NEXPOINT FUNDS II
NexPoint
Funds II
Prospectus
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Class A |
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Class C |
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Class Y |
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| Equity
Fund |
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NexPoint
Climate Tech Fund |
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HSZAX |
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HSZCX |
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HSZYX |
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Although
these securities have been registered with the U.S. Securities and Exchange
Commission (“SEC”), the SEC has not approved or disapproved any shares offered
in this Prospectus or determined whether this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Not
FDIC Insured
May
Lose Value
No
Bank Guarantee
Table
of Contents
NexPoint Climate Tech Fund
Investment
Objective
The
investment objective of NexPoint Climate Tech Fund (“Climate Tech Fund” or the
“Fund”) is to seek long-term growth of
capital.
Fees and Expenses of the
Fund
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the tables and examples.
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 NexPoint Funds II funds.
More information about these and other discounts is available from your
financial professional and in the “Reduced Sales Charges for Class A
Shares” section on page 31 of the Fund’s Prospectus and the “Programs for
Reducing or Eliminating Sales Charges” section on page 59 of the Fund’s
Statement of Additional Information. Investors investing in the
Fund through an intermediary should consult the Appendix to the Fund’s
Prospectus, which includes information regarding financial intermediary-specific
sales charges and related discount policies that apply to purchases through
certain specified intermediaries.
Shareholder Fees
(fees paid directly from your investment)
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Class A |
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Class C |
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Class Y |
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Maximum
Sales Charge (Load) Imposed on Purchases (as a % of offering
price) |
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5.75% |
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None |
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None |
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Maximum
Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a % of offering price) |
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None |
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None |
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None |
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Maximum
Deferred Sales Charge (Load) (as a % of the net asset value at the time of
purchase or redemption, whichever is lower) |
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None |
1 |
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1.00% |
2 |
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None |
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Exchange
Fee |
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None |
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None |
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None |
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Redemption
Fee |
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None |
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None |
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None |
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Annual Fund Operating
Expenses (expenses that you pay each year as a percentage of the
value of your investment)
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Class A |
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Class C |
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Class Y |
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Management
Fee |
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0.95% |
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0.95% |
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0.95% |
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Distribution
and/or Service (12b-1) Fees |
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0.25% |
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1.00% |
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None |
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Other
Expenses |
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4.99% |
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4.99% |
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4.99% |
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Interest
Payments and Commitment Fees on Borrowed Funds |
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0.00% |
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0.00% |
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0.00% |
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Dividend
Expense on Short Sales |
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0.31% |
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0.31% |
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0.31% |
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Remainder
of Other Expenses |
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4.68% |
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4.68% |
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4.68% |
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Acquired
Fund Fees and Expenses3 |
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0.04% |
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0.04% |
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0.04% |
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Total
Annual Fund Operating Expenses |
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6.23% |
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6.98% |
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5.98% |
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Expense
Reimbursement4 |
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-4.48% |
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-4.48% |
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-4.48% |
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Total
Annual Fund Operating Expenses After Expense Reimbursement |
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1.75% |
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2.50% |
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1.50% |
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| 1 |
Class A
Shares bought without an initial sales charge in accounts aggregating
$1 million or more at the time of purchase are subject to a 0.50%
contingent deferred sales charge (“CDSC”) if the shares are sold within
one year of
purchase. |
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Class C Shares are
subject to a 1% CDSC for redemptions of shares within one year of
purchase. This CDSC does not apply to redemptions under a systematic
withdrawal plan. |
| 3 |
The “Total
Annual Fund Operating Expenses” shown may not correlate to the Fund’s
ratios of expenses to average daily net assets shown in the “Financial
Highlights” section of the Fund’s prospectus, which do not include
“Acquired Fund Fees and
Expenses.” |
| 4 |
NexPoint
Asset Management, L.P. (“NexPoint” or the “Adviser”) has contractually
agreed to limit the total annual operating expenses (exclusive of fees
paid by the Fund pursuant to its distribution plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the “1940 Act”),
taxes, such as — deferred tax expenses, dividend expenses on short
sales, interest payments, brokerage commissions and other transaction
costs, acquired fund fees and expenses and extraordinary expenses
(collectively, the “Excluded Expenses”)) of the Fund to 1.15% of average
daily net assets attributable to any class of the Fund (the “Expense
Cap”). The Expense Cap will continue through at least January 31,
2026, and may not be terminated prior to this date without
the action or consent of the Fund’s Board of Trustees. Under the expense
limitation agreement, the Adviser may recoup waived and/or reimbursed
amounts with respect to the Fund within thirty-six months of the date such
amounts were waived or reimbursed, provided the Fund’s total annual
operating expenses, including such recoupment, do not exceed the Expense
Cap in effect at the time of such waiver/reimbursement. In addition, the
fees and expenses shown in the table above and the Expense Example that
follows include the Fund’s share of the fees and expenses of any
affiliated funds in which the Fund invests. However, to avoid charging
duplicative fees, the Adviser will waive and/or reimburse the Fund’s
Management Fee with respect to the amount of its net assets invested in
underlying affiliated funds. The amount of this waiver will fluctuate
depending on the Fund’s daily allocations to underlying affiliated funds.
This affiliated fund fee waiver is expected to remain in effect
permanently, and it cannot be terminated without the approval of the
Fund’s Board of
Trustees. |
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
1
5%
return each year, and (iii) operating expenses remain the same. Only the
first year of each period in the Example takes into account the expense
reimbursement described in the footnote above. Your actual costs may be higher
or lower.
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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Class A |
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$743 |
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$1,940 |
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$3,109 |
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$5,906 |
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Class C |
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if
you do not sell your shares |
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$253 |
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$1,656 |
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$3,004 |
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$6,146 |
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if
you sold all your shares at the end of the period |
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$353 |
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$1,656 |
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$3,004 |
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$6,146 |
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Class Y |
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$153 |
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$1,378 |
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$2,580 |
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$5,483 |
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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 65% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund seeks to achieve its investment objective by investing at least 80% of its
net assets plus borrowing for investment purposes under normal circumstances in
equity securities, such as common and preferred stocks, of climate tech
companies. This investment policy is not fundamental and may be changed by the
Fund without shareholder approval upon 60 days’ prior written notice to
shareholders. There can be no assurance that the Fund will achieve its
investment objective.
The
Fund defines “climate tech” as technologies and business models that act to
decarbonize the energy, transport, buildings and infrastructure, industry, and
agriculture sectors. The Fund defines a climate tech company as having at least
50% of its assets, income, earnings, sales or profits committed to or derived
from technology solutions, products and services to help curb or mitigate
effects of global climate change. Due to the evolving nature related to climate
change the Adviser expects climate tech companies to be involved in a wide array
of businesses. The Fund invests in companies across all market capitalizations.
The Fund may invest in common stocks and preferred stocks of foreign companies,
either directly or through American Depository Receipts (“ADRs”) or Global
Depository Receipts (GDRs).
The
portfolio managers seek to identify securities of companies with characteristics
such as
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quality
management focused on generating shareholder
value |
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attractive
products or services |
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appropriate
capital structure |
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strong
competitive positions in their
industries |
The
portfolio managers may consider selling a security when one of these
characteristics no longer applies, or when valuation becomes excessive and more
attractive alternatives are identified. The portfolio managers seek to diversify
the portfolio across geographies, and
industries.
The
Fund may borrow for investment purposes. To the extent the Fund borrows and
invests the proceeds, the Fund will create financial leverage. The use of
borrowing for investment purposes increases both investment opportunity and
investment risk.
The
Fund may invest in securities issued by real estate investment trusts (“REITs”).
REITs are publicly traded corporations or trusts that specialize in acquiring,
holding and managing residential, commercial or industrial real
estate.
