SEC Form N-CSRS filed by Highland Opportunities and Income Fund

9/8/23 12:13:06 PM ET

$HFRO

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N-CSRS

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment

Company Act file number: 811-23268

HIGHLAND OPPORTUNITIES AND INCOME FUND

(Exact name of registrant as specified in charter)

300 Crescent Court

Suite 700

Dallas, Texas 75201

(Address of principal executive offices)(Zip code)

Frank Waterhouse Treasurer, Principal Accounting Officer, Principal Financial Officer, and Principal Executive Officer

300 Crescent Court

Suite 700

Dallas, Texas 75201

(Name and Address of Agent for Service)

Registrant’s telephone number,

including area code: (866) 351-4440

Date of fiscal year end: December 31

Date of reporting period: June 30, 2023

Item 1. Reports to Stockholders.

A copy of the Semi-Annual Report transmitted to

shareholders pursuant to Rule 30e-1 under the Investment Company

Act of 1940, as amended (the “1940 Act”), is attached herewith.

Highland Opportunities and Income Fund

(formerly Highland Income Fund)

Semi-Annual Report

June 30, 2023

Highland Opportunities and Income Fund

TABLE OF CONTENTS


Fund Profile			1
Financial Statements			2
Investment Portfolio			3
Statement of Assets and Liabilities			8
Statement of Operations			9
Statements of Changes in Net Assets			10
Statement of Cash Flows			11
Financial Highlights			12
Notes to Financial Statements			14
Additional Information			35
Important Information About This Report			40

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FUND PROFILE (unaudited)



		Highland Opportunities and Income Fund

Objective

Highland Opportunities and Income Fund seeks growth of capital along with income.

Net Assets as of June 30, 2023

$928.1 million

Portfolio Data as of June 30, 2023

The information below provides a snapshot of Highland Opportunities and Income Fund at the end of the reporting period. Highland Opportunities and Income Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.



Quality Breakdown as of 6/30/2023 (%) (1)

BBB			0.58
BB			2.73
B			16.52
CCC			5.70
NR			74.47



Top 5 Sectors as of 6/30/2023 (%) (1)(2)(3)

Real Estate			70.8
Collateralized Loan Obligations			10.1
Healthcare			7.8
LLC Interest			6.4
Information Technology			5.8



Top 10 Holdings as of 6/30/2023 (%) (1)(2)(3)

NFRO Self Storage REIT, LLC (Common Stock)					13.3
NFRO SFR REIT, LLC (Common Stock)					8.4
NexPoint Real Estate Finance (Common Stock)					7.3
NFRO Holdings, LLC (Common Stock)					6.9
NexPoint SFR Operating Partnership, LP 7.50%, 5/24/2027 (U.S. Senior Loans)					6.9
EDS Legacy Partners 11.00%, 12/14/2023 (U.S. Senior Loans)					6.6
NFRO Diversified REIT, LLC (Common Stock)					6.6
IQHQ, Inc. (Common Stock)					6.0
NEXLS LLC (LLC Interest)					5.4
NHT Operating Partnership LLC Secured Promissory Note 4.21%, 2/14/2027 (U.S. Senior Loans)					4.4

(1)

Quality is calculated as a percentage of total credit instruments held by the portfolio. Sectors and holdings are calculated as a percentage of total net assets. The quality ratings reflected were issued by Standard & Poors, a nationally recognized statistical rating organization. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Quality ratings reflect the credit quality of the underlying bonds in the Fund’s portfolio and not that of the Fund itself. Credit quality ratings assigned by a rating agency are subjective opinions, not statements of fact, and are subject to change, including daily. The ratings assigned by credit rating agencies are but one of the considerations that the Fund’s investment adviser incorporates into its credit analysis process, along with such other issuer specific factors as cash flows, capital structure and leverage ratios, ability to deleverage through free cash flow, quality of management, market positioning and access to capital, as well as such security-specific factors as the terms of the security (e.g., interest rate, and time to maturity) and the amount of any collateral.

(2)	Sectors and holdings are calculated as a percentage of total net assets.

(3)	Excludes the Fund’s investment in a cash equivalent.


Semi-Annual Report						1

FINANCIAL STATEMENTS



June 30, 2023		Highland Opportunities and Income Fund

A guide to understanding the Fund’s financial statements


Investment Portfolio		The Investment Portfolio details all of the Fund’s holdings and its market value as of the last day of the reporting period. Portfolio holdings are organized by type of asset and industry to demonstrate areas of concentration and diversification.

Statement of Assets and Liabilities		This statement details the Fund’s assets, liabilities, net assets and share price for each share class as of the last day of the reporting period. Net assets are calculated by subtracting all of the Fund’s liabilities (including any unpaid expenses) from the total of the Fund’s investment and noninvestment assets. The net asset value per share for each class is calculated by dividing net assets allocated to that share class by the number of shares outstanding in that class as of the last day of the reporting period.

Statement of Operations		This statement reports income earned by the Fund and the expenses incurred by the Fund during the reporting period. The Statement of Operations also shows any net gain or loss the Fund realized on the sales of its holdings during the period as well as any unrealized gains or losses recognized over the period. The total of these results represents the Fund’s net increase or decrease in net assets from operations.

Statements of Changes in Net Assets		These statements detail how the Fund’s net assets were affected by its operating results, distributions to shareholders and shareholder transactions (e.g., subscriptions, redemptions and distribution reinvestments) during the reporting periods. The Statements of Changes in Net Assets also details changes in the number of shares outstanding.

Statement of Cash Flows		This statement reports net cash and foreign currency provided or used by operating, investing and financing activities and the net effect of those flows on cash and foreign currency during the period.

Financial Highlights		The Financial Highlights demonstrate how the Fund’s net asset value per share was affected by the Fund’s operating results. The Financial Highlights also disclose the classes’ performance and certain key ratios (e.g., net expenses and net investment income as a percentage of average net assets).

Notes to Financial Statements		These notes disclose the organizational background of the Fund, certain of its significant accounting policies (including those surrounding security valuation, income recognition and distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies.


2						Semi-Annual Report

INVESTMENT PORTFOLIO (unaudited)



As of June 30, 2023		Highland Opportunities and Income Fund



Shares			Value ($)

	Common Stocks - 60.7%

	COMMUNICATION SERVICES - 1.2%
	194,300	Telesat (a)		1,830,306
	27,134	TerreStar Corporation (a)(b)(c)(d)		9,185,130

				11,015,436


	CONSUMER DISCRETIONARY - 0.0%
	1,450	Toys ‘R’ Us (a)(b)(c)		14,371


	ENERGY - 0.0%
	1,118,286	Value Creation, Inc. (a)(b)(c)		—


	GAMING/LEISURE - 0.5%
	34,512	LLV Holdco LLC - Series A, Membership Interest (a)(b)(c)(e)		4,334,559
	436	LLV Holdco LLC - Series B, Membership Interest (a)(b)(c)(e)		54,716

				4,389,275


	HEALTHCARE - 2.4%
	12,026,660	CCS Medical Inc. (a)(b)(c)(e)		22,730,387


	MATERIALS - 0.2%
	299,032	MPM Holdings, Inc. (a)		1,495,160


	REAL ESTATE - 56.4%
	1,474,379	Allenby (a)(b)(c)(e)		—
	10,359,801	Claymore (a)(b)(c)(e)		—
	112,225	Elme Communities, REIT		1,844,979
	354,533	Healthcare Realty Trust, Class A, REIT		6,686,493
	25,463	Independence Realty Trust, Inc., REIT		463,936
	2,356,665	IQHQ, Inc. (a)(b)(c)		55,593,727
	1,275,616	NexPoint Diversified Real Estate Trust REIT (e)		15,970,712
	4,372,286	NexPoint Real Estate Finance REIT (e)		68,163,935
	189,910	NexPoint Residential Trust, Inc. REIT (e)		8,637,107
	32,203	NexPoint Storage Partners, Inc. (a)(b)(c)(e)		39,151,435
	54,716,031	NFRO Diversified REIT, LLC (a)(b)(c)(e)		61,178,706
	2,276,658	NFRO Holdings, LLC (a)(b)(c)(e)		64,377,663
	90,436,434	NFRO Self Storage REIT, LLC (a)(b)(c)(e)		123,648,039
	3,231,395	NFRO SFR REIT, LLC (a)(b)(c)(e)		78,129,424

				523,846,156

		Total Common Stocks (Cost $856,932,017)		563,490,785


Principal Amount ($)

	U.S. Senior Loans (f) - 26.7%

	COMMUNICATION SERVICES - 1.0%
	9,024,044	TerreStar Corporation, Term Loan D, 1st Lien, 02/27/28 (b)(c)		8,978,924
	65,424	TerreStar Corporation, Term Loan H, 1st Lien, 02/28/24 (b)(c)		65,097
	70,122	TerreStar Corporation, Term Loan, 1st Lien, 02/28/24 (b)(c)		69,771

				9,113,792



Principal Amount ($)			Value ($)

	U.S. Senior Loans (continued)

	ENERGY - 0.7%
	6,403,998	Quarternorth Energy Holding, Term Loan, 2nd Lien, 08/27/26		6,393,335


	GAMING/LEISURE - 1.6%
	16,067,396	LLV Holdco LLC, Revolving Exit Loan, 12/31/23 (b)(c)(e)		14,621,330


	HEALTHCARE - 3.0%
	16,404,781	Carestream Health Inc., Term Loan, 1st Lien, 09/30/27		12,008,300
	15,977,051	CCS Medical Inc., Junior Credit Term Loan, 1st Lien, 01/04/27 (b)(c)(e)		15,977,051

				27,985,351


	INFORMATION TECHNOLOGY - 6.6%
	61,411,237	EDS Legacy Partners, LIBOR USD 3 Month + 2.750%, 12/14/23 (b)(c)(e)		61,626,177


	REAL ESTATE - 13.8%
	65,000,000	NexPoint SFR Operating Partnership, LP, 05/24/27 (b)(c)(e)		64,220,000
	11,000,000	06/30/27 (b)(c)(e)		10,868,000
	6,400,000	NHT Operating Partnership LLC Convertible Promissory Note, 09/30/42 (b)(c)(e)		6,064,000
	42,777,343	NHT Operating Partnership LLC Secured Promissory Note, 02/14/27 (b)(c)(e)		40,531,532
	6,500,000	NREF Operating IV REIT Sub, LLC, (b)(c)(e)		6,500,000

				128,183,532

		Total U.S. Senior Loans (Cost $280,271,880)		247,923,517


	Collateralized Loan Obligations - 10.1%
	5,800,000	ACAS CLO, Series 2018-1A, Class FRR ICE LIBOR USD 3 Month + 7.910%, 13.17%, 10/18/2028 (g)(h)		2,694,680
	2,000,000	Apex Credit CLO, Series 2019-1A, Class D ICE LIBOR USD 3 Month + 7.100%, 12.36%, 4/18/2032 (g)(h)		1,639,000
	1,500,000	Atlas Senior Loan Fund, Series 2017-8A, Class F ICE LIBOR USD 3 Month + 7.150%, 12.41%, 1/16/2030 (g)(h)		739,125
	2,400,000	Atlas Senior Loan Fund XII, Series 2018-12A, Class E ICE LIBOR USD 3 Month + 5.950%, 11.22%, 10/24/2031 (g)(h)		1,560,000
	1,250,000	Cathedral Lake CLO, Series 2017-1A, Class DR ICE LIBOR USD 3 Month + 7.250%, 12.51%, 10/15/2029 (g)(h)		774,500
	2,000,000	Cathedral Lake VII, Series 2021-7RA, Class E ICE LIBOR USD 3 Month + 7.770%, 13.03%, 1/15/2032 (g)(h)		1,680,000
	3,000,000	CIFC Funding, Series 2015-1A 0.00%, 1/22/2031 (g)(h)(i)(j)		532,500
	1,000,000	CIFC Funding, Series 2018-1A, Class ER2 ICE LIBOR USD 3 Month + 5.850%, 11.11%, 1/18/2031 (g)(h)		855,000


See Glossary on page 7 for abbreviations along with accompanying Notes to Financial Statements.						3

INVESTMENT PORTFOLIO (unaudited) (continued)



As of June 30, 2023		Highland Opportunities and Income Fund



Principal Amount ($)			Value ($)

	Collateralized Loan Obligations (continued)
	3,324,756	CIFC Funding, Series 2014-4RA 0.00%, 1/17/2035 (g)(h)(i)(j)		633,366
	5,462,500	CIFC Funding, Series 2013-2A, Class SUB 0.00%, 10/18/2030 (g)(h)(i)		874,000
	2,500,000	CIFC Funding, Series 2014-1A, Class SUB 0.00%, 1/18/2031 (g)(h)(i)		375,000
	3,000,000	Covenant Credit Partners CLO III, Series 2017-1A, Class F ICE LIBOR USD 3 Month + 7.950%, 13.21%, 10/15/2029 (g)(h)		1,575,000
	1,537,000	Dryden 36 Senior Loan Fund, Series 2019-36A, Class ER2 TSFR3M + 7.142%, 12.13%, 4/15/2029 (g)(h)		1,374,847
	4,000,000	Eaton Vance CLO, Series 2019-1A, Class F ICE LIBOR USD 3 Month + 8.250%, 13.51%, 4/15/2031 (g)(h)		3,480,000
	31,785,405	FREMF Mortgage Trust, Series 2021- KF103, Class CS SOFR30A + 6.250%, 11.29%, 1/25/2031 (g)(h)		32,080,413
	5,450,000	Galaxy XXVI CLO, Series 2018-26A, Class F ICE LIBOR USD 3 Month + 8.000%, 13.38%, 11/22/2031 (g)(h)		4,251,000
	1,000,000	GoldenTree Loan Management US CLO 3, Series 2018-3A, Class F ICE LIBOR USD 3 Month + 6.500%, 11.75%, 4/20/2030 (g)(h)		778,750
	2,500,000	GoldenTree Loan Opportunities IX, Series 2018-9A, Class FR2 ICE LIBOR USD 3 Month + 7.640%, 12.94%, 10/29/2029 (g)(h)		2,045,675
	2,125,000	ICG US CLO, Series 2022-1A, Class DJ TSFR3M + 5.730%, 10.78%, 7/20/2035 (g)(h)		1,983,029
		Jay Park CLO, Ltd., Series 2018-1A, Class ER ICE LIBOR USD 3 Month + 7.350%, 4,000,000 12.60%, 10/20/2027 (g)(h)		3,530,000
	3,000,000	KKR CLO 18, Series 2017-18, Class E ICE LIBOR USD 3 Month + 6.450%, 11.71%, 7/18/2030 (g)(h)		2,666,700
	1,400,000	Madison Park Funding XX, Series 2018-20A, Class ER ICE LIBOR USD 3 Month + 5.300%, 10.59%, 7/27/2030 (g)(h)		1,206,240
	2,350,000	Madison Park Funding XXIV, Series 2019-24A, Class ER TSFR3M + 7.462%, 12.51%, 10/20/2029 (g)(h)		2,190,552
	2,000,000	Madison Park Funding XXIX, Series 2018-29A, Class F ICE LIBOR USD 3 Month + 7.570%, 12.83%, 10/18/2030 (g)(h)		1,690,000
	1,000,000	Madison Park Funding XXX, Series 2018-30A, Class F ICE LIBOR USD 3 Month + 6.850%, 12.11%, 4/15/2029 (g)(h)		909,800
	490,000	Magnetite VII, Ltd., Series 2018-7A, Class ER2 ICE LIBOR USD 3 Month + 6.500%, 11.76%, 1/15/2028 (g)(h)		421,400



Principal Amount ($)			Value ($)

