|
|
|
|
|
Highland Funds I
|
|
Summary Prospectus
November 1, 2012
as amended February 8, 2013
|
Highland Long/Short Healthcare Fund
(formerly “Pyxis
Long/Short Healthcare Fund”)
Class A
HHCAX
Class C
HHCCX
Class Z
HHCZX
Before you
invest, you may want to review the Fund’s Statutory Prospectus, which contains more information about the Fund and its risks. You can find the Fund’s Statutory Prospectus, Statement of Additional Information and other information about the
Fund online at https://www.highlandfunds.com/Funds---Performance/Mutual-Funds/Alternative-Investment/Long-Short-Healthcare. You can also get this information at no cost by calling 1-877-665-1287 or by sending an e-mail request to
info@highlandfunds.com. The Fund’s Statutory Prospectus and Statement of Additional Information, both dated November 1, 2012 are incorporated by reference into this Summary Prospectus.
Investment Objective
The investment
objective of Highland Long/Short Healthcare Fund (“Long/Short Healthcare Fund” or the “Fund”) is to seek long-term capital appreciation.
Fees and Expenses for Class A, Class C and Class Z Shares
The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts on purchases of Class A Shares if you and your family
invest, or agree to invest in the future, at least $50,000 in the Fund.
More information about these and other discounts is available from your financial intermediary and in “Shareowner Guide — How to Invest in the Highland Funds —
Sales Charges — Class A Shares” on page 44 of the Fund’s Prospectus and in “Programs for Reducing or Eliminating Sales Charges” on page 44 of the Fund’s Statement of Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class C
|
|
|
Class Z
|
|
|
Maximum Sales Charge Imposed On Purchases (as % of purchase price)
|
|
|
5.50%
|
|
|
|
None
|
|
|
|
None
|
|
|
Maximum Sales Charge Imposed on Reinvested Dividends and other Distributions (as % of offering
price)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
Maximum Contingent Deferred Sales Charge (as % of the net asset value at the time of purchase or
redemption, whichever is lower)
|
|
|
None
|
|
|
|
1.00%
|
|
|
|
None
|
|
|
Exchange Fee (as % of amount exchanged within two months or less after date of
purchase)
|
|
|
2.00%
|
|
|
|
2.00%
|
|
|
|
2.00%
|
|
|
Redemption Fee (as % of amount redeemed within two months or less after date of
purchase)
|
|
|
2.00%
|
|
|
|
2.00%
|
|
|
|
2.00%
|
|
Annual Fund Operating Expenses
(expenses that you pay each year as % of the value of your investment)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class C
|
|
|
Class Z
|
|
|
Management Fees
|
|
|
1.20%
|
|
|
|
1.20%
|
|
|
|
1.20%
|
|
|
Distribution and Service (12b-1) Fees
|
|
|
0.35%
|
|
|
|
1.00%
|
|
|
|
None
|
|
|
Other Expenses
|
|
|
1.75%
|
|
|
|
1.75%
|
|
|
|
1.75%
|
|
|
Dividend Expense on Short Sales
|
|
|
1.09%
|
|
|
|
1.09%
|
|
|
|
1.09%
|
|
|
Remainder of Other Expenses
|
|
|
0.66%
|
|
|
|
0.66%
|
|
|
|
0.66%
|
|
|
Acquired Fund Fees and Expenses
|
|
|
0.05%
|
|
|
|
0.05%
|
|
|
|
0.05%
|
|
|
Total Annual Fund Operating Expenses
1
|
|
|
3.35%
|
|
|
|
4.00%
|
|
|
|
3.00%
|
|
|
1
|
Total Annual Fund Operating Expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Fund
and do not include acquired fund fees and expenses.
|
Expense Example
This Example helps you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The Example assumes that (i) you invest $10,000 in the Fund for the time periods indicated and
then sell or redeem all your shares at the end of those periods, (ii) your investment has a 5% return each year, and (iii) operating expenses remain the same. Your actual costs may be higher or lower.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
|
Class A
|
|
|
$869
|
|
|
|
$1,523
|
|
|
|
$2,199
|
|
|
|
$3,990
|
|
|
Class C: if you did not sell your shares
|
|
|
$402
|
|
|
|
$1,218
|
|
|
|
$2,051
|
|
|
|
$4,206
|
|
|
if you sold all your shares at the end of the period
|
|
|
$502
|
|
|
|
$1,218
|
|
|
|
$2,051
|
|
|
|
$4,206
|
|
|
Class Z
|
|
|
$303
|
|
|
|
$927
|
|
|
|
$1,577
|
|
|
|
$3,318
|
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the expense example, affect the
Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 1,336% of the average value of its portfolio.