The
Fund may also sell securities short and use futures and options to gain short
exposure for hedging purposes or where the portfolio managers believe that the
price of a security or value of an index will decline. The Fund may take short
positions in climate tech companies that do not reflect the characteristics
described above or that the portfolio managers otherwise believe will decline in
value. The Adviser will vary the Fund’s long and short exposures over time based
on its assessment of market conditions and other
factors.
The
Fund also may invest to a lesser extent in debt securities and foreign
(non-U.S.) securities. The Fund may also invest in exchange-traded funds
(“ETFs”), closed-end funds or other mutual funds. 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, 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 Adviser to be in the best interest of the Fund, and to the extent
permitted by the 1940 Act, to hedge various investments for risk management and
speculative purposes. The Fund may also invest in master limited partnerships
(“MLPs”), which are typically characterized as “publicly traded partnerships”
that qualify to be treated as partnerships for U.S. federal income tax purposes
and are principally engaged in one or more aspects of the exploration,
production, processing, transmission, marketing, storage or delivery of
energy-related commodities, such as natural gas, natural gas liquids, coal,
crude oil or refined petroleum products (collectively, the energy
industry).
2
NexPoint
Funds II Prospectus
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
investment 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.
An investment in the Fund is not a deposit
of any bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other government agency. Each risk
summarized below is a principal risk of investing in the Fund and different
risks may be more significant at different times depending upon market
conditions or other factors.
Climate Tech Companies Risk is the risk that
climate tech companies may be more volatile than companies operating in more
established industries. Climate tech companies are subject to specific risks,
including, among others: fluctuations in commodity prices and/or interest rates;
changes in governmental or environmental regulation; slowdowns in new
construction; and seasonal weather conditions, extreme weather or other natural
disasters. Certain investments may be dependent on U.S. and foreign government
policies, including tax incentives and subsidies. The above factors could also
impact the ability of climate tech companies to pay dividends comparable to
those paid by other technology companies. The Fund’s performance relative to the
market also may be impacted by whether the climate tech sector is out of favor
with investors. Similarly, the Fund’s exclusion of investments in companies
other than climate tech companies may adversely affect the Fund’s relative
performance at times when those other types of investments are performing
well.
Equity Securities Risk is 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.
Counterparty Risk is the risk that 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 is the risk that 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.
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 (“NAV”) of the Fund.
Currency Risk is the risk that fluctuations in
exchange rates will adversely affect the value of the Fund’s foreign currency
holdings and investments denominated in foreign
currencies.
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. In addition, changes in laws or regulations
may make the use of derivatives more costly, may limit the availability of
derivatives, or may otherwise adversely affect the use, value or performance of
derivatives. The Fund’s ability to pursue its investment strategy, including its
strategy of investing in certain derivative instruments, may be limited to or
adversely affected by the Fund’s intention to qualify as a regulated investment
company (a “RIC”), and its strategy may bear adversely on its ability to so
qualify.
Exchange-Traded Funds (“ETF”) Risk is 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 indirectly bear similar expenses of the
underlying investment company when the Fund invests in shares of another
investment company.
Focused Investment Risk is the risk that
although the Fund is a diversified fund, it may invest in securities of a
limited number of issuers in an effort to achieve a potentially greater
investment return than a fund that invests in a larger number of issuers. As a
result, price movements of a single issuer’s securities will have a greater
impact on the Fund’s net asset value, causing it to fluctuate more than that of
a more widely diversified fund.
3
Growth Investing Risk is the risk of investing
in growth stocks that may be more volatile than other stocks because they are
more sensitive to investor perceptions of the issuing company’s growth
potential. Growth-oriented funds will typically underperform when value
investing is in favor.
Hedging Risk is the risk that, 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 is the
risk that the Adviser may not be able to sell illiquid or restricted securities,
such as securities issued pursuant to Rule 144A of the Securities Act of 1933,
at the price it would like or may have to sell them at a loss. Securities of
non-U.S. issuers, and emerging or developing markets securities in particular,
are subject to greater liquidity risk.
Interest Rate Risk is 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 was not
leveraged.
Management Risk is the risk associated with the
fact that the Fund relies on the Adviser’s ability to achieve its investment
objective. The 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.
Mid-Cap Company Risk is the risk that
investing in securities of mid-cap companies may entail greater risks than
investments in larger, more established companies. Mid-cap companies tend to
have more narrow product lines, more limited financial resources and a more
limited trading market for their stocks, as compared with larger companies. As a
result, their stock prices may decline significantly as market conditions
change.
MLP Risk is the risk of investing in MLP units,
which involves some risks that differ from an investment in the equity
securities of a company. The Fund may invest in MLP units. Holders of MLP units
have limited control and voting rights on matters affecting the partnership.
Holders of units issued by an MLP are exposed to a remote possibility of
liability for all of the obligations of that MLP in certain instances. Holders
of MLP units are also exposed to the risk that they will be required to repay
amounts to the MLP that are wrongfully distributed to them. Additionally, a
sustained reduced demand for crude oil, natural gas and refined petroleum
products could adversely affect MLP revenues and cash flows and changes in the
regulatory environment could adversely affect the profitability of MLPs.
Investments in MLP units also present special tax risks. See “MLP Tax Risk”
below.
MLP Tax Risk is the risk that the MLPs in which
the Fund invests will fail to be treated as partnerships for U.S. federal income
tax purposes. If an MLP does not meet current legal requirements to maintain its
partnership status, or if it is unable to do so because of tax or other law
changes, it would be treated as a corporation for U.S. federal income tax
purposes. In that case, the MLP would be obligated to pay U.S. federal income
tax (as well as state and local taxes) at the entity level on its taxable income
and distributions received by the Fund would be characterized as dividend income
to the extent of the MLP’s current and accumulated earnings and profits for
federal tax purposes. The classification of an MLP as a corporation for U.S.
federal income tax purposes could have the effect of reducing the amount of cash
available for distribution by the MLP and the value of the Fund’s investment in
any such MLP. As a result, the value of the Fund’s shares and the cash available
for distribution to Fund shareholders could be
reduced.
Non-U.S. Securities Risk is the risk associated
with investing in non-U.S. issuers. Investments in securities of non-U.S.
issuers involve certain risks not involved in domestic investments (for example,
fluctuations in foreign exchange rates (for non-U.S. securities not denominated
in U.S. dollars); future foreign economic, financial, political and social
developments; nationalization; exploration or confiscatory taxation; smaller
markets; different trading and settlement practices; less governmental
supervision; and different accounting, auditing and financial recordkeeping
standards and requirements) that may result in the Fund experiencing more rapid
and extreme changes in value than a fund that invests exclusively in securities
of U.S. companies. 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
4
NexPoint
Funds II Prospectus
markets.
In addition, certain investments in non-U.S. securities may be subject to
foreign withholding and other taxes on interest, dividends, capital gains or
other income or proceeds. Those taxes will reduce the Fund’s yield on any such
securities. See the “Taxation” section
below.
Operational and Technology Risk is the risk
that cyber-attacks, disruptions, or failures that affect the Fund’s service
providers, counterparties, market participants, or issuers of securities held by
the Fund may adversely affect the Fund and its shareholders, including by
causing losses for the Fund or impairing Fund
operations.
Other Investment Companies Risk is the risk
that when the Fund invests a portion of its assets in investment companies,
including open-end funds, closed-end funds, ETFs and other types of investment
companies, those assets will be subject to the risks of the purchased investment
companies’ portfolio securities, and a shareholder in the Fund will bear not
only his or her proportionate share of the Fund’s expenses, but also indirectly
the expenses of the purchased investment companies. Risks associated with
investments in closed-end funds also generally include market risk, leverage
risk, risk of market price discount from NAV, risk of anti-takeover provisions
and non-diversification.
Portfolio Turnover Risk is the risk that the
Fund’s high portfolio turnover will increase the Fund’s transaction costs and
may result in increased realization of net short-term capital gains (which are
taxable to shareholders as ordinary income when distributed to them), higher
taxable distributions and lower after-tax performance. During the last fiscal
year, the Fund experienced a high portfolio turnover
rate.