	Collateralized Loan Obligations (continued)
	2,500,000	Man GLG US CLO, Series 2018-1A, Class DR ICE LIBOR USD 3 Month + 5.900%, 11.15%, 4/22/2030 (g)(h)		1,862,200
	4,000,000	Northwoods Capital XII-B, Ltd., Series 2018-12BA, Class F ICE LIBOR USD 3 Month + 8.170%, 13.72%, 6/15/2031 (g)(h)		2,560,000
	2,900,000	OHA Credit Partners XII, Series 2018- 12A, Class FR ICE LIBOR USD 3 Month + 7.680%, 12.95%, 7/23/2030 (g)(h)		2,324,350
	3,110,000	OZLM XXII, Ltd., Series 2018-22A, Class E ICE LIBOR USD 3 Month + 7.390%, 12.65%, 1/17/2031 (g)(h)		1,803,800
	2,000,000	Park Avenue Institutional Advisers CLO, Series 2021-2A, Class E ICE LIBOR USD 3 Month + 7.010%, 12.27%, 7/15/2034 (g)(h)		1,720,000
	3,150,000	Saranac CLO III, Ltd., Series 2018-3A, Class ER ICE LIBOR USD 3 Month + 7.500%, 13.02%, 6/22/2030 (g)(h)		1,561,613
	2,000,000	Symphony CLO XXVI, Series 2021-26A, Class ER ICE LIBOR USD 3 Month + 7.500%, 12.75%, 4/20/2033 (g)(h)		1,940,000
	5,955,627	THL Credit Wind River, Series 2014-2A, Class SUB 0.00%, 1/15/2031 (g)(h)(i)		893,344
	1,000,000	Vibrant CLO 1X, Series 2018-9A, Class D TSFR3M + 6.512%, 11.56%, 7/20/2031 (g)(h)		723,300
	1,275,000	Voya CLO, Series 2018-2A, Class DR TSFR3M + 5.862%, 10.93%, 4/25/2031 (g)(h)		976,267
	1,000,000	Webster Park CLO, Series 2018-1A, Class ER ICE LIBOR USD 3 Month + 7.750%, 13.00%, 7/20/2030 (g)(h)		740,000
	3,000,000	Zais CLO 3, Ltd., Series 2018-3A, Class DR ICE LIBOR USD 3 Month + 6.910%, 12.17%, 7/15/2031 (g)(h)		1,822,500
	3,300,000	Zais CLO 8, Ltd., Series 2018-1A, Class E ICE LIBOR USD 3 Month + 5.250%, 10.51%, 4/15/2029 (g)(h)		2,227,500

		Total Collateralized Loan Obligations (Cost $113,058,473)		93,695,451


Shares

	LLC Interest - 6.4%
	957	NEXLS LLC (b)(c)(e)		50,117,067
	10,000,000	SFR WLIF III, LLC (b)(c)(e)		9,305,000

		Total LLC Interest (Cost $47,084,362)		59,422,067


Units

	Warrants - 3.5%

	ENERGY - 3.5%
	5,801	Arch Resources, Expires 10/08/2023 (a)		360,706
	85,465	Quarternorth Energy Holding Inc. Tranche 1, Expires 08/27/2029 (a)		1,566,873


4						See Glossary on page 7 for abbreviations along with accompanying Notes to Financial Statements.

INVESTMENT PORTFOLIO (unaudited) (continued)



As of June 30, 2023		Highland Opportunities and Income Fund



Units			Value ($)
	Warrants (continued)

	ENERGY (continued)
	164,598	Quarternorth Energy Holding Inc. Tranche 2, Expires 08/27/2029 (a)		1,316,784
	257,538	Quarternorth Energy Holding Inc. Tranche 3, Expires 08/27/2029 (a)		29,455,909

		Total Warrants (Cost $31,433,055)		32,700,272


Shares

	Preferred Stock - 3.4%

	FINANCIALS - 0.4%
	3,980	Eastland CLO 1.00%, 05/01/2022 (a)(b)(c)		15,339
	34,500	Eastland CLO II (a)(b)(c)(k)(l)		132,961
	8,860	Gleneagles CLO, 12/30/2049 (a)(b)(c)(k)		47,404
	40,000	Granite Point Mortgage Trust REIT 7.00% (l)(m)		703,600
	62,600	Grayson CLO , 11/01/2021 (a)(b)(c)(k)		261,319
	150,977	NexPoint Real Estate Finance REIT 8.50% (e)(l)		3,098,335
	12,553	Rockwall CDO, 08/01/2024 (a)(b)(c)(k)		34,473
	4,800	Rockwall CDO (a)(b)(c)(k)(l)		10,066

				4,303,497


	HEALTHCARE - 2.4%
	414,378	Apnimed (a)(b)(c)(k)(l)		4,600,010
	2,361,111	Sapience Therapeutics Inc 8.00% (a)(b)(c)(l)		7,862,500
	3,440,476	Sapience Therapeutics Inc, Class B 8.00% (a)(b)(c)(l)		9,736,547

				22,199,057


	REAL ESTATE - 0.6%
	325,976	Braemar Hotels & Resorts, Inc., REIT 5.50% (a)(l)		4,563,664
	47,300	Wheeler Real Estate Investment Trust, REIT 8.75%, 09/21/2023 (a)(l)(n)		543,950
	82,301	Wheeler Real Estate Investment Trust, REIT 9.00% (a)(l)		123,452

				5,231,066

		Total Preferred Stock (Cost $75,904,189)		31,733,620


Principal Amount ($)
	Corporate Bonds & Notes - 0.4%

	COMMUNICATION SERVICES - 0.0%
	3,100	iHeartCommunications, Inc. 6.38%, 05/01/26		2,604


	FINANCIALS - 0.4%
	4,000,000	South Street Securities Funding LLC 6.25%, 12/30/26 (h)		3,400,000


	INDUSTRIALS - 0.0%
	7,500,000	American Airlines 12/31/49 (b)(c)(i)(o)(p)		—



Principal Amount ($)			Value ($)

	UTILITIES - 0.0%
	15,222,107	Bruce Mansfield Pass-Through Trust 6.85%, 06/01/34 (p)		—

		Total Corporate Bonds & Notes (Cost $4,095,337)		3,402,604


Shares

	Master Limited Partnership - 0.3%

	ENERGY - 0.3%
	179,200	Energy Transfer L.P.		2,275,840

		Total Master Limited Partnership (Cost $1,869,174)		2,275,840


	Registered Investment Company - 0.1%
	86,246	Highland Global Allocation Fund (e)		746,028

		Total Registered Investment Company (Cost $495,630)		746,028


Units

	Rights - 0.0%

	UTILITIES - 0.0%
	4,933	Texas Competitive Electric Holdings Co., LLC (a)		5,384

		Total Rights (Cost $—)		5,384


Principal Amount ($)

	Repurchase Agreement (q)(r) - 0.0%
	8	RBC 5.06%, dated 06/30/2023 to be repurchased on 07/03/2023, repurchase price $8 (collateralized by U.S. Government obligations, ranging in par value $0 - $2, 0.000% - 7.500%, 07/31/2023 - 05/20/2053; with total market value $8)		8

		Total Repurchase Agreement (Cost $8)		8


Shares

	Cash Equivalent - 1.3%

	MONEY MARKET FUND(s) - 1.3%
	12,161,638	Dreyfus Treasury Obligations Cash Management, Institutional Class 5.000%		12,161,638

		Total Cash Equivalent (Cost $12,161,638)		12,161,638

	Total Investments - 112.9%			1,047,557,214

	(Cost $1,423,305,763)


See Glossary on page 7 for abbreviations along with accompanying Notes to Financial Statements.						5

INVESTMENT PORTFOLIO (unaudited) (concluded)



As of June 30, 2023		Highland Opportunities and Income Fund



Shares			Value ($)

	Securities Sold Short - (0.8)%

	Common Stocks - (0.8)%

	INFORMATION TECHNOLOGY - (0.8)%
	(41,100)	Texas Instruments, Inc.		(7,398,822	)

		Total Common Stocks (Proceeds $4,920,256)		(7,398,822	)

		Total Securities Sold Short - (0.8)% (Proceeds $4,920,256)		(7,398,822	)

	Other Assets & Liabilities, Net - (12.1)% (t)			(112,099,766	)

	Net Assets - 100.0%			928,058,626

(a)	Non-income producing security.

(b)

Securities with a total aggregate value of $770,042,725, or 83.0% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Financial Statements for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

(c)

Represents fair value as determined by the Investment Adviser pursuant to the policies and procedures approved by the Board of Trustees (the “Board”). The Board has designated the Investment Adviser as “valuation designee” for the Fund pursuant to Rule 2a-5 of the Investment Company Act of 1940, as amended. The Investment Adviser considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $770,042,725, or 83.0% of net assets, were fair valued under the Fund’s valuation procedures as of June 30, 2023. Please see Notes to Financial Statements.

(d)

Restricted Securities. These securities are not registered and may not be sold to the public. There are legal and/or contractual restrictions on resale. The Fund does not have the right to demand that such securities be registered. The values of these securities are determined by valuations provided by pricing services, brokers, dealers, market makers, or in good faith under the policies and procedures established by the Board. Additional Information regarding such securities follows:


Restricted Security	Security Type		Acquisition Date		Cost of Security		Fair Value at Period End		Percent of Net Assets
TerreStar Corporation		Common Stock		3/16/2018	$	3,093,276	$	9,185,130		1.0	%

(e)	Affiliated issuer. Assets with a total aggregate fair value of $770,051,203, or 83.0% of net assets, were affiliated with the Fund as of June 30, 2023.

(f)

Senior loans (also called bank loans, leveraged loans, or floating rate loans) in which the Fund invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. As of June 30, 2023, the LIBOR USD 3 Month rate was 5.55%. Senior loans, while exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity maybe substantially less than the stated maturity shown.

(g)

Variable or floating rate security. The rate shown is the effective interest rate as of period end. The rates on certain securities are not based on published reference rates and spreads and are either determined by the issuer or agent based on current market conditions; by using a formula based on the rates of underlying loans; or by adjusting periodically based on prevailing interest rates.

(h)

Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. The Board has determined these investments to be liquid. At June 30, 2023, these securities amounted to $97,095,451 or 10.5% of net assets.

(i)	No interest rate available.

(j)	Interest only security (“IO”). These types of securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the “interest only” holding.

(k)	There is currently no rate available.

(l)	Perpetual security with no stated maturity date.

(m)	Variable or floating rate security. The base lending rates are generally the lending rate offered by one or more European banks such as the LIBOR. The interest rate shown reflects the rate in effect June 30, 2023.

(n)	Step Coupon Security. Coupon rate will either increase (step-up bond) or decrease (step-down bond) at regular intervals until maturity. Interest rate shown reflects the rate currently in effect.

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

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

(q)	Tri-Party Repurchase Agreement.

(r)	This security was purchased with cash collateral held from securities on loan. The total value of such securities as of June 30, 2023 was $8.

(s)	Rate reported is 7 day effective yield.

(t)	As of June 30, 2023, $7,266,069 in cash was segregated or on deposit with the brokers to cover investments sold short and is included in “Other Assets & Liabilities, Net”.

Reverse Repurchase Agreement outstanding as of June 30, 2023 was as follows:


Counterparty	Collateral Pledged	Interest Rate %		Trade Date		Repurchase Amount			Principal Amount			Value
Mizuho Securities	FREMF Mortgage Trust, Series 2021-KF103, Class CS, 02/01/2023		7.09		06/23/2023	$	(19,119,000	)	$	(19,119,000	)	$	(19,119,000	)

Total Reverse Repurchase Agreement									$	(19,119,000	)	$	(19,119,000	)


6						See Glossary on page 7 for abbreviations along with accompanying Notes to Financial Statements.

GLOSSARY: (abbreviations that may be used in the preceding statements) (unaudited)


Other Abbreviations:
CDO		Collateralized Debt Obligation
ICE		Intercontinental Exchange
LIBOR		London Interbank Offered Rate
REIT		Real Estate Investment Trust
SOFR30A		Secured Overnight Financing Rate 30-Day Average
TSFR3M		Term Secured Overnight Financing Rate 3 Month
USD		United States Dollar


Semi-Annual Report						7

STATEMENT OF ASSETS AND LIABILITIES (unaudited)



As of June 30, 2023		Highland Opportunities and Income Fund


	$
Assets
Investments from unaffiliated issuers, at value		265,344,365
Affiliated investments, at value (Note 9)		770,051,203

Total Investments, at value (Cost $1,411,144,117)		1,035,395,568
Repurchase Agreement, at value		8
Cash equivalent (Note 2)		12,161,638
Cash		213,364
Restricted Cash - Securities Sold Short (Note 2)		7,266,069
Receivable for:
Dividends and interest		40,530,982
Fund shares sold		117,724
Prepaid expenses and other assets		306,895

Total assets		1,095,992,248


Liabilities:
Securities sold short, at value (Proceeds $4,920,256) (Note 2)		7,398,822
Reverse Repurchase Agreements (Note 3)		19,119,000
Payable for:
Investment advisory and administration fees (Note 6)		801,805
Legal fees		545,057
Printing fees		165,586
Collateral from securities loaned (Note 4)		8
Accrued expenses and other liabilities		147,095

Total liabilities		28,177,373


Mezzanine Equity:
Cumulative preferred shares (Series A), net of deferred financing costs (Notes 1 and 2)		139,756,249

Net Assets		928,058,626


Net Assets Consist of:
Paid-in capital		1,455,543,124
Total accumulated losses		(527,484,498	)

Net Assets		928,058,626

Investments, at cost		312,333,418
Affiliated investments, at cost (Note 9)		1,098,810,699
Cash equivalent, at cost (Note 2)		12,161,638
Repurchase Agreement, at cost		8
Proceeds from securities sold short		4,920,256

Common Shares
Shares outstanding ($0.001 par value; unlimited authorization)		68,202,454
Net asset value per share (Net assets/shares outstanding)		13.61


8						See accompanying Notes to Financial Statements.

STATEMENT OF OPERATIONS (unaudited)



For the Six Months Ended June 30, 2023		Highland Opportunities and Income Fund


	$
Investment Income
Income:
Dividends from unaffiliated issuers		7,564,002
Dividends from affiliated issuers (Note 9).		7,816,109
Less: Foreign taxes withheld		147,027
Securities lending income (Note 4)		6,778
Interest from unaffiliated issuers		10,292,785
Interest from affiliated issuers (Note 9)		7,794,154
Interest paid in kind from unaffiliated issuers		406,191
Interest paid in kind from affiliated issuers (Note 9)		673,421

Total income		34,700,467


Expenses:
Investment advisory (Note 6)		3,390,617
Administration fees (Note 6)		1,082,144
Interest expense, commitment fees, and financing costs		667,770
Legal fees		539,498
Accounting services fees		328,178
Insurance		157,633
Trustees fees (Note 6)		145,188
Reports to shareholders		120,967
Audit fees		109,821
Dividends and fees on securities sold short (Note 2)		101,928
Transfer agent fees		80,631
Pricing fees		38,113
Registration fees		34,711
Custodian/wire agent fees		12,033

Total operating expenses		6,809,232

Net investment income		27,891,235

Preferred dividend expenses		(3,896,875	)

Net Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments from unaffiliated issuers		(2,667,515	)

Net realized loss		(2,667,515	)


Net Change in Unrealized Appreciation (Depreciation) on:
Investments		212,374
Investments in affiliated issuers		(8,118,056	)
Securities sold short (Note 2)		(608,280	)

Net change in unrealized appreciation (depreciation)		(8,513,962	)

Net realized and unrealized gain (loss)		(11,181,477	)