Principal Investment Strategies
The Fund invests, under normal circumstances, at least 80% of the value of its total assets (net assets plus any borrowings for investment purposes) in securities
of companies principally engaged in the design, development, production, sale, management or distribution of products, services or facilities used for or in connection with healthcare or medicine (“healthcare companies”). These healthcare
companies include, among others, pharmaceutical firms, medical supply companies, and businesses that operate hospitals and other healthcare facilities, as well as companies engaged in medical, diagnostic, biochemical and other healthcare-related
research and development activities. These healthcare companies may also include investment companies, including exchange-traded funds (“ETFs”). The Fund considers a company “principally engaged” in the healthcare industry if
(i) it derives at least 50% of its revenues or profits from goods produced or sold, investments made or services performed in
the healthcare industry, or (ii) at least 50% of its assets are devoted to such activities. The Fund generally will take long and short positions in securities of healthcare companies and
Cummings Bay Capital Management, L.P. (“CBCM” or the “Sub-Adviser”) will vary the Fund’s long-short exposure over time based on its assessment of market conditions and other factors.
Although the Fund intends to invest primarily in common stocks of healthcare companies, it may also invest in preferred stocks, warrants, convertible securities,
debt securities and other securities issued by such companies. The Fund may invest up to 50% of the value of its total assets in securities of non-U.S. issuers, which may include, without limitation, emerging market issuers. Such securities may
be denominated in U.S. dollars, non-U.S. currencies or multinational currency units. In addition, the Fund may invest up to 20% of the value of its total assets in a wide variety of securities and financial instruments, of all kinds and
descriptions, issued by non-healthcare companies. The Fund may invest in securities of issuers of any market capitalization. The Fund may invest in securities issued by other investment companies, including ETFs.
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the
Fund can invest. The Fund may use derivatives, including futures, forwards, swaps (including credit default swaps), options and foreign currency transactions, as tools in the management of portfolio assets. The Fund may also use derivatives, such as
options and foreign currency transactions, to hedge various investments for risk management and for income enhancement, which is also known as speculation. The Fund may invest in derivative instruments, including for hedging and speculative
purposes, to the extent permitted by the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund may borrow
an amount up to 33
1
/
3
% (or such other percentage permitted by law) of its total assets (including the amount borrowed) less all liabilities other than borrowings. The Fund may borrow for investment purposes, to meet redemption requests
and for temporary, extraordinary or emergency purposes. The use of borrowing for investment purposes (i.e., leverage) increases both investment opportunity and investment risk. However, the Fund has no present intention to use borrowing for
investment purposes. The Fund may seek additional income by making secured loans on its portfolio securities.
The Fund’s investment strategy
utilizes the analytical models of the Sub-Adviser to evaluate long and short securities of healthcare companies of varying market capitalizations and seeks to identify those securities the Sub-Adviser believes have the greatest potential for capital
appreciation. The Sub-Adviser also seeks to take advantage of temporary market inefficiencies in order to boost the overall performance of the Fund.
In
selecting investments for long positions of the Fund, the Sub-Adviser focuses on issuers that it believes: (i) have strong, free cash flow and pay regular dividends; (ii) have potential for long-term earnings per share growth;
(iii) may be subject to a value catalyst, such as industry developments, regulatory changes, changes in management, sale or spin-off of a division or the development of a profitable new business; (iv) are well-managed; and (v) will
benefit from sustainable long-term economic dynamics, such as globalization of demand for an issuer’s products or an issuer’s increased focus on productivity or enhancement of services.