Real Estate Securities Risk is the risk that an
investment in real estate securities will be closely linked to the performance
of the real estate markets. Property values or income may fall due to increasing
vacancies or declining rents resulting from economic, legal, cultural or
technological developments.
REIT-Specific Risk includes the risk that an
investment in the stocks of REITs will decline because of adverse developments
affecting the real estate industry and real property values. An investment in a
REIT also may be adversely affected or lost if the REIT fails to qualify as a
REIT for tax purposes. In the event an investment fails to qualify as a REIT for
tax purposes, the REIT will be subject to U.S. federal income tax (as well as
state and local taxes) as a C corporation. The resulting corporate taxes could
reduce the Fund’s net assets, the amount of income available for distribution
and the amount of the Fund’s distributions. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and liquidity risk. In addition, REITs
could possibly fail to (i) qualify for favorable tax treatment under
applicable tax law, or (ii) maintain their exemption from registration
under the 1940 Act.
Securities Lending Risk is the risk that 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.
Securities Market Risk is the risk that the
value of securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably, due to factors affecting particular companies or the securities
markets generally. Economic, political and financial conditions, industry or
economic trends and developments or public health risks, such as epidemics or
pandemics, may, from time to time, and for varying periods of time, cause
volatility, illiquidity or other potentially adverse effects in the financial
markets. A general downturn in the securities market may cause multiple asset
classes to decline in value simultaneously. Many factors can affect this value
and you may lose money by investing in the
Fund.
Short Sales Risk is the risk of loss associated
with any appreciation on the price of a security borrowed in connection with a
short sale. The Fund may engage in short sales that are not made
“against-the-box,” which means that the Fund may sell short securities even when
they are not actually owned or otherwise covered at all times during the period
the short position is open. Short sales that are not made “against-the-box”
involve unlimited loss potential since the market price of securities sold short
may continuously increase.
Small-Cap Company Risk is the risk that
investing in the securities of small-cap companies either directly or indirectly
through investments in ETFs, closed-end funds or mutual funds may pose greater
market and liquidity risks than larger, more established companies, because of
limited product lines and/or operating history, limited financial resources,
limited trading markets, and the potential lack of management depth. In
addition, the securities of such companies are typically more volatile than
securities of larger capitalization
companies.
Swaps Risk involves both the risks associated
with an investment in the underlying investments or instruments (including
equity investments) and counterparty risk. In a standard over-the-counter
(“OTC”) swap transaction, two parties agree to exchange the returns,
differentials in rates of return or some other amount calculated based on the
“notional amount” of predetermined investments or instruments, which may be
adjusted for an interest factor. Swaps can involve greater risks than direct
investments in securities, because swaps may be leveraged and OTC swaps are
subject to counterparty risk (e.g., the risk of a
5
counterparty’s
defaulting on the obligation or bankruptcy), credit risk and pricing risk (i.e.,
swaps may be difficult to value). Swaps may also be considered illiquid. Certain
swap transactions, including certain classes of interest rate swaps and index
credit default swaps, may be subject to mandatory clearing and exchange trading,
although the swaps in which the Fund will invest are not currently subject to
mandatory clearing and exchange trading. The use of swaps is a highly
specialized activity which involves investment techniques, risk analyses and tax
planning different from those associated with ordinary portfolio securities
transactions. The value of swaps, like many other derivatives, may move in
unexpected ways and may result in losses for the
Fund.
Value Investing Risk is the risk of investing
in undervalued stocks that may not realize their perceived value for extended
periods of time or may never realize their perceived value. Value stocks may
respond differently to market and other developments than other types of stocks.
Value-oriented funds will typically underperform when growth investing is in
favor.
Performance
The bar chart
and the Average Annual Total Returns table below provide some indication of the
risks of investing in the Fund by showing changes in the performance of the
Fund’s Class A Shares for each full calendar year and by showing how the
Fund’s average annual returns compare with the returns of a broad-based
securities market index or
indices.
Prior
to September 14, 2022, the Fund was managed pursuant to a different
investment strategy. As a result of the difference in investment strategy, the
performance information presented for periods prior to September 14, 2022
reflects management of the Fund consistent with investment strategies in effect
during those periods and might have differed materially if the Fund’s
investments had been managed under its current investment
strategies.
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. The Fund’s performance reflects
applicable fee waivers and/or expense limitations in effect during the periods
presented, without which returns would have been lower. Both the chart and the
table assume the reinvestment of dividends and distributions. 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. The returns of Class C and Class Y Shares
would have substantially similar returns as Class A because the classes are
invested in the same portfolio of securities and the annual returns would differ
only to the extent that the classes have different expenses (including sales
charges). Updated information on the Fund’s performance can be obtained by
visiting https://www.nexpoint.com/funds/climate-tech-fund/
or by calling 1-877-665-1287.
Calendar
Year Total Returns
The bar chart shows the
performance of the Fund’s Class A shares as of
December 31.
The highest calendar quarter total
return for Class A Shares of the Fund was 20.85% for the quarter ended March 31, 2019
and the lowest calendar quarter total
return was -53.70% for the quarter ended March 31,
2020.
Average Annual Total Returns
(For the periods ended
December 31, 2024)
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
1 Year |
|
|
5 Years |
|
|
10 Years |
|
|
Class A (inception 9/30/98) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before Taxes |
|
|
-7.68% |
|
|
|
-13.82% |
|
|
|
-3.24% |
|
|
Return
After Taxes on Distributions |
|
|
-8.23% |
|
|
|
-14.00% |
|
|
|
-5.16% |
|
|
Return
After Taxes on Distributions and Sale of Fund Shares |
|
|
-4.44% |
|
|
|
-9.75% |
|
|
|
-2.32% |
|
|
Return
Before Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C
(inception 9/30/99) |
|
|
-3.81% |
|
|
|
-13.45% |
|
|
|
-3.38% |
|
|
Class Y
(inception 9/30/98) |
|
|
-1.87% |
|
|
|
-12.56% |
|
|
|
-2.42% |
|
|
MSCI ACWI Index (reflects no deduction
for fees, expenses or taxes) |
|
|
18.03% |
|
|
|
10.59% |
|
|
|
9.80% |
|
After-tax returns in the table
above are shown for Class A Shares only and after-tax returns for other
share classes will vary. 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 their
Fund shares through tax- advantaged arrangements, such as 401(k) plans or
individual retirement accounts.
6
NexPoint
Funds II Prospectus
January
31, 2025
In some cases, average
annual return after taxes on distributions and sale of fund shares may be higher
than the average annual return after taxes on distributions because of realized
losses that would have been sustained upon the sale of fund shares immediately
after the relevant periods. The calculations assume that an
investor holds the shares in a taxable account, is in the actual historical
highest individual federal marginal income tax bracket for each year and would
have been able to immediately utilize the full realized loss to reduce his or
her federal tax liability. However, actual individual tax results may vary and
investors should consult their tax advisers regarding their personal tax
situations.
Portfolio Management
NexPoint
Asset Management, L.P. serves as the investment adviser to the Fund. The
portfolio managers for the Fund are:
|
|
|
|
| |
| Portfolio Manager |
|
Portfolio
Managers
Experience in this Fund |
|
Title with Adviser |
| James
Dondero |
|
9
years |
|
Co-Founder |
| Scott
Johnson |
|
2
years |
|
Managing
Director |
Purchase and Sale of Fund Shares
Purchase minimum
(for Class A and Class C Shares) (reduced for certain
accounts)
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
By mail |
|
|
By wire |
|
|
Automatic |
|
|
Initial
Investment |
|
|
$500 |
|
|
|
$1,000 |
|
|
|
$25 |
|
|
Subsequent
Investments |
|
|
$100 |
|
|
|
$1,000 |
|
|
|
$25 |
|
There
is no program asset size or minimum investment requirements for initial and
subsequent purchases of shares by eligible omnibus account investors.