Total increase in net assets resulting from operations		12,812,883


See accompanying Notes to Financial Statements.						9

STATEMENTS OF CHANGES IN NET ASSETS



		Highland Opportunities and Income Fund



	Six Months Ended June 30, 2023 (unaudited) ($)			Year Ended December 31, 2022 ($)
Increase (Decrease) in Net Assets
Operations:
Net investment income		27,891,235			92,061,653
Preferred dividend expenses		(3,896,875	)		(7,793,750	)
Net realized gain (loss)		(2,667,515	)		135,802,706
Net change in unrealized appreciation (depreciation)		(8,513,962	)		(189,165,222	)

Net increase from operations		12,812,883			30,905,387

Distributions Declared to Common Shareholders:
Distributions		(31,489,216	)		(35,874,540	)
Return of capital		—			(27,155,040	)

Total distributions:		(31,489,216	)		(63,029,580	)

Decrease in net assets from operations and distributions		(18,676,333	)		(32,124,193	)

Share transactions:
Value of distributions reinvested		747,282			1,718,646
Shares repurchased of closed-end fund (Note 1)		—			(24,643,897	)
Gains from the retirement of repurchased shares		—			5,422,282

Net increase (decrease) from shares transactions		747,282			(17,502,969	)

Total decrease in net assets		(17,929,051	)		(49,627,162	)

Net Assets
Beginning of period		945,987,677			995,614,839

End of period		928,058,626			945,987,677

Change in Common Shares:
Issued for distribution reinvested		81,146			152,754
Shares redeemed (Note 1)		—			(1,679,705	)

Net increase (decrease) in fund shares		81,146			(1,526,951	)


10						See accompanying Notes to Financial Statements.

STATEMENT OF CASH FLOWS (unaudited)



For the Six Months Ended June 30, 2023		Highland Opportunities and Income Fund


	$
Cash Flows Provided by Operating Activities:
Net increase in net assets resulting from operations		12,812,883

Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Provided by Operating Activities:
Purchases of investment securities from unaffiliated issuers		(1,148,597	)
Purchases of investment securities from affiliated issuers		(101,921,335	)
Interest paid in kind from unaffiliated issuers		(406,191	)
Interest paid in kind from affiliated issuers		(673,421	)
Proceeds from disposition of investment securities from unaffiliated issuers		41,250,978
Paydowns at cost		9,343,372
Net (amortization) accretion of discount		(631,382	)
Proceeds from return of capital of investment securities from affiliated issuers		74,997,073
Proceeds from sales of repurchase agreements, net		402,711
Net realized (gain) loss on Investments from unaffiliated issuers		2,667,515
Net change in unrealized (appreciation) depreciation on investments, investments in affiliated issuers, and securities sold short		8,513,962
(Increase) Decrease in receivable for dividends and interest		(12,484,807	)
(Increase) Decrease in due from broker		6,886
(Increase) Decrease in prepaid expenses and other assets		50,628
Increase (Decrease) in payable for investments purchased		(13,100,000	)
Increase (Decrease) in payable to investment advisory		(63,359	)
Increase (Decrease) in payable for upon return of securities loaned		(402,711	)
Increase (Decrease) in payable for printing fees		6,451
Increase (Decrease) in payable for audit fees		(155,000	)
Increase (Decrease) in payable for legal fees		200,327
Increase (Decrease) in accrued expenses and other liabilities		(150,028	)

Net cash flow provided by operating activities		19,115,955


Cash Flows Used In Financing Activities:
Distributions paid in cash, net of distributions reinvested		(30,741,934	)
Proceeds from shares sold, net of receivable		6,391
Proceeds from reverse repurchase agreements		(2,603,000	)

Net cash flow used in financing activities		(33,338,543	)

Net decrease in cash		(14,222,588	)


Cash, cash equivalent, and restricted cash:
Beginning of period		33,863,659

End of period		19,641,071


End of period cash balances:
Cash		213,364
Cash equivalent		12,161,638
Restricted cash		7,266,069

End of period		19,641,071


Supplemental disclosure of cash flow information:
Reinvestment of distributions		747,282

Cash paid during the period for interest expense and commitment fees		667,770


See accompanying Notes to Financial Statements.						11

FINANCIAL HIGHLIGHTS



		Highland Opportunities and Income Fund

Selected data for a share outstanding throughout each year/period is as follows:


	For the Six Months Ended June 30, 2023 (Unaudited)			For the Years Ended December 31,												For the Period Ended December 31, 2018**			For the Year Ended June 30, 2018*‡
	For the Six Months Ended June 30, 2023 (Unaudited)			2022			2021			2020			2019			For the Period Ended December 31, 2018**			For the Year Ended June 30, 2018*‡

Net Asset Value, Beginning of Year/Period	$	13.89		$	14.29		$	13.32		$	13.88		$	14.28		$	15.12		$	15.01

Income from Investment Operations:

Net investment income (a)		0.41			1.35			0.72			0.54			0.85			0.42			0.75

Preferred dividend expense		(0.06	)		(0.11	)		(0.11	)		(0.11	)		(0.05	)		—			—

Net realized and unrealized gain (loss)		(0.17	)		(0.80	)		1.21			(0.10	)		(0.29	)		(0.80	)		0.18


Total Income from Investment Operations		0.18			0.44			1.82			0.33			0.51			(0.38	)		0.93

Less Distributions Declared to shareholders:

From net investment income		(0.46	)		(0.52	)		(0.22	)		(0.43	)		(0.81	)		(0.45	)		(0.72	)

From return of capital		—			(0.40	)		(0.70	)		(0.49	)		(0.11	)		(0.01	)		(0.10	)


Total distributions declared to shareholders		(0.46	)		(0.92	)		(0.92	)		(0.92	)		(0.92	)		(0.46	)		(0.82	)

Capital Share Transactions:

Retirement of Tendered Shares (a)	$	—		$	0.08		$	0.07		$	0.03		$	0.01		$	—		$	—

Net Asset Value, End of Year/Period (b)	$	13.61		$	13.89		$	14.29		$	13.32		$	13.88		$	14.28		$	15.12

Market Value, End of Year/Period	$	9.03		$	10.30		$	10.99		$	10.28		$	12.43		$	12.80		$	15.62

Market Value Total Return (c)		(7.87	)%		1.70	%		16.35	%		(8.29	)%		4.30	%		(15.44	)% (d)		9.77	%

Ratios based on Average Managed Assets

Gross operating expenses (e)(f)		0.72	%		1.15	%		1.44	%		1.83	%		2.28	%		N/A			N/A

Net investment income (e)		2.95	%		7.87	%		4.53	%		2.89	%		3.98	%		N/A			N/A

Ratios to Average Net Assets / Supplemental Data: (g)(h)

Net Assets, End of Year/Period (000’s)	$	928,059		$	945,988		$	995,615		$	950,348		$	995,405		$	1,026,412		$	1,085,547

Gross operating expenses (e)(f)		1.45	%		1.32	%		1.67	%		2.68	%		3.39	%		3.10	%		1.79	%

Net investment income (e)		5.95	%		8.98	%		5.26	%		4.22	%		5.93	%		5.48	%		4.98	%

Portfolio turnover rate		8	%		45	%		38	%		22	%		18	%		27	% (d)		177	%

Average commission rate paid (i)	$	0.0296		$	0.0092		$	0.0348		$	0.0969		$	0.0032		$	0.0243		$	0.0300

*	Per share data prior to November 3, 2017 has been adjusted to give effect to an approximately 2 to 1 reverse stock split as part of the conversion to a closed-end fund.

**	For the six-month period ended December 31, 2018. Effective April 11, 2019, the Fund had a fiscal year change from June 30 to December 31.

‡	Reflects the financial highlights of Class Z of the open-end fund prior to the conversion.

(a)	Per share data was calculated using average shares outstanding during the period.

(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 based on market value per share for periods after November 3, 2017. Distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan. Prior to November 3, 2017, total return is at net asset value assuming all distributions are reinvested. 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)	Not annualized.

(e)	Excludes 12b-1 fees from partial period operating as an open-end fund. Following the conversion on November 3, 2017, the Fund is no longer subject to 12b-1 fees.

(f)	Includes dividends and fees on securities sold short.

(g)	All ratios for the period have been annualized, unless otherwise indicated.

(h)	Supplemental expense ratios are shown below.

(i)	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. The period prior to the Conversion Date is not presented.


12						See accompanying Notes to Financial Statements.

FINANCIAL HIGHLIGHTS (concluded)



		Highland Opportunities and Income Fund

Supplemental Expense Ratios:


	For the Six Months Ended June 30, 2023 (Unaudited)			For the Years Ended December 31,												For the Period Ended December 31, 2018**			For the Year Ended June 30, 2018*‡
	For the Six Months Ended June 30, 2023 (Unaudited)			2022			2021			2020			2019			For the Period Ended December 31, 2018**			For the Year Ended June 30, 2018*‡

Ratios based on Average Managed Assets

Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses)		0.72	%		1.15	%		1.44	%		1.83	%		2.28	%		N/A			N/A

Interest expense and commitment fees, and preferred dividend expense		0.48	%		0.70	%		0.74	%		1.17	%		1.27	%		N/A			N/A

Dividends and fees on securities sold short		0.01	%		0.02	%		0.02	%		0.02	%		0.01	%		N/A			N/A

Ratios to Average Net Assets

Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses)		1.45	%		1.32	%		1.67	%		2.68	%		3.39	%		3.10	%		1.79	%

Interest expense and commitment fees, and preferred dividend expense		0.97	%		0.80	%		0.86	%		1.71	%		1.90	%		1.63	%		0.49	%

Dividends and fees on securities sold short		0.02	%		0.02	%		0.02	%		0.03	%		0.01	%		—	% (j)		—	% (j)

Borrowing at end of year/period:

Aggregate Amount Outstanding Excluding

Preferred Shares*		19,119,000			21,722,000			—			200,000,000			419,796,600			496,141,100			498,563,423

Asset Coverage Per $1,000*		49,550.53			44,549.75			—			5,751.74			3,371.16			3,068.79			3,177.35

Aggregate Amount Outstanding Including

Preferred Shares*		164,119,000			166,722,000			145,000,000			345,000,000			564,796,600			496,141,100			498,563,423

Asset Coverage Per $1,000*		6,655.88			6,674.04			7,859.92			3,754.63			2,762.41			3,068.79			3,177.35

*	See Note 10 for further details.

(j)	Represents less than 0.005%.


See accompanying Notes to Financial Statements.						13

NOTES TO FINANCIAL STATEMENTS (unaudited)



June 30, 2023		Highland Opportunities and Income Fund

Note 1. Organization

Highland Opportunities and Income Fund (the “Fund”) is organized as an unincorporated business trust under the laws of The Commonwealth of Massachusetts. The Fund is registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as a

non-diversified,

closed-end

management investment company. On September 25, 2017, the Fund acquired the assets of Highland Floating Rate Opportunities Fund (the “Predecessor Fund”), a series of NexPoint Funds I (formerly Highland Funds I), a Delaware statutory trust. The Fund is the successor to the accounting and performance information of the Predecessor Fund.

On June 15, 2023, the Fund changed its name from Highland Income Fund to Highland Opportunities Income Fund.

On July 29, 2019, the Fund issued 5.4 million 5.375% Series A Cumulative Preferred shares (NYSE: HFRO.PR.A) with an aggregate liquidation value of $135 million. Subsequently on August 9, 2019, the underwriters exercised their option to purchase additional overallotment shares of $10mm, resulting in a total Preferred outstanding offering of $145mm.

The Series A Cumulative Preferred shares are perpetual,

non-

callable for five years, and have a liquidation preference of $25.00 per share. Distributions are scheduled quarterly, with payments beginning on September 30, 2019. Series A Preferred shares trade on the NYSE. Moody’s Investors Service has assigned an A1 rating to the preferred shares.

On May 16, 2023, the Fund announced that the Fund’s Board of Trustees (the “Board”) approved a repurchase program pursuant to which the Fund may repurchase up to $100 million of its stock in open-market transactions over a

two-

year period.

Note 2. Significant Accounting Policies

The following summarizes the significant accounting policies consistently followed by the Fund in the preparation of its financial statements.

Use of Estimates

The Fund is an investment company that follows the investment company accounting and reporting guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial Services — Investment Companies applicable to investment companies. The Fund’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require NexPoint Asset Management, L.P. (“NexPoint” or the “Investment Adviser”) to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of

the financial statements and the reported amounts of increases or decreases in net assets from operations during the reporting period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Fund Valuation

The net asset value (“NAV”) of the Fund’s common shares is calculated daily on each day that the NYSE is open for business as of the close of the regular trading session on the NYSE, usually 4:00 PM, Eastern Time. The NAV is calculated by dividing the value of the Fund’s net assets attributable to common shares by the numbers of common shares outstanding.

Valuation of Investments

Pursuant to Rule

2a-5

under the 1940 Act, the Board has designated NexPoint as the Fund’s valuation designee to perform the fair valuation determination for securities and other assets held by the Fund. NexPoint acting through its “Valuation Committee,” is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of NexPoint and certain of NexPoint’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is subject to Board oversight and certain reporting and other requirements intended to provide the Board the information it needs to oversee NexPoint’s fair value determinations.

The Fund’s investments are recorded at fair value. In computing the Fund’s net assets attributable to shares, securities with readily available market quotations on the NYSE, National Association of Securities Dealers Automated Quotation (“NASDAQ”) or other nationally recognized exchange, use the closing quotations on the respective exchange for valuation of those securities. Securities for which there are no readily available market quotations will be valued pursuant to policies and procedures adopted by NexPoint and approved by the Board. Typically, such securities will be valued at the mean between the most recently quoted bid and ask prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day may be priced by an independent pricing service. Generally, the Fund’s loan and bond positions are not traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that the Investment Adviser has determined to have the capability to provide appropriate pricing services.


14						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Securities for which market quotations are not readily available, or for which the Fund has determined that the price received from a pricing service or broker-dealer is “stale” or otherwise does not represent fair value (such as when events materially affecting the value of securities occur between the time when market price is determined and calculation of the Fund’s NAV, will be valued by the Fund at fair value, as determined by the Valuation Committee in good faith in accordance with policies and procedures established by NexPoint and approved by the Board, taking into account factors reasonably determined to be relevant, including, but not limited to: (i) the fundamental analytical data relating to the investment; (ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces that influence the market in which these securities are purchased and sold. In these cases, the Fund’s NAV will reflect the affected portfolio securities’ fair

value as determined in the judgment of the Valuation Committee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a security’s most recent sale price and from the prices used by other investment companies to calculate their NAVs. Determination of fair value is uncertain because it involves subjective judgments and estimates.

There can be no assurance that the Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security. Those differences could have a material impact to the Fund. The NAV shown in the Fund’s financial statements may vary from the NAV published by the Fund as of its period end because portfolio securities transactions are accounted for on the trade date (rather than the day following the trade date) for financial statement purposes.

Deferred Financing Costs on the Preferred Stock

Deferred financing costs on the preferred shares consist of fees and expenses incurred in connection with the closing of the preferred stock offerings, and are capitalized at the time of payment. Based on ASC

480-10-S99,

preferred stock that, by its terms, is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control should be classified as mezzanine equity; therefore, these costs are only amortized once it is probable the shares will become redeemable. As of June 30, 2023, the Fund is compliant with all contingent redemption provisions of the preferred offering, therefore the financing costs are currently unamortized until probable. Deferred financing costs of $5.2 million are presented net with the mezzanine equity on the Statement of Assets and Liabilities.