The Sub-Adviser may sell short securities of a company that the Sub-Adviser believes: (i) is overvalued relative to normalized business and industry
fundamentals or to the expected growth that the Sub-Adviser believes the company will achieve; (ii) has a faulty business model; (iii) engages in questionable accounting practices; (iv) shows declining cash flow and/or liquidity;
(v) has earnings estimates which the Sub-Adviser believes are too high; (vi) has weak competitive barriers to entry; (vii) suffers from deteriorating industry and/or business fundamentals; (viii) has a weak management team;
(ix) will see multiple contraction; (x) is not adapting to changes in technological, regulatory or competitive environments; or (xi) provides a hedge against the Fund’s long exposure, such as a broad based market ETF. Technical
analysis may be used to help in the decision making process.
The Sub-Adviser generates investment ideas from a variety of different sources. These
include, but are not limited to, screening software using both fundamental and technical factors, industry contacts, consultants, company press releases, company conference calls, conversations with company management teams, buy-side contacts,
sell-side contacts, brokers, third-party research, independent research of financial and corporate information, third-party research databases, and news services. The Sub-Adviser will make investment decisions based on its analysis of the
security’s value, and will also take into account its view of macroeconomic conditions and healthcare industry trends. The Sub-Adviser will make investments without regard to a company’s level of capitalization or the tax consequences of
the investment (short or long term capital gains).
Once an investment opportunity is determined to be attractive as a stand-alone investment, the
Sub-Adviser will evaluate the effect of adding that investment to the Fund’s portfolio. In doing so, the Sub-Adviser may seek to minimize the market-related portfolio volatility as well as the risk of a capital loss by hedging such risks
primarily through the use of options and other derivatives.
The Fund is non-diversified as defined in the 1940 Act. The Fund is not intended to be a
complete investment program.
Principal Risks
When you
sell Fund shares, they may be worth less than what you paid for them. Consequently, you can lose money by investing in the Fund. No assurance can be given that the Fund will achieve its objective, and investment results may vary substantially over
time and from period to period. An investment in the Fund is not appropriate for all investors.
Counterparty Risk.
A counterparty (the other
party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest or settlement payments, or otherwise honor its obligations.
Credit Risk.
The issuers of certain securities might not be able to make interest and principal payments when due. Non-payment would result in a
reduction of income to the Fund, a reduction in the value of the obligation experiencing non-payment and a potential decrease in the Net Asset Value of the Fund.
Currency Risk.
Fluctuations in exchange rates will adversely affect the value of the Fund’s foreign currency holdings and investments denominated in foreign currencies.
Debt Securities Risk.
The value of debt securities typically changes as interest rates fluctuate. During periods of rising interest rates, debt
securities generally decline in value. Conversely, during periods of falling interest rates, debt securities generally rise in value. This kind of market risk is generally greater for Funds investing in debt securities with longer durations. 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.
Derivatives Risk.
Derivatives, such as futures,
forwards, options, swaps (including credit default swaps) and foreign currency transactions, are subject to the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index. Derivatives also
expose the Fund to the credit risk of the derivative counterparty, for example, if the counterparty does not meet its obligations. Derivative contracts, including options, may expire worthless and the use of derivatives may result in losses to the
Fund. In addition, recent legislation has called for a new regulatory framework for the derivatives market. The impact of the new
2
Highland Funds I Summary Prospectus
February 8, 2013
regulations are still unknown, but has the potential to increase the costs of using derivatives, may limit the availability of some forms of derivatives or the Fund’s ability to use
derivatives, and may adversely affect the performance of some derivative instruments used by the Fund as well as the Fund’s ability to pursue its investment objective through the use of such instruments.
Emerging Markets Risk.
Investing in securities of issuers tied economically to emerging markets entails all of the risks of investing in securities of
non-U.S. issuers detailed below under “Non-U.S. Securities Risk” to a heightened degree. These heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and
economic stability; (ii) the smaller size of the markets for such securities and a lower volume of trading, resulting in lack of liquidity and in price volatility; (iii) greater fluctuations in currency exchange rates; and
(iv) certain national policies that may restrict a Fund’s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests.
Equity Securities Risk.
Because it purchases common stocks and other equity securities, the Fund is subject to 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.