Purchase minimum
(for Class Y Shares) (eligible investors only)
|
|
|
|
| |
|
Initial
Investment |
|
|
None |
|
|
Subsequent
Investments |
|
|
None |
|
Class Y
Shares are available to investors who invest through programs or platforms
maintained by an authorized financial intermediary.
Individual
investors that invest directly with the Fund are not eligible to invest in
Class Y Shares.
The
Fund reserves the right to apply or waive investment minimums under certain
circumstances as described in the Prospectus under the “Choosing a Share Class”
section.
You
may purchase shares of the Fund by mail, bank wire, electronic funds transfer or
by telephone after you have opened an account with the Fund. You may obtain an
account application from your financial intermediary, from the Fund by calling
1-877-665-1287 or from the Fund’s website at https://www.nexpoint.com/funds/climate-tech-fund/#forms.
In
general, you may sell (redeem) all or part of your Fund shares on any business
day through the following options:
| |
• |
|
Through
your Financial Intermediary |
| |
• |
|
By
writing to NexPoint Funds II — NexPoint Climate Tech Fund, 801
Pennsylvania Ave, Kansas City, Missouri 64105, or
|
| |
• |
|
By
calling SS&C Technologies, Inc. at 1-877-665-1287
|
Financial
intermediaries may independently charge fees for shareholder transactions or for
advisory services. Please see their materials for details.
Tax Information
The
Fund intends to make distributions that generally will be taxable to you as
ordinary income, qualified dividend income or capital gains, unless you are a
tax-exempt investor or otherwise investing in the Fund through a tax-advantaged
arrangement, such as a 401(k) plan or an individual retirement account. If you
are investing in the Fund through a tax-advantaged arrangement, you may be taxed
later upon withdrawals from that 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.
7
More
on Strategies, Risks and Disclosure of Portfolio Holdings
Investment Objective. The investment objective
of the Fund is to seek long-term growth of capital.
Additional
Information About Investment Strategies
The
following is a description of investment practices in which the Fund may engage.
Any references to investments made by the Fund include those that may be made
both directly by the Fund and indirectly by the Fund (e.g., through its
investments in derivatives or other pooled investment vehicles). As otherwise
provided in this Prospectus or Statement of Additional Information (“SAI”), the
Fund may invest without limit in the securities, assets, instruments and
transactions in which it is permitted to invest. Please refer to the “Principal
Investment Strategies” for the Fund for additional information regarding the
principal investment practices in which the Fund may engage. Please see
“Additional Information About Risks” below for the risks associated with each of
the principal investment practices.
Assignments. The Fund may purchase Assignments
from several financial institutions (“Lenders”). The purchaser of an Assignment
typically succeeds to all the rights and obligations under the Loan Agreement of
the assigning Lender and becomes a Lender under the Loan Agreement with the same
rights and obligations as the assigning Lender.
Borrowing. The Fund may borrow an amount up to
33 1/3% of its total assets (including the amount borrowed). The Fund may borrow
for investment purposes, to meet redemption requests 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. It will do so only when it expects to be
able to invest the proceeds at a higher rate of return than its cost of
borrowing. The use of borrowing for investment purposes increases both
investment opportunity and investment risk.
Because
the management fees (including administration fees) paid to NexPoint are
calculated on the basis of the Fund’s average daily managed assets, which
include the proceeds of leverage, the dollar amount of the fees paid by the Fund
to NexPoint will be higher (and NexPoint will be benefited to that extent) when
leverage is utilized. NexPoint will utilize leverage only if it believes such
action would result in a net benefit to the Fund’s shareholders after taking
into account the higher fees and expenses associated with leverage (including
higher management fees).
Cash and Temporary Defensive Positions: Under
normal circumstances, the Fund may hold cash: (i) pending investment,
(ii) for investment purposes, (iii) for cash management purposes, such
as to meet redemptions or pay operating expenses, and (iv) during a Fund’s
repositioning.
The
Fund that invests in equity securities may equitize cash, including by
purchasing proxies for stocks such as ETFs, options or futures, in order to
provide equity-like risk and returns on temporary cash balances
The
Fund may from time to time take temporary defensive positions when the portfolio
managers believe that adverse market, economic, political or other conditions
exist. In these circumstances, the portfolio managers may (x) without limit
hold cash, or (y) restrict the securities markets in which the Fund’s
assets are invested by investing those assets in securities markets deemed to be
conservative in light of the Fund’s investment objective and strategies. The
Fund may utilize cash as an asset class to hedge the portfolio and reduce
volatility.
In
addition, the Fund may hold cash under circumstances where the liquidation of
the Fund has been approved by the Trustees, and, therefore, investments in
accordance with the Fund’s investment objective and policies would no longer be
appropriate. To the extent that the Fund holds cash, it may not achieve its
investment objective.
Debt Securities. The Fund may, but is not
required to, invest in debt securities, including investment grade securities,
below investment grade securities and other debt obligations. The Fund also may
invest in debt securities convertible into, or exchangeable for, common or
preferred stock. The Fund may also invest in fixed-income securities, including
high-yield securities and U.S. government-issued fixed-income securities.
| • |
|
Investment Grade Securities. The Fund may
invest in a wide variety of bonds that are rated or determined by the
Adviser to be of investment grade quality of varying maturities issued by
U.S. corporations and other business entities. Bonds are fixed or variable
rate debt obligations, including bills, notes, debentures, money market
instruments and similar instruments and securities. Bonds generally are
used by corporations and other issuers to borrow money from investors for
a variety of business purposes. The issuer pays the investor a fixed or
variable rate of interest and normally must repay the amount borrowed on
or before maturity. |
| • |
|
Below Investment Grade Securities. The
Fund may invest in below investment grade securities (also known as
“high-yield securities” or “junk securities”). Such securities may be
fixed or variable rate obligations and are rated below investment grade
(Ba/BB or lower) by a nationally recognized statistical rating
organization or are unrated but deemed by the Adviser to be of comparable
quality. High-yield debt securities are frequently issued by corporations
in the growth stage of their development, but also may be issued by
established companies. These bonds are regarded by the rating
organizations, on balance, as |
8
NexPoint
Funds II Prospectus
| |
predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. Such securities also are
generally considered to be subject to greater risk than securities with
higher ratings with regard to default rates and deterioration of general
economic conditions. High-yield securities held by the Fund may include
securities received as a result of a corporate reorganization or issued as
part of a corporate takeover. |
Depositary Receipts. The Fund may invest in
American Depository Receipts (“ADRs”), American Depositary Shares (“ADSs”) and
other depositary receipts. ADRs and ADSs are securities that represent an
ownership interest in a foreign security. They are generally issued by a U.S.
bank to U.S. buyers as a substitute for direct ownership of a foreign security
and are traded on U.S. exchanges. ADRs may be available through “sponsored” or
“unsponsored” facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights with respect to the deposited security. The Fund may invest in both
sponsored and unsponsored ADRs.
Derivatives. The Fund may invest in various
instruments that are commonly known as derivatives. Generally, derivatives are a
financial instrument, the value of which is based on, or “derived” from, the
value of underlying securities, commodities, currencies, indices, or other
assets or instruments, including other derivative contracts. The most common
types of derivatives are swaps, futures and options, and major asset classes
include interest rates, equities, commodities and foreign exchange. Futures,
forwards, swaps and options are commonly used for traditional hedging purposes
to attempt to protect the Fund from exposure to changing interest rates,
securities prices, or currency exchange rates and as a low cost method of
gaining exposure to a particular securities market without investing directly in
those securities. The Fund may enter into credit derivatives, such as credit
default swaps and credit default index investments, including loan credit
default swaps and loan credit default index swaps. The Fund may use these
investments (i) as alternatives to direct long or short investment in a
particular security, (ii) to adjust a Fund’s asset allocation or risk
exposure, or (iii) for hedging purposes. The use by the Fund of credit
default swaps may have the effect of creating a short position in a security.