Issuer	Shares at December 31, 2022		Beginning Value as of December 31, 2022		Issuance Net Liquidation Value		Deferred Issuance Costs		Paydowns		Balance net of Deferred Financing Costs at June 30, 2023		Shares at June 30, 2023
Cumulative preferred shares (Series A)		5,800,000	$	139,756,249	$	145,000,000	$	5,243,751	$	—	$	139,756,249		5,800,000

Fair Value Measurements

The Fund has performed an analysis of all existing investments and derivative instruments to determine the significance and character of inputs to their fair value determination. The levels of fair value inputs used to measure the Fund’s investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:

Level 1

—

Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement;

Level

2 —

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active, but are valued based on executed trades; broker

quotations that constitute an executable price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are either directly or indirectly observable for the asset in connection with market data at the measurement date; and

Level

—

Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Fund has obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.


Semi-Annual Report						15

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

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

As of June 30, 2023, the Fund’s investments consisted of common stocks, U.S. senior loans, collateralized loan obligations, LLC interests, warrants, preferred stock, corporate bonds and notes, a master limited partnership, a registered investment company, rights, a repurchase agreement, a cash equivalent, and a reverse repurchase agreement. The fair value of the Fund’s senior loans and bonds are generally based on quotes received from brokers or independent pricing services. Loans, bonds and asset- backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Loans and bonds that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. The fair value of the Fund’s futures contracts are valued based on the settlement price established each day by the board of trade or exchange on which they principally trade and are classified as Level 1 liabilities.

The fair value of the Fund’s common stocks, registered investment companies, rights and warrants that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the

mid-price,

which is the mean of the bid and ask price, is utilized to value the option.

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

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

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Fund’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly traded securities.


16						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Fund’s assets and liabilities as of June 30, 2023, is as follows:


	Total value at June 30, 2023 ($)			Level 1 Quoted Price ($)			Level 2 Significant Observable Inputs ($)			Level 3 Significant Unobservable Inputs ($)
Highland Opportunities and Income Fund
Assets
Common Stocks
Communication Services		11,015,436			1,830,306			—			9,185,130
Consumer Discretionary		14,371			—			—			14,371
Energy		—			—			—			—	(1)
Gaming/Leisure		4,389,275			—			—			4,389,275
Healthcare		22,730,387			—			—			22,730,387
Materials		1,495,160			—			1,495,160			—
Real Estate		523,846,156			101,767,162			—			422,078,994
U.S. Senior Loans
Communication Services		9,113,792			—			—			9,113,792
Energy		6,393,335			—			6,393,335			—
Gaming/Leisure		14,621,330			—			—			14,621,330
Healthcare		27,985,351			—			12,008,300			15,977,051
Information Technology		61,626,177			—			—			61,626,177
Real Estate		128,183,532			—			—			128,183,532
Collateralized Loan Obligations		93,695,451			—			93,695,451			—
LLC Interest		59,422,067			—			—			59,422,067
Warrants
Energy		32,700,272			—			32,700,272			—
Preferred Stock
Financials		4,303,497			3,098,335			703,600			501,562
Healthcare		22,199,057			—			—			22,199,057
Real Estate		5,231,066			4,563,664			667,402			—
Corporate Bonds & Notes
Communication Services		2,604			—			2,604			—
Financials		3,400,000			—			3,400,000			—
Industrials		—			—			—			—	(1)
Utilities		—			—			_	(1)		—
Master Limited Partnerships
Energy		2,275,840			2,275,840			—			—
Registered Investment Company		746,028			746,028			—			—
Rights
Utilities		5,384			—			5,384			—
Repurchase Agreement		8			8			—			—
Cash Equivalent		12,161,638			12,161,638			—			—

Total Assets		1,047,557,214			126,442,981			151,071,508			770,042,725

Liabilities
Securities Sold Short
Common Stocks
Information Technology		(7,398,822	)		(7,398,822	)		—			—
Reverse Repurchase Agreement		(19,119,000	)		—			(19,119,000	)		—

Total Liabilities		(26,517,822	)		(7,398,822	)		(19,119,000	)		—

Total		1,021,039,392			119,044,159			131,952,508			770,042,725

(1)	This category includes securities with a value of zero.


Semi-Annual Report						17

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

The table below sets forth a summary of changes in the Fund’s assets measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2023.


	Balance as of December 31, 2022 $		Transfers Into Level 3 $		Transfers Out of Level 3 $		Accrued Discounts (Premiums) $		Distribution to Return Capital $			Realized Gain (Loss) $		Net Change in Unrealized Appreciation (Depreciation) $			Net Purchases $		Net Sales $		Balance as of June 30, 2023 $		Change in Unrealized Appreciation (Depreciation) from Investments held at June 30, 2023 $
Common Stocks
Communication Services		9,887,358		—		—		—		—			—		(702,228	)		—		—		9,185,130		(702,228	)
Consumer Discretionary		13,895		—		—		—		—			—		476			—		—		14,371		476
Gaming/Leisure		5,635,995		—		—		—		—			—		(1,246,720	)		—		—		4,389,275		(1,246,720	)
Healthcare		22,261,348		—		—		—		—			—		469,039			—		—		22,730,387		469,039
Real Estate		427,422,662		—		—		—		(74,892,009	)				(10,154,419	)		79,702,760		—		422,078,994		(10,154,419	)
U.S. Senior Loans
Communication Services		8,616,085		—		—		7		—			—		4,460			493,240		—		9,113,792		4,460
Gaming/Leisure		13,833,090		—		—		—		—			—		389,664			398,576		—		14,621,330		389,664
Healthcare		15,408,657		—		—		—		—			—		93,010			475,384		—		15,977,051		93,010
Information Technology		59,271,980		—		—		—		—			—		2,354,197			—		—		61,626,177		2,354,197
Real Estate		108,158,431		—		—		—		—			—		2,297,758			17,727,343		—		128,183,532		2,297,758
LLC Interest		59,010,136		—		—		—		—			—		(3,378,069	)		3,790,000		—		59,422,067		(3,378,069	)
Preferred Stock
Financials		1,266,246		—		—		—		—			—		(764,684	)		—		—		501,562		(764,684	)
Healthcare		22,083,025		—		—		—		—			—		116,032			—		—		22,199,057		116,032

Total		752,868,908		—		—		7		(74,892,009	)		—		(10,521,484	)		102,587,303		—		770,042,725		(10,521,484	)

Investments designated as Level 3 may include assets valued using quotes or indications furnished by brokers which are based on models or estimates without observable inputs and may not be executable prices. In light of the developing market conditions, the Investment Adviser continues to

search for observable data points and evaluate broker quotes and indications received for portfolio investments.

For the six months ended June 30, 2023, there were no positions that transferred into or out of Level 3.


18						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Determination of fair value is uncertain because it involves subjective judgements and estimates that are unobservable. The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

Category

Fair Value at
06/30/23

Valuation Technique

Unobservable Inputs

Range Input
Value(s)
(Average
Input

Value)

Common Stocks

458,398,157

Multiples Analysis

Unadjusted Price/MHz-PoP

$0.09 - $0.90 ($0.50)

NAV / sh multiple

1.10x - 1.45x (1.28x)

Revenue Multiples

0.33x - 0.43x (0.38x)

Net Asset Value

N/A

$28.00

Liquidation Analysis

Recovery Rate

40% - 100% (70%)

Discounted Cash Flow

Discount Rate

7.50% - 32.50% (13.30%)

Capitalization Rate

5.25% - 9.50% (6.83%)

Transaction Analysis

Multiple of EBITDA less CAPEX

8.00x - 10.50x (9.25x)

Price per Sq. Ft.

$22.00 - $33.00 ($28.67)

Transaction Indication of Value

Enterprise Value ($mm)

$788 - $1,010 ($899)

Cost Price ($mm)

$14.90

U.S. Senior Loans

229,521,882

Discounted Cash Flow

Discount Rate

7.50% - 20.00% (10.23%)

Volatility Analysis

Volatility

25.00% - 60.00% (42.50%)

Preferred Stock

22,700,619

NAV Approach

Discount Rate

70.0%

Option Pricing Model

Volatility

40% - 60% (50%)

Transaction Indication of Value

Recap Price

$11.10

LLC Interest

59,422,067

Discounted Cash Flow

Discount Rate

5.48% - 14.00% (9.72%)

770,042,725

In addition to the unobservable inputs utilized for various valuation methodologies, the Fund frequently uses a combination of two or more valuation methodologies to determine fair value for a single holding. In such instances, the Fund assesses the methodologies and ascribes weightings to each methodology. The weightings ascribed to any individual methodology ranged from as low as 20% to as high as 80% as of June 30, 2023. The selection of weightings is an inherently subjective process, dependent on professional judgement. These selections may have a material impact to the concluded fair value for such holdings.

The significant unobservable inputs used in the fair value measurement of the Company’s Preferred Stock are: the discount rate, volatility and recap price. Significant decreases (increases) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s U.S. Senior Loans are: the discount rate and volatility. Significant decreases (increases) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s common stock are: the unadjusted price/MHz-PoP multiple, EBITDA multiple, revenue multiple, recovery rate, discount rate, price per sq. ft.,

enterprise value, NAV per share multiple, capitalization rate and cost price. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the risk discount is accompanied by a directionally opposite change in the assumption for the price/MHz-PoP multiple.

The significant unobservable input used in the fair value measurement of the Company’s LLC interests is the discount rate. Significant decreases (increases) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement.

Security Transactions

Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of the specific identification method for both financial statement and U.S. federal income tax purposes taking into account any foreign taxes withheld.

Income Recognition

Corporate actions (including cash dividends) are recorded on the

ex-dividend

date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after

ex-dividend

date as such information becomes available and is verified. Interest income and PIK are recorded on the accrual basis.


Semi-Annual Report						19

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Accretion of discount on taxable bonds and loans is computed to the maturity date, while amortization of premium on taxable bonds and loans is computed to the earliest call date, whichever is shorter, both using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

The Fund records distributions received from investments in real estate investment trusts (“REIT”) and partnerships in excess of income from underlying investments as a reduction of cost of investments and/or realized gain. Such amounts are based on estimates if actual amounts are not available, and actual amounts of income, realized gain and return of capital may differ from the estimated amounts. The Fund adjusts the estimated amounts once the issuers provide information about the actual composition of the distributions.

U.S. Federal Income Tax Status

The Fund is treated as a separate taxpayer for U.S. federal income tax purposes. The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986 (the “Code”), as amended, and will distribute substantially all of its taxable income and gains, if any, for the tax year, and as such will not be subject to U.S. federal income taxes. In addition, the Fund intends to distribute, in each calendar year, all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to U.S. federal excise tax. Therefore, no U.S. federal income or excise tax provisions are recorded. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in Statement of Operations. There were no interest or penalties during the six months ended June 30, 2023.

The Investment Adviser has analyzed the Fund’s tax positions taken on U.S. federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for U.S. federal income tax is required in the Fund’s financial statements. The Fund’s U.S. federal and state income and U.S. federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. Furthermore, the Investment Adviser of the Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.

Distributions to Shareholders

The Fund plans to pay distributions from net investment income monthly and net realized capital gains annually to

common shareholders. To permit the Fund to maintain more stable monthly distributions and annual distributions, the Fund may from time to time distribute less than the entire amount of income and gains earned in the relevant month or year, respectively. The undistributed income and gains would be available to supplement future distributions. In certain years, this practice may result in the Fund distributing, during a particular taxable year, amounts in excess of the amount of income and gains earned therein. Such distributions would result in a portion of each distribution occurring in that year to be treated as a return of capital to shareholders. Shareholders of the Fund will automatically have all distributions reinvested in Common Shares of the Fund issued by the Fund in accordance with the Fund’s Dividend Reinvestment Plan (the “Plan”) unless an election is made to receive cash. The number of newly issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the lesser of (i) the NAV per Common Share determined on the Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the NYSE on the Declaration Date. Participants in the Plan requesting a sale of securities through the plan agent of the Plan are subject to a sales fee and a brokerage commission.

Statement of Cash Flows

Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount included within the Fund’s Statement of Assets and Liabilities and includes cash on hand at its custodian bank and/or

sub-custodian

bank(s) cash equivalents, foreign currency and restricted cash held at broker(s).

Cash & Cash Equivalents

The Fund considers liquid assets deposited with a bank and certain short-term debt instruments of sufficient credit quality with original maturities of three months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates fair value. The value of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of this financial report.

These balances may exceed the federally insured limits under the Federal Deposit Insurance Corporation (“FDIC”).

Foreign Currency

Accounting records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated


20						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

into U.S. dollars at exchange rates using the current 4:00 PM London Time Spot Rate. Fluctuations in the value of the foreign currencies and other assets and liabilities resulting from changes in exchange rates, between trade and settlement dates on securities transactions and between the accrual and payment dates on dividends, interest income and foreign withholding taxes, are recorded as unrealized foreign currency gains/(losses). Realized gains/(losses) and unrealized appreciation/(depreciation) on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.

Securities Sold Short

The Fund may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. When the Fund sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. The Fund may have to pay a fee to borrow particular securities and is obligated to pay over any dividends or other payments received on such borrowed securities. In some circumstances, the Fund may be allowed by its prime broker to utilize proceeds from securities sold short to purchase additional investments, resulting in leverage. Cash held as collateral for securities sold short is classified as restricted cash on the Statement of Assets and Liabilities, as applicable. Restricted cash in the amount of $7,266,069 was held with the broker for the Fund. There were no securities posted in the Fund’s segregated account as collateral as of June 30, 2023.

Other Fee Income

Fee income may consist of origination/closing fees, amendment fees, administrative agent fees, transaction

break-up

fees and other miscellaneous fees. Origination fees, amendment fees, and other similar fees are nonrecurring fee sources. Such fees are received on a transaction by transaction basis and do not constitute a regular stream of income and are recognized when incurred.

Note 3. Derivative Transactions

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

Futures Contracts

A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. The Fund may invest in interest rate, financial and stock or bond index futures contracts subject to certain limitations. The Fund invests in futures contracts to manage its exposure to the stock and bond markets and fluctuations in currency values. Buying futures tends to increase the Fund’s exposure to the underlying instrument while selling futures tends to decrease the Fund’s exposure to the underlying instrument, or economically hedge other Fund investments. With futures contracts, there is minimal counterparty credit risk to the Fund since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all traded futures, guarantees the futures against default. The Fund’s risks in using these contracts include changes in the value of the underlying instruments,

non-performance

of the counterparties under the contracts’ terms and changes in the liquidity of the secondary market for the contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they principally trade.

Upon entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount, known as initial margin deposit. Subsequent payments, known as variation margins, are made or can be received by the Fund each day, depending on the daily fluctuation in the fair value of the underlying security. The Fund records an unrealized gain/(loss) equal to the daily variation margin. Should market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the futures contracts and may incur a loss. The Fund recognizes a realized gain/(loss) on the expiration or closing of a futures contract.

During the six months ended June 30, 2023, the Fund did not enter into futures transactions for the purpose of hedging against the effects of changes in the value of portfolio securities due to anticipated changes in market conditions, and to gain market exposure for residual and accumulating cash positions. Cash held as collateral for futures contracts is shown on the Statement of Assets and Liabilities as “Restricted Cash—Futures.” As of June 30, 2023, the Fund did not have any cash held as collateral for futures contracts.

Options

The Fund may utilize options on securities or indices to varying degrees as part of their principal investment strategy. An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified


Semi-Annual Report						21

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

exercise or “strike” price. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Fund may hold options, write option contracts, or both.

If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a capital gain equal to the premium received by the Fund at the time the option was written. If an option purchased by the Fund expires unexercised, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, underlying security, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Fund desires.

The Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if the cost of the closing option is more than the premium received from writing the option, a capital loss. The Fund will realize a capital gain from a closing sale transaction if the premium received from the sale is more than the original premium paid when the option position was opened, or a capital loss, if the premium received from a sale is less than the original premium paid.

