of the Fund increases to an amount greater than its net proceeds as stated in the prospectus.
2. Not Applicable.
3. The Registrant undertakes:
(a) to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the Securities Act;
(2) to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Filing Fee Tables” in the effective registration statement; and
(3) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) The Registrant undertakes to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(d) The Registrant undertakes that, for the purpose of determining liability under the Securities Act:
(1) Not Applicable;
(2) if the Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be a part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract or sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(e) The Registrant undertakes that, for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of securities, in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
(1) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act;
(2) free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
(3) the portion of any advertisement pursuant to Rule 482 under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(4) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
4. Not Applicable.
5. Not Applicable.
6. Not Applicable.
7. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery within two business days of receipt of a written or oral request, the Registrant’s statement of additional information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the “1933 Act) and the Investment Company Act of 1940, as amended (the “1940 Act”), the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 486(b) under the 1933 Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas and the State of Texas, on the 30th day of April, 2026.
| NEXPOINT REAL ESTATE STRATEGIES FUND |
| /s/ James Dondero |
| James Dondero |
| President |
| (Principal Executive Officer) |
Pursuant to the requirements of the 1933 Act and the 1940 Act, this Registration Statement has been signed by the following persons in the capacities set forth below on the 30th day of April, 2026.
| Signature |
Title | |
| /s/ James Dondero James Dondero |
President (Principal Executive Officer) | |
| /s/ Frank Waterhouse Frank Waterhouse |
Treasurer (Principal Financial and Principal Accounting Officer) | |
| /s/ Ethan Powell* Ethan Powell |
Chairman of the Board of Trustees | |
| /s/ Dr. Bob Froehlich* Dr. Bob Froehlich |
Trustee | |
| /s/ John Honis* John Honis |
Trustee | |
| /s/ Dorri McWhorter* Dorri McWhorter |
Trustee | |
| * By: | /s/ Frank Waterhouse | |
| Frank Waterhouse | ||
| Attorney in Fact* |
EXHIBIT INDEX
| EXHIBIT NUMBER |
DESCRIPTION | |
| (k)(1) | Amended and Restated Expense Limitation and Reimbursement Agreement, dated May 1, 2026, between the Registrant and NexPoint Advisors, L.P. | |
| (l)(2) | Consent of Counsel | |
| (n) | ||