These investments can create investment leverage, which tends to magnify the
effects of an instrument’s price changes as market conditions change. The Fund’s
ability to pursue its investment strategy, including its strategy of investing
in certain derivative instruments, may be limited or adversely affected by the
Fund’s intention to qualify as a RIC, and its strategy may bear adversely on its
ability to so qualify. Special tax considerations apply to the Fund’s use of
derivatives. See the “Taxation” section below.
Equity Securities. To the extent the Fund
invests in equity securities, the Adviser expects the Fund’s investments will
generally be in common stock of companies of varying sizes. The Adviser believes
preferred stock and convertible securities (e.g. debt securities convertible
into, or exchangeable for common or preferred stock) of selected companies offer
opportunities for capital appreciation as well as periodic income and may invest
a portion of the Fund’s assets in such securities. The Adviser will not rely on
any specific rating criteria when deciding whether to invest the Fund’s assets
in convertible securities. In addition to common stock, other securities with
equity characteristics include depositary receipts and warrants.
Exchange-Traded Funds. ETFs are listed on
various exchanges and seek to provide investment results that correspond
generally to the performance of specified market indices by holding a basket of
the securities in the relevant index. Fees and expenses of investments in ETFs
will be borne by shareholders of the investing funds.
Hedging. 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 or debt prices
advance, the return to investors will be lower than if the portfolio has not
been hedged. No assurance can be given that any particular hedging strategy will
be successful, or that the Adviser will elect to use a hedging strategy at a
time when it is advisable. Special tax considerations apply to the Fund’s
hedging transactions. See the “Taxation” section below.
Illiquid and Restricted Securities. The Fund
may invest in illiquid and restricted securities. Restricted securities
generally may not be resold without registration under the Securities Act of
1933, as amended (the “Securities Act”), except in transactions exempt from the
registration requirements of the Securities Act. A security that may be
restricted as to resale under federal securities laws or otherwise will not be
subject to this percentage limitation if the Adviser determines that the
security is, at the time of acquisition, readily marketable. Illiquid securities
are those that cannot be sold or disposed of within seven calendar days
9
More
on Strategies, Risks and Disclosure of Portfolio Holdings
or
less without the sale or disposition significantly changing the market value of
the investment. Illiquid and restricted securities may offer higher returns and
yields than comparable publicly-traded securities. However, the Fund may not be
able to sell these securities when the 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 may be
illiquid; however, some restricted securities such as those eligible for resale
under Rule 144A under the Securities Act may be treated as liquid.
Leveraged Investment Techniques and Short Positions.
The Fund may borrow for investment purposes, to meet redemption requests
and for temporary, extraordinary or emergency purposes. To the extent the Fund
borrows money from a bank, it may be required to post cash and/or securities as
collateral to cover the loan until such time as it is repaid.
The
Fund that employs leverage or utilizes shorting in its investment strategy may
have a market exposure which can range from 150% net long to 50% net short. Such
extremes however, will be uncommon. Examples of leveraged investment techniques
include: (i) borrowing up to one third of the Fund’s total assets to
purchase additional securities for the Fund; and (ii) buying ETFs,
closed-end funds or mutual funds (“Underlying Funds”) that are designed to have
market exposure that may be inverse to a particular index or that is several
times the market exposure of a particular index. The Fund that is permitted to
borrow for investment purposes may, to a limited extent, increase the number and
extent of “long” positions by borrowing (e.g., by purchasing securities on
margin). The Fund may take a “short position” where the portfolio managers
believe that the price of a security or value of an index will decline. The Fund
may “short” a particular security by selling the security without owning it at
the time of the sale, with the intent of later purchasing the security at a
lower price. If the price of the security goes down, the short position will be
profitable to the Fund. Conversely, if the price rises the short position will
be unprofitable to the Fund. The Fund may also gain short exposure to an index
by buying an Underlying Fund that has an inverse exposure to the index.
Micro, Small and Mid-Cap Investments. The Fund
may invest in companies of any market capitalization, including those with
micro, small or medium capitalizations.
Net Asset Value Fluctuation. When prevailing
interest rates decline, the value of a portfolio invested in fixed rate
obligations can be expected to rise. Conversely, when prevailing interest rates
rise, the value of a portfolio invested in fixed rate obligations can be
expected to decline. Although the Fund’s NAV will vary, the Fund’s policy of
acquiring interests in floating or variable rate investments is expected to
minimize fluctuations in NAV as a result of changes in interest rates.
Accordingly, it may be expected that the value of the Fund’s investment
portfolio will fluctuate significantly less than a portfolio of fixed rate,
longer term obligations as a result of interest rate changes. However, changes
in prevailing interest rates can be expected to cause some fluctuation in the
Fund’s NAV. In addition to changes in interest rates, various factors, including
defaults by or changes in the credit quality of borrowers, will also affect the
NAV of the Fund. A default or serious deterioration in the credit quality of a
borrower could cause a prolonged or permanent decrease in the Fund’s NAV.
Non-U.S. Securities and Emerging Markets. The
Fund may invest in securities of non-U.S. issuers (“non-U.S. securities”),
including investments in the securities of so-called emerging market issuers.
Such investment may include securities denominated in U.S. dollars, non-U.S.
currencies or multinational currency units. Typically, non-U.S. securities are
considered to be equity or debt securities issued by entities organized,
domiciled or with a principal executive office outside the U.S., such as foreign
corporations and governments. Non-U.S. securities may trade in U.S. or foreign
securities markets. The Fund may make non-U.S. investments either directly by
purchasing non-U.S. securities or indirectly by purchasing depositary receipts
or depositary shares of similar instruments for non-U.S. securities. Depositary
receipts are securities that are listed on exchanges or quoted in
over-the-counter markets (“OTC”) in one country but represent shares of issuers
domiciled in another country. Direct investments in foreign securities may be
made either on foreign securities exchanges or in the OTC markets. Investing in
non-U.S. securities involves certain special risk considerations, including
currency risk, that are not typically associated with investing in securities of
U.S. companies or governments. These risks may be greater for securities of
companies located in emerging market countries.
Options. The Fund may utilize options on
securities, indices and currencies. 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 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. If an
option written by the Fund expires unexercised, the Fund realizes on the
expiration date a 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 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
10
NexPoint
Funds II Prospectus
(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 realizes an economic loss from a closing sale transaction
if the premium received from the sale of the option is less than the premium it
initially paid to purchase the option (plus transaction costs). The Fund
realizes an economic loss from a closing purchase transaction if the cost of the
closing purchase transaction (premium plus transaction costs) is greater than
the premium initially received from writing the option.
Other Investment Companies. The Fund may invest
in other investment companies. Investment companies combine shareholders’ funds
for investment in a variety of instruments, including equity securities, debt
securities, and money market instruments and may invest primarily in a
particular type of security, a particular industry or a mix of securities and
industries. An investment company is not taxed on income distributed to
shareholders if, among other things, it distributes to its shareholders
substantially all of its taxable income for each taxable year. As a shareholder
of another investment company, the Fund may bear a proportionate share of the
expenses of such other investment company, including management fees,
administration fees and custodial fees, in addition to the expenses of the Fund.
To the extent permitted by and subject to applicable law or SEC exemptive
relief, the Fund may invest in shares of investment companies (including money
market mutual funds) advised or sub-advised by NexPoint or its affiliates.
Real Estate Investment Trusts. The Fund may
invest in REITs. REITs are companies that own interests in real estate or in
real estate related loans or other interests, and their revenue primarily
consists of rent derived from owned, income producing real estate properties and
capital gains from the sale of such properties. A REIT in the U.S. is generally
not taxed on income distributed to shareholders so long as it meets certain tax
related requirements, including the requirement that it distribute substantially
all of its taxable income to such shareholders.