As of June 30, 2023, the Fund did not hold written options.

Reverse Repurchase Agreements

The Fund may engage in reverse repurchase agreement transactions with respect to instruments that are consistent with the Fund’s investment objective or policies. This creates leverage for the Fund because the cash received can be used to purchase other securities.

A reverse repurchase transaction is a repurchase transaction in which the Fund is the seller of securities or other assets and agrees to repurchase them at a date certain or on demand. Pursuant to the Repurchase Agreement, the Fund may agree to sell securities or other assets to Mizuho Securities for an agreed upon price (the “Purchase Price”), with a simultaneous agreement to repurchase such securities or other assets from Mizuho Securities for the Purchase Price plus a price differential that is economically similar to interest. The price differential is negotiated for each transaction. This creates leverage for the Fund because the cash received can be used to purchase other securities.

At June 30, 2023, the Fund had investments in a reverse repurchase agreement with a gross value of $19,119,000, which is reflected as reverse repurchase agreements on the statement of assets and liabilities. The value of the related

collateral exceeded the value of the reverse repurchase agreements at June 30, 2023. The collateral pledged for the reverse repurchase agreements includes Agency Collateralized Mortgage Obligations and cash, both of which are reflected on the statement of assets and liabilities. The Fund’s average daily balance was $20,348,222 at a weighted average interest rate of 6.62% for the days outstanding.

Additional Derivative Information

The Fund is required to disclose; a) how and why an entity uses derivative instruments; b) how derivative instruments and related hedged items are accounted for; c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows; and d) how the netting of derivatives subject to master netting arrangements (if applicable) affects the net exposure of the Fund related to the derivatives.

Note 4. Securities Lending

Effective January, 7, 2020, the Fund entered into a securities lending agreement with The Bank of New York Mellon (“BNY” or the “Lending Agent”).

Securities lending transactions are entered into by the Fund under the Securities Lending Agreement (“SLA”), which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.

The following is a summary of securities lending agreements held by the Fund, with cash collateral of overnight maturities, which would be subject to offset as of June 30, 2023:


Gross Amount of Recognized Assets (Value of Securities on Loan)	Value of Cash Collateral Received (1)	Value of Non-Cash Collateral Received	Net Amount
$—	$—	$—	$—

(1)	Collateral received in excess of market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.

Amounts designated as (—) are $0.


22						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

The value of loaned securities and related collateral outstanding at June 30, 2023 are shown in the Investment Portfolio. The value of the collateral held may be temporarily less than that required under the lending contract. As of June 30, 2023, the cash collateral was invested in repurchase agreements with the following maturities:

Remaining Contractual Maturity of the Agreements, as of June 30, 2023


	Overnight and Continuous		<30 Days		Between 30 & 90 Days		>90 Days		Total
Repurchase Agreement	$	8	$	—	$	—	$	—	$	8

Total	$	8	$	—	$	—	$	—	$	8

Amounts designated as (—) are $0.

The Fund could seek additional income by making secured loans of its portfolio securities through its custodian. Such loans would be in an amount not greater than

one-third

of the value of the Fund’s total assets. BNY would charge a fund fees based on a percentage of the securities lending income.

The fair value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral is returned by the Fund, on the next business day.

The Fund would receive collateral consisting of cash (U.S. and foreign currency), securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, sovereign debt, convertible bonds, irrevocable bank letters of credit or such other collateral as may be agreed on by the parties to a securities lending arrangement, initially with a value of 102% or 105% of the market value of the loaned securities and thereafter maintained at a value of 100% of the market value of the loaned securities. If the collateral consists of

non-cash

collateral, the borrower would pay the Fund a loan premium fee. If the collateral consists of cash, BNY would reinvest the cash in repurchase agreements and money market accounts. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund would recall the loaned securities upon reasonable notice in order that the securities could be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund also could call such loans in order to sell the securities involved.

Securities lending transactions were entered into pursuant to SLAs, which would provide the right, in the event of default (including bankruptcy or insolvency) for the

non-defaulting

party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional

collateral. In the event that a borrower defaulted, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. The value of the collateral is typically greater than that of the market value of the securities loaned, leaving the lender with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an SLA counterparty’s bankruptcy or insolvency. Under the SLA, the Fund can reinvest cash collateral, or, upon an event of default, resell or repledge the collateral, and the borrower can resell or repledge the loaned securities. The risks of securities lending also include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate this risk, the Fund benefits from a borrower default indemnity provided by BNY. BNY’s indemnity generally provides for replacement of securities lent or the approximate value thereof.

Note 5. U.S. Federal Income Tax Information

The character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from GAAP. These differences include (but are not limited to) investments organized as partnerships for tax purposes, tax treatment of organizational

start-up

costs, losses deferred due to wash sale transactions, and tax attributes from Fund reorganizations. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or NAV of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.

For the year ended December 31, 2022, permanent differences chiefly resulting from return of capital distributions paid by the Fund were identified and reclassified among the components of the Fund’s net assets as follows:


Distributable Earnings (Accumulated Losses)	Paid-in-Capital
$4,877,268	$	(4,877,268	)

At December 31, 2022, the Fund’s most recent tax year end, components of distributable earnings (accumulated losses) on a tax basis are as follows:


Other Temporary Losses	Accumulated Capital Losses			Unrealized Appreciation (Depreciation) (1)
$—	$	(193,465,924	)	$	(315,342,241	)

(1)	Any differences between book-basis and tax-basis net unrealized appreciation/(depreciation) are primarily due to wash sales, non-taxable dividends, partnerships, PFICs, REIT basis adjustments and difference in premium amortization methods for book and tax.


Semi-Annual Report						23

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

As of December 31, 2022, the Fund has capital loss carryovers as indicated below. The capital loss carryovers are available to offset future realized capital gains to the extent provided in the Code and regulations promulgated thereunder. To the extent that these carryover losses are used to offset future capital gains, the gains offset will not be distributed to shareholders. During the year ended December 31, 2022, the Fund utilized $142,321,291 of capital carryforwards to offset capital gains.


No Expiration Short-Term	No Expiration Long-Term			Total
$—	$	(193,465,924	)	$	(193,465,924	)

The tax character of distributions paid during the last two fiscal years ended December 31, is as follows:


	Ordinary Income		Long-term Capital Gain		Return of Capital
2022	$	35,874,540	$	—	$	27,155,040
2021		15,595,827		—		50,110,849

Amounts designated as (—) are $0.

Unrealized appreciation (depreciation) at June 30, 2023, based on cost of investments, securities sold short and foreign currency transactions for U.S. federal income tax purposes was:


Gross Appreciation	Gross Depreciation			Net Appreciation/ (Depreciation)			Cost
$128,000,247	$	(503,748,796	)	$	(375,748,549	)	$	1,423,305,763

Qualified Late Year Ordinary and Post October Losses

Under current laws, certain capital losses and specified losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal year ended December 31, 2022, the Fund did not defer any qualified late year ordinary nor post October losses.

Note 6. Investment Advisory, Administration and Trustee Fees

For its investment advisory services, the Fund pays the Investment Adviser a monthly fee, computed and accrued daily, based on an annual rate of the Fund’s Average Daily Managed Assets. Average Daily Managed Assets of a Fund means the average daily value of the total assets of a Fund less all accrued liabilities of a Fund (other than the aggregate amount of any outstanding borrowings constituting financial leverage). On occasion, the Investment Adviser voluntarily waives additional fees to the extent assets are invested in certain affiliated investments.

The table below shows the Fund’s contractual advisory fee with the Investment Adviser for the six months ended June 30, 2023:


Annual Fee Rate to the Investment Advisor	> 1 Billion			> 2 Billion
0.65%		0.60	%		0.55	%

Administration Fee

The Investment Adviser provides administrative services to the Fund. For its services, the Investment Adviser receives an annual fee, payable monthly, in an amount equal to 0.20% of the average weekly value of the Fund’s Managed Assets. Under a separate

sub-administration

agreement, the Investment Adviser delegates certain administrative functions and pays the

sub-administrator

directly for these subadministration services. Effective October 1, 2018, the Investment Adviser entered into an administrative services agreement with SEI Investments Global Funds Services, a wholly owned subsidiary of SEI Investments Company.

Fees Paid to Officers and Trustees

Each Trustee who oversees all of the funds in the NexPoint Fund Complex receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the NexPoint Fund Complex based on relative net assets. The annual retainer for a Trustee who does not oversee all of the funds in the NexPoint Fund Complex is prorated based on the portion of the $150,000 annual retainer allocable to the funds overseen by such Trustee. The Chairman of the Audit Committee and the Chairman of the Board each receive an additional annual payment of $10,000 payable in quarterly installments and allocated among each portfolio in the NexPoint Fund Complex based on relative net assets. The “NexPoint Fund Complex” consists of all of the registered investment companies advised by the Investment Adviser or its affiliated advisers as of the date of this report and NexPoint Capital, Inc., a

closed-end

management investment company that has elected to be treated as a business development company under the 1940 Act.

The Fund pays no compensation to its officers, all of whom are employees of the Investment Adviser or one of its affiliates.

Trustees are reimbursed for actual

out-of-pocket

expenses relating to attendance at meetings.

The Trustees do not receive any separate compensation in connection with service on Committees or for attending Board or Committee Meetings. The Trustees do not have any pension or retirement plan.


24						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Expedited Settlement Agreements

On June 15, 2017 and May 14, 2019, the Fund entered into Expedited Settlement Agreements with two major dealers in the floating rate loan market, pursuant to which the Fund has the right to designate certain loans it sells to the dealer to settle on or prior to three days from the trade date in exchange for a quarterly fee (the “Expedited Settlement Agreements”). The Expedited Settlement Agreements are designed to reduce settlement times from the standard seven days to three days for eligible loans. For the six months ended June 30, 2023, the Expedited Settlement Agreement was not used by the Fund.

While the Expedited Settlement Agreements are intended to provide the Fund with additional liquidity with respect to such loans, and may not represent the exclusive method of expedited settlement of such loans, no assurance can be given that the Expedited Settlement Agreements or other methods for expediting settlements will provide the Fund with sufficient liquidity in the event of abnormally large redemptions.

Other Matters

NexPoint has entered into a Services Agreement (the “Services Agreement”) with Skyview Group (“Skyview”), effective February 25, 2021, pursuant to which NexPoint will receive administrative and operational support services to enable it to provide the required advisory services to the Fund. The Investment Adviser, and not the Fund, will compensate all Investment Adviser and Skyview personnel who provide services to the Fund.

Effective July 12, 2022, certain Skyview personnel became dual-employees of NexPoint Services, Inc., a wholly-owned subsidiary of the Investment Adviser. The same services are being performed by the dual-employees. The Investment Adviser, and not the Fund, will compensate all Investment Adviser, Skyview, and dual-employee personnel who provide services to the Fund.

Indemnification

Under the Fund’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund may enter into contracts with service providers that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.

Note 7. Disclosure of Significant Risks and Contingencies

The Fund’s investments expose the Fund to various risks, certain of which are discussed below. Please refer to the Fund’s Prospectus and Statement of Additional Information for a full listing of risks associated with the Fund’s investments.

Concentration in Real Estate Securities Risk

Although the Fund does not invest directly in real estate, the Fund will concentrate its investments in investment vehicles that invest principally in real estate and real estate related securities, its portfolio will be significantly impacted by the performance of the real estate market and may experience more volatility and be exposed to greater risk than a more diversified portfolio. The values of companies engaged in the real estate industry are affected by: (i) changes in general economic and market conditions; (ii) changes in the value of real estate properties; (iii) risks related to local economic conditions, overbuilding and increased competition; (iv) increases in property taxes and operating expenses; (v) changes in zoning laws; (vi) casualty and condemnation losses; (vii) variations in rental income, neighborhood values or the appeal of property to tenants; (viii) the availability of financing and (ix) changes in interest rates and leverage.

Counterparty Risk

Counterparty risk is the potential loss the Fund may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. Counterparty risk is measured as the loss the Fund would record if its counterparties failed to perform pursuant to the terms of their obligations to the Fund. Because the Fund may enter into

over-the-counter

forwards, options, swaps and other derivative financial instruments, the Fund may be exposed to the credit risk of its counterparties. To limit the counterparty risk associated with such transactions, the Fund conducts business only with financial institutions judged by the Investment Adviser to present acceptable credit risk.

Credit Risk

The value of debt securities owned by the Fund may be affected by the ability of issuers to make principal and interest payments and by the issuer’s or counterparty’s credit quality. If an issuer cannot meet its payment obligations or if its credit rating is lowered, the value of its debt securities may decline. Lower quality bonds are generally more sensitive to these changes than higher quality bonds. Nonpayment would result in a reduction of income to the Fund, a reduction in the value of the obligation experiencing nonpayment and a potential decrease in the Fund’s net asset value and the market price of the Fund’s shares.


Semi-Annual Report						25

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Currency Risk

A portion of the Fund’s assets may be quoted or denominated in

non-U.S.

currencies. These securities may be adversely affected by fluctuations in relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may be negatively affected by a devaluation of a currency in which the Fund’s investments are quoted or denominated. Further, the Fund’s investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar value of securities quoted or denominated in another currency will increase or decrease in response to changes in the value of such currency in relation to the U.S. dollar.

Derivatives Risk

Derivatives risk is a combination of several risks, including the risks that: (1) an investment in a derivative instrument may not correlate well with the performance of the securities or asset class to which the Fund seeks exposure, (2) derivative contracts, including options, may expire worthless and the use of derivatives may result in losses to the Fund, (3) a derivative instrument entailing leverage may result in a loss greater than the principal amount invested, (4) derivatives not traded on an exchange may be subject to credit risk, for example, if the counterparty does not meet its obligations (see also “Counterparty Risk”), and (5) derivatives not traded on an exchange may be subject to liquidity risk and the related risk that the instrument is difficult or impossible to value accurately.

Effective August 19, 2022 (the “Compliance Date”), Rule

18f-4

under the 1940 Act (the “Derivatives Rule”) replaced the asset segregation regime of Investment Company Act Release No. 10666 (Release 10666) with a new framework for the use of derivatives by registered funds. As of the Compliance Date, the SEC rescinded Release 10666 and withdrew

no-action

letters and similar guidance addressing a fund’s use of derivatives and began requiring funds to satisfy the requirements of the Derivatives Rule. As a result, on or after the Compliance Date, the Fund will no longer engage in “segregation” or “coverage” techniques with respect to derivatives transactions and will instead comply with the applicable requirements of the Derivatives Rule.

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, 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.

Distressed and Defaulted Securities Risk

The Fund may invest in companies that are troubled, in distress or bankrupt. As such, they are subject to a multitude of legal, industry, market, environmental and governmental forces that make analysis of these companies inherently difficult. Further, the Investment Adviser relies on company management, outside experts, market participants and personal experience to analyze potential investments for the Fund. There can be no assurance that any of these sources will prove credible, or that the resulting analysis will produce accurate conclusions.

Equity Securities Risk

The risk that stock prices will fall over short or long periods of time. In addition, common stocks represent a share of ownership in a company, and rank after bonds and preferred stock in their claim on the company’s assets in the event of bankruptcy. In addition to these risks, preferred stock and convertible securities are also subject to the risk that issuers will not make payments on securities held by the Fund, which could result in losses to the Fund. The credit quality of preferred stock and convertible securities held by the Fund may be lowered if an issuer’s financial condition changes, leading to greater volatility in the price of the security.

Exchange-Traded Funds (“ETF”) Risk

The risk that the price movement of an ETF may not exactly track the underlying index and may result in a loss. In addition, shareholders bear both their proportionate share of the Fund’s expenses and similar expenses of the underlying investment company when the Fund invests in shares of another investment company.