ETF Risk.
The price movement of an ETF may not 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.
Hedging Risk.
Although intended to limit or reduce investment risk, hedging strategies may also limit or reduce the potential for profit. There is no
assurance that hedging strategies will be successful.
Illiquid and Restricted Securities Risk.
The Sub-Adviser may not be able to sell illiquid
or restricted securities at the price it would like or may have to sell them at a loss.
Industry Concentration Risk.
Because the Fund normally
invests at least 80% of the value of its assets in healthcare companies, the Fund’s performance largely depends on the overall condition of the healthcare industry and the Fund is susceptible to economic, political and regulatory risks or other
occurrences associated with the healthcare industry.
Interest Rate Risk.
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 securities generally declines.
Leverage Risk.
The Fund is authorized to borrow in an amount up to 33
1
/
3
% of
its total assets (including the amount borrowed). The use of leverage for investment purposes creates opportunities for greater total returns, but at the same time involves risks. Any investment income or gains earned with respect to the amounts
borrowed that are in excess of the interest that is due on the borrowing will augment the Fund’s income. Conversely, if the investment performance with respect to the amounts borrowed fails to cover the interest on such borrowings, the value of
the Fund’s shares may decrease more quickly than would otherwise be the case, and dividends on Fund shares could be reduced or eliminated. Interest payments and fees incurred in connection with such borrowings will reduce the amount of net
income available for payment to Fund shareholders.
Management Risk.
The Fund relies on the Sub-Adviser’s ability to achieve its
investment objective. The Sub-Adviser may be incorrect in its assessment of the intrinsic value of companies whose securities the Fund holds, which may result in a decline in the value of Fund shares.
Market Disruption Risk.
In recent years, domestic and international markets have experienced a period of acute stress starting in the real estate and
financial sectors and then moving to other sectors of the world economy. This stress has resulted in unusual and extreme volatility in the equity markets and in the prices of individual stocks. These market conditions could add to the risk of
short-term volatility of the Fund.
Market Risk.
The Fund’s share price will fluctuate with changes in the market value of its portfolio
securities. Many factors can affect this value and you may lose money by investing in the Fund.
Micro, Small and Mid-Cap Securities Risk.
Investments in securities of companies with micro, small or medium capitalization involve certain risks that may differ from, or be greater than, those for larger companies, such as higher volatility, lower trading volume, fewer business lines and
lack of public information.
Non-Diversification Risk.
As a non-diversified fund for the 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. A non-diversified fund’s investment 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. This risk is particularly pronounced for the Fund, which from time to time may own a very small number of positions, each of which is a relatively large
portion of the Fund’s portfolio.
Non-U.S. Securities Risk.
Investments in securities of non-U.S. issuers involve certain risks not involved
in domestic investments (for example, fluctuations in foreign exchange rates; future foreign economic, financial, political and social developments; different trading and settlement practices; less governmental supervision; and different accounting,
auditing and financial recordkeeping standards and requirements). These risks are magnified for investments in issuers tied economically to emerging markets, the economies of which tend to be more volatile than the economies of developed markets. In
addition, certain investments in non-U.S. securities may be subject to foreign withholding taxes on interest, dividends, capital gains or other income. Those taxes will reduce the Fund’s yield on any such securities. See the
“Taxation” section below.
Portfolio Turnover Risk.
High portfolio turnover will increase the Fund’s transaction costs and may
result in increased realization of net short-term capital gains, higher taxable distributions and lower after-tax performance. During the last fiscal year, the Fund experienced a high portfolio turnover rate.
Risk of Substantial Redemptions.
If substantial numbers of shares in the Fund were to be redeemed at the same time or at approximately the same time, the
Fund might be required to liquidate a significant portion of its investment portfolio quickly to meet the redemptions. The Fund might be forced to sell portfolio securities at prices or at times when it would otherwise not have sold them.
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.
Short Sales Risk.
Short sales that are not made
“against-the-box” (as defined under “Description of Principal Investments”) theoretically involve unlimited loss potential since the market price of securities sold short may continuously increase.
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. As with any mutual fund, there is no
guarantee that the Fund will achieve its goal.