Portfolio Turnover. The Fund’s rate of
portfolio turnover will not be a limiting factor for the Adviser in making
decisions on when to buy or sell securities. The Fund reserves full freedom with
respect to portfolio turnover. The frequency of the Fund’s trading will vary
from year to year, depending on market conditions. In periods when there are
rapid changes in economic conditions or security price levels, portfolio
turnover may be significantly higher than during times of economic and market
price stability. The Fund’s portfolio turnover rate may exceed 100% per
year, and under certain market conditions may be substantially higher. A 100%
annual turnover rate would occur, for example, if all the securities in the
Fund’s portfolio were replaced once within a period of one year.
Securities Lending. The Fund may make secured
loans of its portfolio securities amounting to not more than 30% of its total
assets, thereby realizing additional income. As a matter of policy, securities
loans are made to borrowers pursuant to agreements requiring that the loans be
continuously secured by collateral in 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. Collateral must be valued
daily by the Custodian and the borrower will be required to provide additional
collateral should the market value of the loaned securities increase.
Short Sales. The Fund may seek to hedge
investments or realize additional gains through short sales. A short sale 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 makes a short
sale, it must borrow the security sold short from a broker-dealer and deliver it
to the buyer upon conclusion of the sale. The Fund will ordinarily have to pay a
fee to borrow a security and is often obligated to repay the lender of the
security any dividend or interest that accrues on the security during the period
of the loan. If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss.
The
Fund may sell a security short if it owns at least an equal amount of the
security sold short or another security convertible or exchangeable for an equal
amount of the security sold short without payment of further compensation (a
short sale “against-the-box”). The Fund also may engage in short sales that are
not “against-the-box,” and will be subject to additional risks to the extent
that it engages in short sales that are not “against-the-box.” The Fund’s loss
on a short sale could be unlimited in cases where the Fund is unable, for
whatever reason, to close out its short position. See “Taxation” below for
special tax considerations associated with engaging in short sales.
Small and Mid-Cap Investments. The Fund may
invest in companies of any market capitalization, including those with small or
medium capitalizations.
Temporary Defensive Positions. When adverse
market or economic conditions occur, the Fund may temporarily invest all or a
portion of its total assets in defensive investments.
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Such
investments may include fixed-income securities, high quality money market
instruments, cash and cash equivalents. To the extent the Fund takes temporary
defensive positions, it may not achieve its investment objective.
Undervalued Stocks. A stock is considered
undervalued if the Adviser believes it should be trading at a higher price than
it is at the time of purchase. Factors considered may include, but are not
limited to: price relative to earnings, price relative to cash flow and price
relative to financial strength.
Additional Information. The foregoing
percentage limitations in the Fund’s investment strategies apply at the time of
purchase of securities, except that the limit on borrowing described in the SAI
is applied on a continued basis. The Board of Trustees may change any of the
foregoing investment policies, including the Fund’s investment objective and 80%
investment policy without shareholder approval. The Fund will provide
shareholders with written notice at least 60 days prior to a change in its 80%
investment policy.
Additional
Information About Risks
Like
all mutual funds, investing in the Fund involves risk factors and special
considerations. The Fund’s risk is defined primarily by its principal investment
strategies, which are described earlier in the summary section of this
Prospectus, along with descriptions of the Fund’s related risks.
Investments
in the Fund are not insured against loss of principal. As with any mutual fund,
there can be no assurance that the Fund will achieve its investment objectives.
Investing in shares of the Fund should not be considered a complete investment
program. There is a risk that the share value of the Fund will fluctuate.
One
of your most important investment considerations should be balancing risk and
return. Different types of investments tend to respond differently to shifts in
the economic and financial environment. Diversifying your investments among
different asset classes — such as stocks, bonds and cash — and within an asset
class — such as small-cap and large-cap stocks — may help you to manage risk and
achieve the results you need to reach your financial goals.
Factors
that may affect the Fund’s portfolio as a whole are called “principal risks” and
are summarized in this section. This summary describes the nature of these
principal risks and certain related risks, but is not intended to include every
potential risk. The Fund could be subject to additional risks because the types
of investments they make may change over time. The SAI, which is incorporated by
reference into this Prospectus, includes more information about the Fund and
their investments. The Fund is not intended to be a complete investment program.
Climate Tech Companies Risk: Climate tech
companies may be more volatile than companies operating in more established
industries. Climate tech companies are subject to specific risks, including,
among others: fluctuations in commodity prices and/or interest rates; changes in
governmental or environmental regulation; slowdowns in new construction; and
seasonal weather conditions, extreme weather or other natural disasters. Climate
tech companies can be significantly affected by the supply of, and demand for,
particular technology products, which may result in overproduction or
underproduction. Additionally, changes in the regulatory environment for climate
tech companies may adversely impact their profitability. Obsolescence of
existing technology, short product cycles, falling prices and profits,
competition from new market entrants and general economic conditions can
significantly affect climate tech companies. As increased capital enters the
climate tech space, there may be pressure on power pricing, which in turn could
result in lower rates of returns for certain climate tech companies. Certain
investments may be dependent on U.S. and foreign government policies, including
tax incentives and subsidies. The above factors could also impact the ability of
climate tech companies to pay dividends comparable to those paid by other
technology companies.
The
Fund’s performance relative to the market also may be impacted by whether the
climate tech sector is out of favor with investors. Similarly, the Fund’s
exclusion of investments in companies other than climate tech companies may
adversely affect the Fund’s relative performance at times when those other types
of investments are performing well.
Counterparty Risk: The Fund may engage in
transactions in securities and financial instruments that involve
counterparties. Counterparty risk is the risk that 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. In an attempt to limit the counterparty risk associated with such
transactions, the Fund conducts business only with financial institutions judged
by the Adviser to present acceptable credit risk. For example, repurchase
agreements are loans of money or arrangements under which the Fund purchases
securities and the seller agrees to repurchase the securities within a specific
time and at a specific price. The repurchase price is generally higher than the
Fund’s purchase price, with the difference being income to the Fund.
The
counterparty’s obligations under the repurchase agreement are collateralized
with U.S. Treasury and/or agency obligations with a market value of not less
than 100% of the obligations, valued daily. Collateral is held by the Fund’s
custodian in a segregated, safekeeping account for the
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benefit
of the Fund. Repurchase agreements afford the Fund an opportunity to earn income
at low risk on temporarily available cash. If bankruptcy or insolvency
proceedings commence with respect to the seller of the securities before
repurchase of the securities under a repurchase agreement, the Fund may
encounter delays and incur costs before being able to sell the securities. Such
a delay may involve loss of interest or a decline in price of the securities. If
a court characterizes the transaction as a loan and the Fund has not perfected a
security interest in the securities, the Fund may be required to return the
securities to the seller’s estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
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. Even within
securities considered investment grade, differences exist in credit quality and
some investment-grade debt securities may have speculative characteristics. A
security’s price may be adversely affected by the market’s perception of the
security’s credit quality level even if the issuer or counterparty has suffered
no degradation in its ability to honor the obligation.
Credit
risk varies depending upon whether the issuers of the securities are
corporations or domestic or foreign governments or their sub-divisions or
instrumentalities and whether the particular note or other instrument held by
the Fund has a priority in payment of principal and interest. U.S. government
securities are subject to varying degrees of credit risk depending upon whether
the securities are supported by the full faith and credit of the United States,
supported by the ability to borrow from the U.S. Treasury, supported only by the
credit of the issuing U.S. government agency, instrumentality, or corporation,
or otherwise supported by the United States. Obligations issued by U.S.
government agencies, authorities, instrumentalities or sponsored enterprises,
such as Government National Mortgage Association, are backed by the full faith
and credit of the U.S. Treasury, while obligations issued by others, such as
Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage
Corporation (Freddie Mac) and Federal Home Loan Banks (FHLBs), are backed solely
by the ability of the entity to borrow from the U.S. Treasury or by the entity’s
own resources. No assurance can be given that the U.S. government would provide
financial support to U.S. government agencies, authorities, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
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 the 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.