Financial Services Industry Risk

The risk associated with the fact that the Fund’s investments in Senior Loans are arranged through private negotiations between a borrower (“Borrower”) and several financial institutions. Investments in the financial services sector may be subject to credit risk, interest rate risk, and regulatory risk, among others. Banks and other financial institutions can be affected by such factors as downturns in the U.S. and foreign economies and general economic cycles, fiscal and monetary policy, adverse developments in the real estate market, the deterioration or failure of other financial institutions, and changes in banking or s

ecurit

ies regulations. The financial services industry is subject to extensive government regulation,


26						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

which can limit both the amounts and types of loans and other financial commitments financial services companies can make and the interest rates and fees they can charge. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change. Because financial services companies are highly dependent on short-term interest rates, they can be adversely affected by downturns in the U.S. and foreign economies or changes in banking regulations. Losses resulting from financial difficulties of Borrowers can negatively affect financial services companies. The financial services industry is currently undergoing relatively rapid change as existing distinctions between financial service segments become less clear. This change may make it more difficult for the Investment Adviser to analyze investments in this industry. Additionally, the recently increased volatility in the financial markets and implementation of the recent financial reform legislation may affect the financial services industry as a whole in ways that may be difficult to predict.

Hedging Risk

The Fund may engage in “hedging,” the practice of attempting to offset a potential loss in one position by establishing an opposite position in another investment. Hedging strategies in general are usually intended to limit or reduce investment risk, but can also be expected to limit or reduce the potential for profit. For example, if the Fund has taken a defensive posture by hedging its portfolio, and stock prices advance, the return to investors will be lower than if the portfolio had not been hedged. No assurance can be given that any particular hedging strategy will be successful, or that the Investment Adviser will elect to use a hedging strategy at a time when it is advisable.

High Yield Debt Securities Risk

The risk that below investment grade securities or unrated securities of similar credit quality (commonly known as “high yield securities” or “junk securities”) are more likely to default than higher rated securities. The Fund’s ability to invest in high-yield debt securities generally subjects the Fund to greater risk than securities with higher ratings. Such securities are regarded by the rating organizations as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. The market value of these securities is generally more sensitive to corporate developments and economic conditions and can be volatile. Market conditions can diminish liquidity and make accurate valuations difficult to obtain.

Illiquid and Restricted Securities Risk

Certain investments made by the Fund may be illiquid, and consequently the Fund may not be able to sell such investments at prices that reflect the Investment Adviser’s assessment of their value or the amount originally paid for

such investments by the Fund. Illiquidity may result from the absence of an established market for the investments as well as legal, contractual or other restrictions on their resale and other factors. Furthermore, the nature of the Fund’s investments, especially those in financially distressed companies, may require a long holding period prior to profitability.

Restricted securities (

i.e

., securities acquired in private placement transactions) and illiquid securities may offer higher yields than comparable publicly traded securities. The Fund, however, may not be able to sell these securities when the Investment Adviser considers it desirable to do so or, to the extent they are sold privately, may have to sell them at less than the price of otherwise comparable securities.

Restricted securities are subject to limitations on resale which can have an adverse effect on the price obtainable for such securities. Also, if in order to permit resale the securities are registered under the Securities Act at the Fund’s expense, the Fund’s expenses would be increased.

Interest Rate Risk

The risk that fixed income securities will decline in value because of changes in interest rates. When interest rates decline, the value of fixed rate securities already held by the Fund can be expected to rise. Conversely, when interest rates rise, the value of existing fixed rate portfolio securities can be expected to decline. A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.

Leverage Risk

The Fund may use leverage in its investment program, including the use of borrowed funds and investments in certain types of options, such as puts, calls and warrants, which may be purchased for a fraction of the price of the underlying securities. While such strategies and techniques increase the opportunity to achieve higher returns on the amounts invested, they also increase the risk of loss. To the extent the Fund purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are not used. If the interest expense on borrowings were to exceed the net return on the portfolio securities purchased with borrowed funds, the Fund’s use of leverage would result in a lower rate of return than if the Fund were not leveraged.

LIBOR Discontinuation Risk

Certain debt securities, derivatives and other financial instruments have traditionally utilized LIBOR as the reference or benchmark rate for interest rate calculations. However, following allegations of manipulation and concerns regarding liquidity, in July 2017 the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it would cease its


Semi-Annual Report						27

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

active encouragement of banks to provide the quotations needed to sustain LIBOR. The ICE Benchmark Administration Limited, the administrator of LIBOR, ceased publishing most liquid U.S. LIBOR maturities on June 30, 2023. It is possible that a subset of U.S. dollar LIBOR settings will continue to be published on a “synthetic” basis. It is expected that market participants transitioned to the use of alternative reference or benchmark rates prior to the applicable LIBOR publication cessation date. Additionally, although regulators have encouraged the development and adoption of alternative rates such as the Secured Overnight Financing Rate (“SOFR”), the future utilization of LIBOR or of any particular replacement rate remains uncertain.

Although the transition process away from LIBOR became increasingly well-defined in advance of the discontinuation dates, the impact on certain debt securities, derivatives and other financial instruments remains uncertain. Market participants have adopted alternative rates such as SOFR or otherwise amended financial instruments referencing LIBOR to include fallback provisions and other measures that contemplated the discontinuation of LIBOR or other similar market disruption events, but neither the effect of the transition process nor the viability of such measures is known. Further, uncertainty and risk remain regarding the willingness and ability of issuers and lenders to include alternative rates and revised provisions in new and existing contracts or instruments. To facilitate the transition of legacy derivatives contracts referencing LIBOR, the International Swaps and Derivatives Association, Inc. launched a protocol to incorporate fallback provisions. However, there are obstacles to converting certain longer term securities and transactions to a new benchmark or benchmarks and the effectiveness of one alternative reference rate versus multiple alternative reference rates in new or existing financial instruments and products has not been determined. Certain proposed replacement rates to LIBOR, such as SOFR, which is a broad measure of secured overnight U.S. Treasury repo rates, are materially different from LIBOR, and changes in the applicable spread for financial instruments transitioning away from LIBOR will need to be made to accommodate the differences. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition to replacement rates may be exacerbated if an orderly transition to an alternative reference rate is not completed in a timely manner.

The utilization of an alternative reference rate, or the transition process to an alternative reference rate, may adversely affect the Fund’s performance.

Alteration of the terms of a debt instrument or a modification of the terms of other types of contracts to replace LIBOR or another interbank offered rate (“IBOR”) with a new reference rate could result in a taxable exchange and the realization of

income and gain/loss for U.S. federal income tax purposes. The Internal Revenue Service (the “IRS”) has issued final regulations regarding the tax consequences of the transition from IBOR to a new reference rate in debt instruments and non-debt contracts. Under the final regulations, alteration or modification of the terms of a debt instrument to replace an operative rate that uses a discontinued IBOR with a qualified rate (as defined in the final regulations) including true up payments equalizing the fair market value of contracts before and after such IBOR transition, to add a qualified rate as a fallback rate to a contract whose operative rate uses a discontinued IBOR or to replace a fallback rate that uses a discontinued IBOR with a qualified rate would not be taxable.

The IRS may provide additional guidance, with potential retroactive effect.

Management Risk

The risk associated with the fact that the Fund relies on the Investment Adviser’s ability to achieve its investment objective. The Investment Adviser may be incorrect in its assessment of the intrinsic value of the companies whose securities the Fund holds, which may result in a decline in the value of fund shares and failure to achieve its investment objective.

Mortgage-Backed Securities Risk

The risk of investing in mortgage-backed securities, and includes interest rate risk, liquidity risk and credit risk, which may be heightened in connection with investments in loans to “subprime” borrowers. Certain mortgage-backed securities are also subject to prepayment risk. Mortgage-backed securities, because they are backed by mortgage loans, are also subject to risks related to real estate, and securities backed by private-issued mortgages may experience higher rates of default on the underlying mortgages than securities backed by government-issued mortgages. The Fund could lose money if there are defaults on the mortgage loans underlying these securities.

Non-Diversification

Risk

The risk that an investment in the Fund could fluctuate in value more than an investment in a diversified fund. As a

non-diversified

fund for purposes of the 1940 Act, the Fund may invest a larger portion of its assets in the securities of fewer issuers than a diversified fund. The Fund’s investments in fewer issuers may result in the Fund’s shares being more sensitive to the economic results of those issuers. An investment in the Fund could fluctuate in value more than an investment in a diversified fund.

Non-U.S.

Securities Risk

The Fund may invest in

non-U.S.

securities. Investing in

non-U.S.

securities involves certain risks not involved in


28						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

domestic investments, including, but not limited to: fluctuations in foreign exchange rates; future foreign economic, financial, political and social developments; different legal systems; the possible imposition of exchange controls or other foreign governmental laws or restrictions; lower trading volume; much greater price volatility and illiquidity of certain

non-U.S.

securities markets; different trading and settlement practices; less governmental supervision; changes in currency exchange rates; high and volatile rates of inflation; fluctuating interest rates; less publicly available information; and different accounting, auditing and financial recordkeeping standards and requirements.

Options Risk

There are several risks associated with transactions in options on securities. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A transaction in options or securities may be unsuccessful to some degree because of market behavior or unexpected events.

When the Fund writes a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation and once an option writer has received an exercise notice, it must deliver the underlying security in exchange for the strike price.

When the Fund writes a covered put option, the Fund bears the risk of loss if the value of the underlying stock declines below the exercise price minus the put premium. If the option is exercised, the Fund could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium the Fund received when it wrote the option. While the Fund’s potential gain in writing a covered put option is limited to distributions earned on the liquid assets securing the put option plus the premium received from the purchaser of the put option, the Fund risks a loss equal to the entire exercise price of the option minus the put premium.

Pandemics and Associated Economic Disruption

An outbreak of respiratory disease caused by a novel coronavirus

(“COVID-19”)

was first detected in China in late 2019 and subsequently spread globally. This coronavirus has resulted in, and may continue to result in, closed borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations,

and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus has resulted in substantial economic volatility. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other

pre-existing

political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies, including certain Fund service providers and issuers of the Fund’s investments, and the markets in general in significant and unforeseen ways. In addition, governments, their regulatory agencies, or self-regulatory organizations may take actions in response to the pandemic, including significant fiscal and monetary policy changes, that may affect the instruments in which the Fund invests or the issuers of such instruments. Any such impact could adversely affect the Fund’s performance.

Preferred Share Risk

The risk associated with the issuance of preferred shares to leverage the common shares. When preferred shares are issued, the NAV and market value of the common shares become more volatile, and the yield to the holders of common shares will tend to fluctuate with changes in the shorter-term dividend rates on the preferred shares. The Fund will pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred shares, including higher advisory fees. Accordingly, the issuance of preferred shares may not result in a higher yield or return to the holders of the common shares. If the dividend rate and other costs of the preferred shares approach the net rate of return on the Fund’s investment portfolio, the benefit of leverage to the holders of the common shares would be reduced. If the dividend rate and other costs of the preferred shares exceed the net rate of return on the Fund’s investment portfolio, the leverage will result in a lower rate of return to the holders of common shares than if the Fund had not issued preferred shares.

Preferred Stock Risk

Preferred stock, which may include preferred stock in real estate transactions, represents an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event an issuer is liquidated or declares bankruptcy, the claims of creditors and owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of


Semi-Annual Report						29

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or redeemed prior to its maturity, which can have a negative impact on the stock’s price when interest rates decline. Unlike interest on debt securities, preferred stock dividends are payable only if declared by the issuer’s board. The value of convertible preferred stock can depend heavily upon the value of the security into which such convertible preferred stock is converted, depending on whether the market price of the underlying security exceeds the conversion price.

Real Estate Investment Trust Risk

Real estate investments are subject to various risk factors. Generally, real estate investments could be adversely affected by a recession or general economic downturn where the properties are located. Real estate investment performance is also subject to the success that a particular property manager has in managing the property.

Real Estate Market Risk

The Fund is exposed to economic, market and regulatory changes that impact the real estate market generally through its investment in NFRO REIT Sub, LLC, NFRO REIT Sub II, LLC, and NFRO SFR REIT, LLC (together the “REIT Subsidiaries”), which may cause the Fund’s operating results to suffer. A number of factors may prevent the REIT Subsidiaries’ properties and other real estate-related investments from generating sufficient net cash flow or may adversely affect their value, or both, resulting in less cash available for distribution, or a loss, to us. These factors include: national, regional and local economic conditions; changing demographics; the ability of property managers to provide capable management and adequate maintenance; the quality of a property’s construction and design; increases in costs of maintenance, insurance, and operations (including energy costs and real estate taxes); potential environmental and other legal liabilities; the level of financing used by the REIT Subsidiary and the availability and cost of refinancing; potential instability, default or bankruptcy of tenants in the properties owned by each REIT Subsidiary; the relative illiquidity of real estate investments in general, which may make it difficult to sell a pro

rty at an attractive price or within a reasonable time frame.

Securities Lending Risk

The Fund may make secured loans of its portfolio securities. Any decline in the value of a portfolio security that occurs while the security is out on loan is borne by the Fund, and will adversely affect performance. Also, there may be delays in recovery of securities loaned, losses in the investment of collateral, and loss of rights in the collateral should the borrower of the securities fail financially while holding the security.

Senior Loans Risk

The risk associated with Senior Loans, which are typically below investment grade and are considered speculative because of the credit risk of their issuers. As with any debt instrument, Senior Loans are generally subject to the risk of price declines and as interest rates rise, the cost of borrowing increases, which may increase the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long-term interest rates can vary dramatically from short-term interest rates. The secondary market for loans is generally less liquid than the market for higher grade debt. Less liquidity in the secondary trading market could adversely affect the price at which the Fund could sell a loan, and could adversely affect the NAV of the Fund’s shares. The volume and frequency of secondary market trading in such loans varies significantly over time and among loans. Declines in interest rates may increase prepayments of debt obligations and require the Fund to invest assets at lower yields. No active trading market may exist for certain Senior Loans, which may impair the ability of the Fund to realize full value in the event of the need to liquidate such assets. Adverse market conditions may impair the liquidity of some actively traded Senior Loans.

Short Sales Risk

Short sales by the Fund that are not made where there is an offsetting long position in the asset that it is being sold short theoretically involve unlimited loss potential since the market price of securities sold short may continuously increase. Short selling allows the Fund to profit from declines in market prices to the extent such decline exceeds the transaction costs and costs of borrowing the securities. However, since the borrowed securities must be replaced by purchases at market prices in order to close out the short position, any appreciation in the price of the borrowed securities would result in a loss. Purchasing securities to close out the short position can itself cause the price of securities to rise further, thereby exacerbating the loss. The Fund may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Under adverse market conditions, the Fund might have difficulty purchasing securities to meet margin calls on its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.

If other short positions of the same security are closed out at the same time, a “short squeeze” can occur where demand exceeds the supply for the security sold short. A short squeeze makes it more likely that the Fund will need to replace the borrowed security at an unfavorable price.


30						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Structured Finance Securities Risk

A portion of the Fund’s investments may consist of equipment trust certificates, collateralized mortgage obligations, collateralized bond obligations, collateralized loan obligations or similar instruments. Such structured finance securities are generally backed by an asset or a pool of assets, which serve as collateral. Depending on the type of security, the collateral may take the form of a portfolio of mortgage loans or bonds or other assets. The Fund and other investors in structured finance securities ultimately bear the credit risk of the underlying collateral. In some instances, the structured finance securities are issued in multiple tranches, offering investors various maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their degree of risk. The riskiest securities are the equity tranche, which bears the bulk of defaults from the bonds or loans serving as collateral, and thus may protect the other, more senior tranches from default. If there are defaults or the relevant collateral otherwise underperforms, scheduled payments to senior tranches of such securities take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. A senior tranche typically has higher ratings and lower yields than the underlying securities, and may be rated investment grade. Despite the protection from the equity tranche, other tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to previous defaults and the disappearance of protecting tranches, market anticipation of defaults and aversion to certain structured finance securities as a class.