Risk/Return Bar Chart and Table
The bar chart and the performance
table below provide an indication of the risks of investing in the Fund by showing changes in the performance of the Fund’s Class A Shares for the most recent calendar year and by showing how the Fund’s average annual returns for the
Fund’s Class A, Class C and Class Z Shares compared to those
3
of a broad measure of market performance. As with all mutual funds, the Fund’s past performance (before and after taxes) does not predict how the Fund will perform in the future. Both the
chart and the table assume the reinvestment of dividends and distributions. The table reflects the deduction of applicable sales charges for Class A and Class C Shares. The bar chart does not reflect the deduction of applicable sales charges
for Class A Shares. If sales charges had been reflected, the returns for Class A Shares would be less than those shown below. Updated information on the Fund’s performance can be obtained by visiting
https://www.highlandfunds.com/Funds---Performance/Mutual-Funds/Alternative-Investment/Long-Short-Healthcare or by calling (877) 665-1287.
Annual Total Return
1
(As of December 31 for Class A Shares)
|
1
|
The Fund’s year-to-date total return for Class A Shares through September 30, 2012 was -2.54%.
|
The highest calendar quarter total return for Class A Shares of the Fund was 16.25% for the quarter ended December 31, 2009 and the lowest calendar
quarter total return was -11.78% for the quarter ended March 31, 2009.
Performance Table
Average Annual Total Returns
for the period ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
Since
Inception
(5/5/08)
|
|
|
Long/Short Healthcare Fund — Class A
|
|
|
|
|
|
|
|
|
|
Returns Before Taxes
|
|
|
-0.02%
|
|
|
|
6.79%
|
|
|
Return After Taxes on Distributions
|
|
|
-3.47%
|
|
|
|
5.24%
|
|
|
Return After Taxes on Distributions and Redemptions
|
|
|
0.00%
|
|
|
|
4.96%
|
|
|
Long/Short Healthcare Fund — Class C
|
|
|
|
|
|
|
|
|
|
Returns Before Taxes
|
|
|
4.30%
|
|
|
|
7.85%
|
|
|
Long/Short Healthcare Fund — Class Z
|
|
|
|
|
|
|
|
|
|
Returns Before Taxes
|
|
|
6.12%
|
|
|
|
8.78%
|
|
|
Standard & Poor’s 500 Index
(reflects no deduction for fees, expenses or taxes) (since inception return is shown since 4/30/08)
|
|
|
2.09%
|
|
|
|
-0.39%
|
|
|
Standard & Poor’s Healthcare Index
(reflects no deduction for fees, expenses or taxes) (since inception return is shown since
|
|
|
12.73%
|
|
|
|
4.93%
|
|
After-tax returns in the table above are shown for Class A Shares only and will differ for Class C and Class Z Shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ
from those shown. For example, after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Portfolio Management
Highland Capital Management Fund Advisors, L.P. serves as the investment adviser to the Fund. Cummings Bay Capital Management, L.P. serves as sub-adviser to the
Fund. The portfolio manager for the Fund is:
|
|
|
|
|
|
|
Portfolio Manager
|
|
Managed the
Fund Since
|
|
Title with
Sub-Adviser
|
|
Michael D. Gregory
|
|
May 2010
|
|
Portfolio Manager
|
Purchase and Sale of Fund Shares
|
|
|
|
|
Purchase minimums
|
|
Initial Investment
|
|
$2,500
|
|
Subsequent Investments
|
|
$50
|
In general, you may redeem shares on any business day:
|
•
|
|
Through your Financial Intermediary,
|
|
•
|
|
By writing to Highland Funds I — Highland Long/Short Healthcare Fund, P.O. Box 9840, Providence, RI 02940, or
|
|
•
|
|
By calling BNY Mellon Investment Servicing (US) Inc. at 1-877-665-1287.
|
Tax Information
The Fund intends to make distributions that may be taxable to you as ordinary income or capital
gains, except when your investment is in an IRA, 401(k) plan or other tax-advantaged arrangement.
Payments to Broker-Dealers and Other Financial
Intermediaries
If you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related
companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary’s website for more information.
484693-HFI-LSH-2/8/13
4