Debt Securities Risk: The value of a debt
security (and other income-producing securities, such as preferred stocks,
convertible preferred stocks, equity-linked notes, and interests in
income-producing trusts) changes in response to interest rate changes. In
general, the value of a debt security is likely to fall as interest rates rise.
This risk is generally greater for obligations with longer maturities or for
debt securities that do not pay current interest (such as zero-coupon
securities). Debt securities with floating interest rates can be less sensitive
to interest rate changes, although, to the extent the Fund’s income is based on
short-term interest rates that fluctuate over short periods of time, income
received by the Fund may decrease as a result of a decline in interest rates. 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. In response to an interest rate
decline, debt securities that provide the issuer with the right to call or
redeem the security prior to maturity may be called or redeemed. If a debt
security is repaid more quickly than expected, the Fund may not be able to
reinvest the proceeds at the same interest rate, reducing the potential for
gain. When interest rates increase or for other reasons, debt securities may be
repaid more slowly than expected. As a result, the maturity of the debt
instrument is extended, increasing the potential for loss. In response to
certain economic conditions, including periods of high inflation, governmental
authorities and regulators may respond with significant fiscal and monetary
policy changes such as raising interest rates. A Fund may be subject to
heightened interest rate risk when the U.S. Federal Reserve (the “Fed”) raises
interest rates. Recent and potential future changes in government monetary
policy may affect interest rates. It is difficult to accurately predict the
timing, frequency or magnitude of potential interest rate increases or decreases
by the Fed, and the evaluation of macro-economic and other conditions could
cause a change in approach in the future. If the Fed and other central banks
increase the federal funds rate and equivalent rates, such increases generally
will cause market interest rates to rise, which will cause the value of a
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Fund’s
debt securities to fall. Rising market interest rates could have unpredictable
effects on the markets and may
expose
fixed-income and related markets to heightened volatility, which could reduce
liquidity for certain investments, adversely affect values, and increase costs.
Increased
redemptions may cause the Fund to liquidate portfolio positions when it may not
be advantageous to do so and may lower returns. If dealer capacity in
fixed-income and related markets is insufficient for market conditions, it may
further inhibit liquidity and increase volatility in the fixed- income and
related markets. Further, recent and potential future changes in government
policy may affect interest rates.
The
value of a debt security also depends on the issuer’s credit quality or ability
to pay principal and interest when due. The value of a debt security is likely
to fall if an issuer or the guarantor of a security is unable or unwilling (or
perceived to be unable or unwilling) to make timely principal and/or interest
payments or otherwise to honor its obligations, or if the debt security’s rating
is downgraded by a credit rating agency. The obligations of issuers (and
obligors of asset-backed securities) are subject to bankruptcy, insolvency, and
other laws affecting the rights and remedies of creditors. The value of a debt
security can also decline in response to other changes in market, economic,
industry, political, and regulatory conditions that affect a particular type of
debt security or issuer or debt securities generally. The values of many debt
securities may fall in response to a general increase in investor risk aversion
or a decline in the confidence of investors generally in the ability of issuers
to meet their obligations.
Derivatives Risk: The Fund may invest in
derivatives, which are financial contracts whose value depends on, or is derived
from, the value of underlying securities, commodities, currencies, indices, or
other assets or instruments, including other derivative contracts. The most
common types of derivatives are swaps, futures and options, and major asset
classes include interest rates, equities, commodities and foreign exchange.
Derivatives involve the risk that changes in their value may not move as
expected relative to the value of the assets, rates, or indices they are
designed to track.
There
are several risks associated with derivatives transactions. The use of
derivatives involves risks that are in addition to, and potentially greater
than, the risks of investing directly in securities and other more traditional
assets. A decision as to whether, when and how to use derivatives involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
use of derivative transactions may result in losses greater than if they had not
been used, may require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, may limit the
amount of appreciation the Fund can realize on an investment or may cause the
Fund to hold a security that it might otherwise sell. The Fund may enter into
credit derivatives, such as credit default swaps and credit default index
investments, including loan credit default swaps and loan credit default index
swaps. The use by the Fund of credit default swaps may have the effect of
creating a short position in a security. These investments can create investment
leverage and may create additional investment risks that may subject the Fund to
greater volatility than investments in more traditional securities. Derivative
contracts may expire worthless.
The
Fund may invest in derivatives with a limited number of counterparties, and
events affecting the creditworthiness of any of those counterparties may have a
pronounced effect on the Fund. Derivatives risk is particularly acute in
environments (like those of 2008) in which financial services firms are exposed
to systemic risks of the type evidenced by the insolvency of Lehman Brothers and
subsequent market disruptions. In addition, during those periods, the Fund may
have a greater need for cash to provide collateral for large swings in its
mark-to-market obligations under the derivatives in which it has invested.
The
Fund’s use of derivatives may not be effective or have the desired results.
Moreover, suitable derivatives will not be available in all circumstances. For
example, the economic costs of taking some derivative positions may be
prohibitive, and if a counterparty or its affiliate is deemed to be an affiliate
of the Fund, the Fund will not be permitted to trade with that counterparty. In
addition, the Adviser may decide not to use derivatives to hedge or otherwise
reduce the Fund’s risk exposures, potentially resulting in losses for the Fund.
Swap
contracts and other OTC derivatives are highly susceptible to liquidity risk
(see “Illiquid and Restricted Securities Risk”) and counterparty risk (see
“Counterparty Risk”), and are subject to documentation risks. Because many
derivatives have a leverage component (i.e., a notional value in excess of the assets
needed to establish and/or maintain the derivative position), adverse changes in
the value or level of the underlying asset, rate or index may result in a loss
substantially greater than the amount invested in the derivative itself. See
“Leverage Risk” below.
Derivatives
also present other risks described in this section, including securities market
risk, illiquid and restricted securities risk, currency risk, credit risk, and
counterparty risk. Special tax considerations apply to the Fund’s use of
derivatives. See the “Taxation” section below.
In
accordance with rules and regulations enacted by the Commodity Futures Trading
Commission (the “CFTC”) under
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the
Dodd-Frank Wall Street Reform and Consumer Protection
Act
(the “Dodd-Frank Act”), transactions in some types of swaps (including certain
classes of interest rate swaps and credit default swaps) are required to be
centrally cleared (“cleared derivatives”), through a central clearinghouse known
as a derivatives clearing organization, however, the CFTC is expected to impose
a mandatory central clearing requirement for additional derivative instruments
over time. In a transaction involving cleared derivatives, a Fund’s counterparty
is a clearing house, rather than a bank or broker. To clear a swap through a
derivatives clearing organization, the Fund will submit the contract to, and
post margin with, a futures commission merchant (FCM) that is a clearinghouse
member. The Fund may enter into the swap with a counterparty other than the FCM
and arrange for the contract to be transferred to the FCM for clearing, or enter
into the contract with the FCM itself. If the Fund must centrally clear a
transaction, the CFTC’s regulations also generally require that the swap be
executed on a registered exchange (either a designated contract market or swap
execution facility).