Valuation Risk

Certain of the Fund’s assets are fair valued, including the Fund’s investment in equity issued by TerreStar Corporation (“TerreStar”). TerreStar is a nonoperating company that does not currently generate substantial revenue and which primarily derives its value from licenses for use of two spectrum frequencies, the license with respect to one of which was granted a conditional waiver by the FCC on April 30, 2020. The fair valuation of TerreStar involves significant uncertainty as it is materially dependent on estimates of the value of both spectrum licenses.

Gain Contingency

Claymore Holdings, LLC, a partially-owned affiliate of the Fund, is engaged in ongoing litigation that could result in a possible gain contingency to the Fund. The probability, timing, and potential amount of recovery, if any, are unknown.

Note 8. Investment Transactions

Purchases & Sales of Securities

The cost of purchases and the proceeds from sales of investments, other than short-term securities for the six months ended June 30, 2023, were as follows:


U.S Government Securities			Other Securities
Purchases	Sales		Purchases		Sales
$—	$	—	$	84,751,594	$	107,827,369


Semi-Annual Report						31

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

Note 9. Affiliated Issuers

Under Section 2(a)(3) of the 1940 Act, as amended, a portfolio company is defined as “affiliated” if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of the Fund as of June 30, 2023:


Issuer	Shares at December 31, 2022		Beginning Value as of December 31, 2022 $		Purchases at Cost $		Proceeds from Sales $		Distribution to Return of Capital $			Net Realized Gain/ (Loss) on Sales $		Change in Unrealized Appreciation/ (Depreciation) $			Ending Value as of June 30, 2023 $		Shares at June 30, 2023		Affiliated Income $
Majority Owned, Not Consolidated
Allenby (Common Stocks)		1,474,379		—		—		—		—			—		—			—		1,474,379		—
Claymore (Common Stocks)		10,359,801		—		—		—		—			—		—			—		10,359,801		—
Other Affiliates
CCS Medical, Inc. (U.S. Senior Loans & Common Stocks)		27,528,327		37,670,005		475,385		—		—			—		562,048			38,707,438		28,003,711		893,659
EDS Legacy Partners (U.S. Senior Loans)		61,411,237		59,271,980		—		—		—			—		2,354,197			61,626,177		61,411,237		3,267,163
Highland Global Allocation Fund (Registered Investment Company)		48,649		458,274		375,218		—		—			—		(87,464	)		746,028		86,246		40,310
LLV Holdco LLC (U.S. Senior Loans & Common Stocks)		15,508,203		19,469,085		594,142		—		—			—		(1,052,622	)		19,010,605		16,102,344		592,019
NEXLS LLC (LLC Interest)		882		49,601,366		3,790,000		—		—			—		(3,274,299	)		50,117,067		957		—
NexPoint Diversified Real Estate Trust REIT (Common Stocks)		1,275,616		14,299,655		—		—		—			—		1,671,057			15,970,712		1,275,616		382,685
NexPoint Real Estate Finance REIT (Common Stocks & Preferred Stock)		4,523,263		72,294,165		—		—		—			—		(1,031,895	)		71,262,270		4,523,263		6,150,445
NexPoint Residential Trust, Inc. (Common Stocks)		186,372		8,110,910		157,251		—		(105,064	)		—		474,010			8,637,107		189,910		52,228
NexPoint SFR Operating Partnership, LP (U.S. Senior Loans)		65,000,000		63,590,800		11,000,000		—		—			—		497,200			75,088,000		76,000,000		2,478,750
NexPoint Storage Partners, Inc. (Common Stocks)		32,203		38,663,114		—		—		—			—		488,321			39,151,435		32,203		—
NFRO Diversified REIT, LLC, NFRO Self Storage REIT, LLC, NFRO SFR REIT, LLC (Common Stocks)		139,114,085		333,165,821		22,786,305		—		(74,892,009	)		—		(18,103,948	)		262,956,169		148,383,860		689,585
NFRO Holdings, LLC (Common Stocks)		—		—		56,916,455		—		—			—		7,461,208			64,377,663		2,276,658		—
NHT Operating Partnership LLC Convertible Promissory Note (U.S. Senior Loans)		6,400,000		5,798,400		—		—		—			—		265,600			6,064,000		6,400,000		81,254


32						Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund


Issuer	Shares at December 31, 2022		Beginning Value as of December 31, 2022 $		Purchases at Cost $		Proceeds from Sales $		Distribution to Return of Capital $			Net Realized Gain/ (Loss) on Sales $		Change in Unrealized Appreciation/ (Depreciation) $			Ending Value as of June 30, 2023 $		Shares at June 30, 2023		Affiliated Income $
NHT Operating Partnership LLC Secured Promissory Note (U.S. Senior Loans)		42,777,343		38,769,231		—		—		—			—		1,762,301			40,531,532		42,777,343		1,011,189
NREF Operating IV REIT Sub, LLC (U.S. Senior Loans)		—		—		6,500,000		—		—			—		—			6,500,000		6,500,000		143,541
SFR WLIF 1, III, LLC (LLC Interest)		10,000,000		9,408,770		—		—		—			—		(103,770	)		9,305,000		10,000,000		500,856

Total		385,640,360		750,571,576		102,594,756		—		(74,997,073	)		—		(8,118,056	)		770,051,203		415,797,528		16,283,684

Note 10. Asset Coverage

The Fund is required to maintain 300% asset coverage with respect to amounts outstanding (excluding short-term borrowings) under its various leverage facilities. Additionally, the Fund is required to maintain 200% asset coverage with respect to the preferred share issuance as well as its various leverage facilities. Asset coverage is calculated by subtracting the Fund’s total liabilities, not including any amount representing bank borrowings and senior securities, from the Fund’s total assets and dividing the result by the principal amount of the borrowings outstanding. As of the dates indicated below, the Fund’s debt outstanding and asset coverage was as follows:


Date	Amount Outstanding Excluding Preferred Shares $		Asset Coverage of Indebtedness Excluding Preferred Shares %		Amount Outstanding Including Preferred Shares $		Asset Coverage of Indebtedness Including Preferred Shares (2) %
6/30/2023		19,119,000		4,954.12		164,119,000		665.48
12/31/2022		21,722,000		4,454.98		166,722,000		667.40
12/31/2021		N/A		N/A		145,000,000		785.99
12/31/2020		200,000,000		575.25		345,000,000		375.50
12/31/2019		419,796,600		337.13		564,796,600		276.25
12/31/2018 (1)		496,141,100		306.80		496,141,100		306.80
6/30/2018		498,563,423		317.70		498,563,423		317.70
6/30/2017		N/A		N/A		N/A		N/A
6/30/2016		N/A		N/A		N/A		N/A
6/30/2015		51,500,000		1,641.40		51,500,000		1,641.40
6/30/2014		60,000,000		1,577.60		60,000,000		1,577.60
6/30/2013		N/A		N/A		N/A		N/A

1	For the six-month period ended December 31, 2018. Effective April 11, 2019, the Fund had a fiscal year change from June 30 to December 31.

2	As referenced in Note 1, the Fund issued $145mm in preferred shares subject to the 200% Asset Coverage of Indebtedness requirements under the 1940 Act.

Note 11. Unconsolidated Significant Subsidiaries

In accordance with Regulation

S-X

and GAAP, the Fund is not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which the Fund has a controlling interest unless the business of the controlled subsidiary consists of providing services to the Fund. In accordance with Regulation

S-X

Rules

3-09

and

4-08(g),

the Fund evaluates its unconsolidated controlled subsidiaries as significant subsidiaries under the respective rules. As of June 30, 2023, NFRO Diversified REIT, LLC, NFRO Self Storage REIT, LLC, and NFRO SFR REIT, LLC were considered significant unconsolidated subsidiaries under Regulation

S-X

Rule

4-08(g).

This subsidiary is wholly owned by the Fund. Based on the requirements under Regulation

S-X

Rule

4-08(g),

the summarized financial information of these unconsolidated subsidiaries is presented as follows:


	NFRO Diversified REIT, LLC June 30, 2023 $		NFRO Self Storage REIT Sub, LLC June 30, 2023 $		NFRO SFR REIT, LLC June 30, 2023 $
Balance Sheet:
Current Assets		14,048,000		681,000		789,000
Noncurrent Assets		227,615,000		134,882,000		77,031,000

Total Assets		241,663,000		135,563,000		77,820,000
Current Liabilities		24,073,000		500.000		—
Noncurrent Liabilities		160,244,000		—		—

Total Liabilities		184,317,000		500,000		—
Preferred Stock		1,000		104,000		—
Non-Controlling interest (in consolidated investments)		3,629,000		—		—
Invested Equity		53,716,000		134,959,000		77,820,000

Total Equity		57,346,000		135,063,000		77,820,000


Semi-Annual Report						33

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund


	NFRO Diversified REIT, LLC For the Six Months Ended June 30,2023 $			NFRO Self Storage REIT Sub, LLC For the Six Months Ended June 30,2023 $		NFRO SFR REIT, LLC For the Six Months Ended June 30, 2023 $
Summary of Operations:
Net Sales		1,812,000			4,194,000		1,940,000
Gross Profit (Loss)		(3,559,000	)		594,000		1,940,000
Net Income (Loss)		(11,314,000	)		594,000		(1,162,000	)
Net Income (Loss) attributable to non-controlling interest (in consolidated investments), preferred shares, and other comprehensive income		87,000			7,500,000		—

Note 12. Subsequent Events

Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no such subsequent events to report which have not already been recorded or disclosed in these financial statements and accompanying notes.


34						Semi-Annual Report

ADDITIONAL INFORMATION (unaudited)



June 30, 2023		Highland Opportunities and Income Fund

Recent Changes

The following information in this semi-annual report is a summary of certain changes since December 31, 2022. This information may not reflect all of the changes that have occurred since you purchased shares of the Fund.

Change to Investment Objective Approved by the Board

On May 16, 2023, the Board of Trustees approved a change to the Fund’s investment objective to pursue growth of capital along with income.

Investment Objective and Strategy Overview

The Fund’s investment objective is to seek growth of capital along with income.

The Fund seeks to achieve its objective by investing directly and indirectly (e.g., through derivatives that are the economic equivalent of direct investments) in the following categories of securities and instruments: (i) floating rate loans and other securities deemed to be floating rate investments; (ii) investments in securities or other instruments directly or indirectly secured by real estate, including real estate investment trusts (“REITs”), preferred equity, securities convertible into equity securities and mezzanine debt; and (iii) other instruments, including, but not limited to, secured and unsecured fixed-rate loans and corporate bonds, distressed securities, mezzanine securities, structured products (including but not limited to mortgage-backed securities, collateralized loan obligations and asset-backed securities), convertible and preferred securities, equities (public and private), and futures and options.

The Fund will invest at least 25% of its assets in investments in securities or other instruments directly or indirectly secured by real estate, including REITs, preferred equity, securities convertible into equity securities and mezzanine debt.

Floating Rate Investments.

Floating rate investments are debt obligations of companies or other entities, the interest rates of which float or vary periodically based upon a benchmark indicator of prevailing interest rates. Floating rate investments may include, by way of example, floating rate debt securities, money market securities of all types, repurchase agreements with remaining maturities of no more than 60 days, collateralized loan obligations and asset backed securities. The reference in the Fund’s investment objective to capital preservation does not indicate that the Fund may not lose money. NexPoint seeks to employ strategies that are consistent with capital preservation, but there can be no assurance that the Investment Adviser will be successful in doing so. In making floating rate investments for the Fund, the Fund’s Investment Adviser will seek to

purchase instruments that it believes are undervalued or will provide attractive income, while attempting to minimize losses.

Floating rate loans in which the Fund invests are expected to be adjustable rate senior loans (“Senior Loans”) to domestic or foreign corporations, partnerships and other entities that operate in a variety of industries and geographic regions (“Borrowers”). Senior Loans are business loans that have a right to payment senior to most other debts of the Borrower. Senior Loans generally are arranged through private negotiations between a Borrower and several financial institutions (the “Lenders”) represented in each case by one or more such Lenders acting as agent (the “Agent”) of the several Lenders. On behalf of the Lenders, the Agent is primarily responsible for negotiating the loan agreement (“Loan Agreement”) that establishes the relative terms and conditions of the Senior Loan and rights of the Borrower and the Lenders.

The Fund may invest in securities of any credit quality. Senior Loans are typically below investment grade securities (also known as “high yield securities” or “junk securities”). Such securities are rated below investment grade by a nationally recognized statistical rating organization (“NRSRO”) or are unrated but deemed by the Investment Adviser to be of comparable quality. The Fund may invest without limitation in below investment grade or unrated securities, including in insolvent borrowers or borrowers in default.

The Fund may invest in participations (“Participations”) in Senior Loans, may purchase assignments (“Assignments”) of portions of Senior Loans from third parties, and may act as one of a group of Lenders originating a Senior Loan (“Primary Lender”). Senior Loans often are secured by specific assets of the Borrower, although the Fund may invest without limitation in Senior Loans that are not secured by any collateral. When the Fund acts as a Primary Lender, the Fund or the Investment Adviser could be subject to allegations of lender liability. Senior Loans in which the Fund invests generally pay interest at rates that are periodically re-determined by reference to a base lending rate plus a spread.

Real Estate Investments.

The Fund defines securities of issuers conducting their principal business activities in the real estate industry to include common stock, convertible or

non-convertible

preferred stock, warrants, convertible or

non-convertible

secured or unsecured debt, and partnership or membership interests issued by:

•

commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“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


Semi-Annual Report						35

ADDITIONAL INFORMATION (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

convertible notes offered by real estate operating companies (“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.

REITs are pooled investment vehicles that invest primarily in income-producing real estate or real estate-related loans or interests, and REOCs are companies that invest in real estate and whose shares trade on public exchanges. Foreign REIT equivalents are entities located in jurisdictions that have adopted legislation substantially similar to the REIT tax provisions in that they provide for favorable tax treatment for the foreign REIT equivalent and require distributions of income to shareholders. The Fund may enter into certain real estate and real-estate related investments through its wholly-owned REIT subsidiaries, NFRO REIT Sub, LLC, NFRO REIT Sub II, LLC, and NFRO SFR REIT, LLC (together the “REIT Subsidiaries”). With respect to the Fund’s real estate investments, the Investment Adviser seeks to: (i) recognize and allocate capital based upon where the Investment Adviser believes we are in the current real estate cycle, and as a result (ii) minimize drawdowns during market downturns and maximize risk adjusted returns during all market cycles, though there can be no assurance that this strategy will achieve this objective. The Fund will rely on the expertise of the Investment Adviser and its affiliates to determine the appropriate structure for structured credit investments, which may include bridge loans, common and preferred equity or other debt-like positions, as well as the acquisition of such instruments from banks, servicers or other third parties.

Preferred equity and mezzanine investments in real estate transactions come in v

arious

forms which may or may not be documented in the borrower’s organizational documents. Generally, real estate preferred equity and/or mezzanine investments are typically junior to first mortgage financing but senior to the borrower’s or sponsor’s equity contribution.

The investments are typically structured as an investment by a third-party investor in the real estate owner or various affiliates in the chain of ownership in exchange for a direct or indirect ownership interest in the real estate owner entitling it to a preferred/priority return on its investment. Sometimes, the investment is structured much like a loan where (i) “interest” on the investment is required to be paid monthly by the “borrower” regardless of available property cash flow; (ii) the entire investment is required to be paid by a certain maturity date; (iii) default rate “interest” and penalties are assessed against the “borrower” in the event payments are not made timely; and (iv) a default in the repayment of investment potentially results in the loss of management and/or ownership control by the “borrower” in the company in favor of the investor or other third-party.

Other Investments.

The Fund may invest up to 15% of its net assets in entities that are excluded from registration under the 1940 Act by virtue of section 3(c)(1) and 3(c)(7) of the 1940 Act (such as private equity funds or hedge funds). This limitation does not apply to any collateralized loan obligations, certain of which may rely on Section 3(c)(1) or 3(c)(7) of the 1940 Act.

In addition, the Fund may invest in equity securities of companies of any market capitalization, market sector or industry. Equity securities of U.S. or

non-U.S.

issuers in which the Fund may invest include common stocks, preferred stocks, convertible securities, depositary receipts and warrants to buy common stocks. The Fund may invest in securities issued by other investment companies, including investment companies that are advised by the Investment Adviser or its affiliates, to the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC, and exchange-traded funds (“ETFs”). Fees and expenses of such investments will be borne by shareholders of the investing fund (the Fund), and the Investment Adviser voluntarily waives the higher of the two fees for the portion of the Fund’s management fee attributable to the Fund’s investment in the affiliated investment company.

The Fund’s investment in fixed income securities may include convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income with generally


36						Semi-Annual Report

ADDITIONAL INFORMATION (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities. The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. Depending on the relationship of the conversion price to the market value of the underlying securities, convertible securities may trade more like equity securities than debt instruments.

The Fund may invest without limitation in warrants and may also use derivatives, primarily swaps (including equity, variance and volatility swaps), options and futures contracts on securities, interest rates,

non-physical

commodities and/or currencies, as substitutes for direct investments the Fund can make. The Fund may also use derivatives such as swaps, options (including options on futures), futures, and foreign currency transactions (e.g., foreign currency swaps, futures and forwards) to any extent deemed by the Investment Adviser to be in the best interest of the Fund, and to the extent permitted by the Investment Company Act of 1940, as amended (the “1940 Act”), to hedge various investments for risk management and speculative purposes.

The Fund may also engage in short sales of securities and may seek additional income by making secured loans of its portfolio securities.

The Fund may engage in securities lending by making secured loans of its portfolio securities amounting to not more than

one-third

of its total assets, thereby realizing additional income.

The Fund may invest in illiquid and restricted securities. Illiquid securities are those that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities.

The Fund may invest without limitation in securities (including loans) of

non-U.S.

issuers, including emerging market issuers. Such securities (including loans) may be denominated in U.S. dollars,

non-U.S.

currencies or multinational currency units. Except as otherwise expressly noted in the Statement of Additional Information (“SAI”), all percentage limitations and ratings criteria apply at the time of purchase of securities.

The Fund may borrow an amount up to 33 1/3% of its total assets (including the amount borrowed) and may use leverage in the form of preferred shares in an amount up to 50% of the Fund’s total assets (including the amount borrowed. The Fund may borrow for investment purposes and for temporary, extraordinary or emergency purposes. To the extent the Fund borrows more money than it has cash or short-term cash equivalents and invests the proceeds, the Fund will create financial leverage. The use of borrowing for investment purposes increases both investment opportunity and investment risk.

When adverse market, economic, political or currency conditions domestically or abroad occur, the Fund may temporarily invest all or a portion of its total assets in defensive investments. Such investments may include fixed-income securities, high quality money market instruments, cash and cash equivalents. To the extent the Fund takes a temporary defensive position, it may not achieve its investment objective.

The Fund is a

non-diversified

fund as defined in the 1940 Act, but it intends to adhere to the diversification requirements applicable to regulated investment companies (“RICs”) under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund is not intended to be a complete investment program.

Additional Portfolio Information

The Investment Adviser and its affiliates manage other accounts, including registered and private funds and individual accounts. Although investment decisions for the Fund are made independently from those of such other accounts, the Investment Adviser may, consistent with applicable law, make investment recommendations to other clients or accounts that may be the same or different from those made to the Fund, including investments in different levels of the capital structure of a company, such as equity versus senior loans, or that involve taking contradictory positions in multiple levels of the capital structure. The Investment 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, this may create situations where a client could be disadvantaged because of the investment activities conducted by the Investment Adviser for other client accounts. When the Fund and one or more of such other accounts is prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for each will be allocated in a manner believed by the Investment Adviser to be equitable to the Fund and such other accounts. The Investment Adviser also may


Semi-Annual Report						37

ADDITIONAL INFORMATION (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

aggregate orders to purchase and sell securities for the Fund and such other accounts. Although the Investment Adviser believes that, over time, the potential benefits of participating in volume transactions and negotiating lower transaction costs should benefit all accounts including the Fund, in some cases these activities may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund.

Dividend Reinvestment Plan

Unless the registered owner of Common Shares elects to receive cash by contacting American Stock Transfer & Trust Company (“AST” or the “Plan Agent”), as agent for shareholders in administering the Plan, a registered owner will receive newly issued Common Shares for all dividends declared for Common Shares of the Fund. If a registered owner of Common Shares elects not to participate in the Plan, they will receive all dividends in cash paid by check mailed directly to them (or, if the shares are held in street or other nominee name, then to such nominee) by AST, as dividend disbursing agent.

Shareholders may elect not to participate in the Plan and to receive all dividends in cash by sending written instructions or by contacting AST, as dividend disbursing agent, at the address set forth below.

Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend. Some brokers may automatically elect to receive cash on the shareholders’ behalf and may reinvest that cash in additional Common Shares of the Fund for them. The Plan Agent will open an account for each shareholder under the Plan in the same name in which such shareholder’s Common Shares are registered.

Whenever the Fund declares a dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent through receipt of additional unissued but authorized Common Shares from the Fund (“newly issued Common Shares”). The number of newly issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the lesser of (i) the net asset value per Common Share determined on the Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the New York Stock Exchange (the “NYSE”) on the Declaration Date. The Plan Agent maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed

by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan. There will be no brokerage charges with respect to Common Shares issued directly by the Fund.

The automatic reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Accordingly, any taxable dividend received by a participant that is reinvested in additional Common Shares will be subject to federal (and possibly state and local) income tax even though such participant will not receive a corresponding amount of cash with which to pay such taxes. Participants who request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and pay a brokerage commission of $0.05 per share sold. The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at American Stock Transfer & Trust Company, LLC 6201 15

Avenue Brooklyn, NY 11219; telephone (718)

921-8200.

Shareholder Loyalty Program

To promote loyalty and long-term alignment of interests among the Company’s shareholders, the Investment Adviser offers an incentive to shareholders that buy and hold the Company’s common shares for a period of at least twelve months through its Shareholder Loyalty Program (the “Program”). To participate in the Program, existing shareholders must open an account (the “Account”) with the Program’s administrator, Maxim Group, LLC (“Maxim”). Subsequently, if a participant makes contributions to the Account during a defined trading period to purchase shares, the Investment Adviser will make a corresponding contribution equal to 2% of the participant’s contributions. For example, if a participant contributes $10,000 to the Account during a defined trading period to purchase shares, the Investment Adviser will make a corresponding contribution of $200, to purchase additional shares for the participant (the “Bonus Shares”). In addition, Program participants will


38						Semi-Annual Report

ADDITIONAL INFORMATION (unaudited) (continued)



June 30, 2023		Highland Opportunities and Income Fund

not be required to pay any customary selling commissions or distribution fees on the purchase of shares under the Program. The Investment Adviser will bear the costs of brokerage fees in connection with the Program. While the portion of the Company’s common shares that are acquired through the participant’s contribution will vest immediately, Bonus Shares will not vest until the first anniversary of the date that the Bonus Shares were purchased. Vested shares will be held in the Account and Bonus Shares will be held in an account at Maxim for the conditional benefit of the shareholder. Under the Program, Participants must purchase a minimum of $10,000 worth of shares in the initial subscription and $5,000 in each Subsequent subscription, unless the Investment Adviser, in its sole discretion, decides to permit subscriptions for a lesser amount. If the Company’s common shares are trading at a discount, Maxim will purchase common shares on behalf of participants in open-market purchases. If the Company’s common shares are trading at a premium, Maxim may purchase common shares on behalf of participants in open market purchases or the Company may sell common shares to the shareholder Loyalty Program by means of a prospectus or otherwise. All dividends received on shares that are purchased under the Program will be automatically reinvested through the Program. A participant’s interest in a dividend paid to the holder of a vested share will vest immediately. A participant’s interest in a dividend paid to the holder of a Bonus Share will vest at the same time that the Bonus Share’s vesting requirements are met. In addition, for dividends paid to holders of shares that were purchased with a participant’s contributions, the Investment Adviser will take a corresponding contribution to the amount of the reinvested dividend equal to 2% of the dividend amount. Maxim maintains all shareholders’ accounts in the Program and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Shares in the account of each Program participant will be held by Maxim on behalf of the Program participant, and each shareholder proxy will include those shares purchased or received pursuant to a Program. Maxim will forward all proxy solicitation materials to participants and vote proxies for shares held under the Program in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, Maxim will administer the Program on the basis of the number of common shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Program. The Company and the Investment Adviser reserve the right to amend or terminate the Program. To help align

the interests of the Investment Adviser’s employees with the interests of the Company’s shareholders, the Investment Adviser offers a similar program to its employees. Participants in the Program should be aware that their receipt of Bonus Shares under the Program constitutes taxable income to them. In addition, such participants owe taxes on that portion of any distribution that constitutes taxable income in respect of shares of our common stock held in their Program accounts, whether or not such shares of common stock have vested in the hands of the participants. To the extent any payments or distributions under the Program are subject to U.S. federal, state or local taxes, the Company, any participating affiliate of the Company or the agent for the Program may satisfy its tax withholding obligation by (1) withholding shares of Stock allocated to the participant’s account, (2) deducting cash from the participant’s account or (3) deducting cash from any other compensation the participant may receive. Program participants should consult their tax advisers regarding the tax consequences to them of participating in the Program. The Program may create an incentive for shareholders to invest additional amounts in the Company. Because the Investment Adviser’s management fee is based on a percentage of the assets of the Company, the Program will result in increased net revenues to the Investment Adviser if the increase in the management fee due to the increased asset base offsets the costs associated with establishing and maintaining the Program.

Submission of Proposal to a Vote of Shareholders

The annual meeting of shareholders of the Fund was held on June 16, 2023. The following is a summary of the proposal submitted to shareholders for a vote at the meeting and the votes cast.

Proposal

To elect Dr. Bob Froehlich and Dorri McWhorter as Trustees of the Trust, to serve for a three-year term expiring at the 2026 Annual Meeting or until successors are duly elected and qualified, by the holders of the Fund’s Common Shares and 5.375% Series A Cumulative Preferred Shares.


Nominees/Trustees	Number of Shares Voted		Percentage of Outstanding Shares
Dr. Bob Froehlich
For		3,108,442		93.38	%
Withheld		220,398		6.62	%
Dorri McWhorter
For		52,109,731		86.15	%
Withheld		8,381,244		13.85	%


Semi-Annual Report						39

IMPORTANT INFORMATION ABOUT THIS REPORT

Investment Adviser

NexPoint Asset Management, L.P.

300 Crescent Court, Suite 700

Dallas, TX 75201

Transfer Agent

American Stock Transfer & Trust Company, LLC 6201 15th Avenue

Brooklyn, NY 11219

Underwriter

NexPoint Securities, Inc.

300 Crescent Court, Suite 700

Dallas, TX 75201

Custodian

Bank of New York Mellon

240 Greenwich Street

New York, NY 10286

Independent Registered Public

Accounting Firm

Cohen & Company, Ltd.

1350 Euclid Ave., Suite 800

Cleveland, OH 44115

Fund Counsel

K&L Gates LLP

1 Congress St., Suite 2900

Boston, MA 02114-2023

As of January 1, 2021, paper copies of the Fund’s shareholder reports will no longer be sent by mail. Instead, the reports will be made available on https://www.nexpointassetmgmt.com/literature/, and you will be notified and provided with a link each time a report is posted to the website. You may request to receive paper reports from the Fund or from your financial intermediary free of charge at any time. For additional information regarding how to access the Fund’s shareholder reports, or to request paper copies by mail, please call shareholder services at

1-800-357-9167.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to their portfolio securities, and the Fund’s proxy voting records for the most recent

12-month

period ended June 30, are available (i) without charge, upon request, by calling

1-800-357-9167

and (ii) on the Securities and Exchange Commission’s website at http://www.sec.gov.

The Fund files its complete schedules of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its report on Form

N-PORT

within sixty days after the end of the period. The Fund’s Form

N-PORT

are available on the Commission’s website at http://www.sec.gov and also may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the Public Reference Room may be obtained by calling

1-800-SEC-0330.

Shareholders may also obtain the Form

N-PORT

by visiting the Fund’s website at www.nexpointassetmgmt.com.

The Statement of Additional Information includes additional information about the Fund’s Trustees and is available upon request without charge by calling

1-800-357-9167.


40						Semi-Annual Report

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219


Highland Opportunities and Income Fund		Semi-Annual Report, June 30, 2023


www.nexpointassetmgmt.com		HFRO-SAR-0623

Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

(a)	Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the Semi-Annual Report to Shareholders filed under Item 1 of this form.

(b)	Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

There has been no change, as of the date of this filing, in any of the portfolio managers identified in response to paragraph (a)(1) of this Item in Highland Opportunities and Income Fund’s (the “Registrant”) most recently filed annual report on Form N-CSR.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the Registrant’s Board.

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act (17 CFR 270.30a-3 (c)) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

(a)

(1) Gross income from securities lending activities: $0

(2) All fees and/or compensation for securities lending activities and related services: $0

(3) Aggregate fees/compensation: $0

(4) Net income from securities lending activities: $ 6,778

(b) The Registrant may lend up to 33 1/3% of the Registrant’s total assets held by the Fund’s custodian to certain qualified brokers, except those securities which the Registrant or the Advisor specifically identifies as not being available. By lending its investment securities, the Registrant attempts to increase its net investment income through the receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that might occur and any interest or dividends declared during the term of the loan would accrue to the account of the Registrant. Risks of delay in recovery of the securities or even loss of rights in the collateral may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of the collateral decreases below the value of the securities loaned. Upon entering into a securities lending transaction, the Registrant receives cash or other

securities as collateral in an amount equal to or exceeding 100% of the current market value of the loaned securities with respect to securities of the U.S. government or its agencies, 102% of the current market value of the loaned securities with respect to U.S. securities and 105% of the current market value of the loaned securities with respect to foreign securities. Any cash received as collateral is generally invested by the Fund’s custodian acting in its capacity as securities lending agent. Non-cash collateral is not disclosed in the Registrant’s Statement of Assets and Liabilities as it is held by the lending agent on behalf of the Registrant and the Registrant does not have the ability to re-hypothecate those securities. A portion of the dividends received on the collateral may be rebated to the borrower of the securities and the remainder is split between the Fund’s custodian, as the securities lending agent, and the Registrant.

Item 13. Exhibits.


(a)(1)		Not applicable.

(a)(2)		Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

(a)(3)		Not applicable.

(a)(4)		Not applicable.

(b)		Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


HIGHLAND OPPORTUNITIES AND INCOME FUND

By (Signature and Title):		/s/ Frank Waterhouse
		Frank Waterhouse
		Treasurer, Principal Executive Officer and Principal Financial and Accounting Officer

Date: September 8, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


By (Signature and Title):		/s/ Frank Waterhouse
		Frank Waterhouse
		Treasurer, Principal Executive Officer and Principal Financial and Accounting Officer

Date: September 8, 2023

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