In
many ways, cleared derivative arrangements are less favorable to mutual funds
than bilateral arrangements. For example, the Fund may be required to provide
more margin for cleared derivatives transactions than for bilateral derivatives
transactions. Also, in contrast to a bilateral derivatives transaction,
following a period of notice to the Fund, a clearing member generally can
require termination of an existing cleared derivatives transaction at any time
or an increase in margin requirements above the margin that the clearing member
required at the beginning of a transaction. Clearing houses also have broad
rights to increase margin requirements for existing transactions or to terminate
those transactions at any time. Any increase in margin requirements or
termination of existing cleared derivatives transactions by the clearing member
or the clearing house could interfere with the ability of the Fund to pursue its
investment strategy. Further, any increase in margin requirements by a clearing
member could expose the Fund to greater credit risk to its clearing member,
because margin for cleared derivatives transactions in excess of a clearing
house’s margin requirements typically is held by the clearing member. Also, the
Fund is subject to risk if it enters into a derivatives transaction that is
required to be cleared (or that the Adviser expects to be cleared), and no
clearing member is willing or able to clear the transaction on the Fund’s
behalf. In those cases, the transaction might have to be terminated, and the
Fund could lose some or all of the benefit of the transaction, including loss of
an increase in the value of the transaction and/or loss of hedging protection.
In addition, the
documentation
governing the relationship between the Fund
and
clearing members is drafted by the clearing members and generally is less
favorable to the Fund than typical bilateral derivatives documentation. For
example, documentation relating to cleared derivatives generally includes a
one-way indemnity by the Fund in favor of the clearing member for losses the
clearing member incurs as the Fund’s clearing member and typically does not
provide the Fund any remedies if the clearing member defaults or becomes
insolvent.
While
futures contracts entail similar risks, the risks likely are more pronounced for
cleared swaps due to their more limited liquidity and market history.
As
noted above, some types of cleared derivatives are required to be executed on an
exchange or on a swap execution facility. A swap execution facility is a trading
platform where multiple market participants can execute derivatives by accepting
bids and offers made by multiple other participants in the platform. While this
execution requirement is designed to increase transparency and liquidity in the
cleared derivatives market, trading on a swap execution facility can create
additional costs and risks for the Fund. For example, swap execution facilities
typically charge fees, and if the Fund executes derivatives on a swap execution
facility through a broker intermediary, the intermediary may impose fees as
well. Also, the Fund may indemnify a swap execution facility, or a broker
intermediary who executes cleared derivatives on a swap execution facility on
the Fund’s behalf, against any losses or costs that may be incurred as a result
of the Fund’s transactions on the swap execution facility.
These
and other new rules and regulations could, among other things, further restrict
the Fund’s ability to engage in, or increase the cost to the Fund of,
derivatives transactions, for example, by making some types of derivatives no
longer available to the Fund, increasing margin or capital requirements, or
otherwise limiting liquidity or increasing transaction costs. At this point in
time, most of the Dodd-Frank Act has been fully implemented, though a small
number of remaining rulemakings are unfinished or are subject to further final
rule making or phase in periods. Any future regulatory or legislative activity
would not necessarily have a direct, immediate effect upon the Fund, though it
is within the realm of possibility that, upon implementation of these measures
or any future measures, they could potentially limit or completely restrict the
ability of the Fund to use these instruments as a part of its investment
strategy, increase the costs of using these instruments or make them less
effective. While the new regulations and central clearing of some derivatives
transactions are designed to reduce systemic risk (i.e., the risk that the
interdependence of large derivatives dealers could cause them to suffer
liquidity, solvency or other challenges simultaneously), there is no assurance
that the new clearing mechanisms will achieve that
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result,
and in the meantime, as noted above, central clearing and related requirements
expose the Fund to new kinds of risks and costs.
In
particular, on October 28, 2020, the SEC adopted new regulations governing
the use of derivatives by registered investment companies (“Rule 18f-4” or the
“Derivatives Rule”). Funds were required to implement and comply with Rule18f-4
by August 19, 2022. Rule 18f-4 eliminates the asset segregation framework
formerly used by funds to comply with Section 18 of the 1940 Act, as
amended.
The
Derivatives Rule mandates that a fund adopt and/or implement:
(i) value-at-risk limitations (VaR); (ii) a written derivatives risk
management program; (iii) new Board oversight responsibilities; and
(iv) new reporting and recordkeeping requirements. In the event that a
fund’s derivative exposure is 10% or less of its net assets, excluding certain
currency and interest rate hedging transactions, it can elect to be classified
as a limited derivatives user (Limited Derivatives User) under the Derivatives
Rule, in which case the fund is not subject to the full requirements of the
Derivatives Rule. Limited Derivatives Users are excepted from VaR testing,
implementing a derivatives risk management program, and certain Board oversight
and reporting requirements mandated by the Derivatives Rule. However, a Limited
Derivatives User is still required to implement written compliance policies and
procedures reasonably designed to manage its derivatives risks.
The
Derivatives Rule also provides special treatment for reverse repurchase
agreements, similar financing transactions and unfunded commitment agreements.
Specifically, a fund may elect whether to treat reverse repurchase agreements
and similar financing transactions as “derivatives transactions” subject to the
requirements of the Derivatives Rule or as senior securities equivalent to bank
borrowings for purposes of Section 18 of the Investment Company Act of
1940. In addition, when-issued or forward settling securities transactions that
physically settle within 35-days are deemed not to involve a senior security.
Additional
legislation may be enacted subsequent to the date of this Prospectus that could
negatively affect the assets of the Fund. Legislation or regulation may change
the way in which the Fund itself is regulated. The Adviser cannot predict the
effects of any new governmental regulation that may be implemented, and there
can be no assurance that any new governmental regulation will not adversely
affect the Fund’s performance or ability to achieve its investment objectives.
In
addition, regulations adopted by the prudential regulators that took effect with
regards to most funds in 2019 require certain banks to include in a range of
financial contracts, including derivative and short-term funding transactions,
terms delaying or restricting a counterparty’s default, termination and other
rights in the event that the bank and/ or its affiliates become subject to
certain types of resolution or insolvency proceedings. The regulations could
limit the Fund’s ability to exercise a range of cross-default rights if it’s
counterparty, or an affiliate of the counterparty, is subject to bankruptcy or
similar proceedings. Such regulations could further negatively impact the Fund’s
use of derivatives.
Equity Securities Risk: The market prices of
equity securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably. The value of a security may decline for a number of reasons that
may directly relate to the issuer, such as management performance, fundamental
changes to the business, financial leverage, non-compliance with regulatory
requirements and reduced demand for the issuer’s goods or services. The values
of equity securities also may decline due to general market conditions that are
not specifically related to a particular company, such as real or perceived
adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates, unexpected trading activity
among retail investors or adverse investor sentiment generally. Certain equity
securities may decline in value even during periods when the prices of equity
securities in general are rising, or may not perform as well as the market in
general. 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. In addition, a company’s preferred stock generally pays
dividends only after the company makes required payments to holders of its bonds
and other debt. For this reason, the value of preferred stock will usually react
more strongly than bonds and other debt to actual or perceived changes in the
company’s financial condition or prospects. The market value of convertible
securities also tends to fall when prevailing interest rates rise.
Exchange-Traded Funds (“ETF”) Risk: The risks
of owning shares of an ETF include the risks of owning the underlying securities
the ETF holds. Lack of liquidity in an ETF could result in the ETF being more
volatile than its underlying securities. The value of ETFs can be expected to
increase and decrease in value in proportion to increases and decreases in the
indices that they are designed to track. The volatility of different index
tracking stocks can be expected to vary in proportion to the volatility of the
particular index they track.
ETFs
are traded similarly to stocks of individual companies. Although an ETF is
designed to provide investment performance corresponding to its index, it may
not be able to exactly replicate the performance of its index because of its
operating expenses and other factors.
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Focused Investment Risk: Funds whose
investments are focused in particular countries, regions, sectors, companies, or
industries with high positive correlations to one another (e.g., different industries within broad
sectors, such as technology or financial services), or in securities from
issuers with high positive correlations to one another, are subject to greater
overall risk than funds whose investments are more diversified. A fund that
focuses its investments in a particular type of security or sector, or in
securities of companies in a particular industry, is vulnerable to events
affecting those securities, sectors, or companies. Securities, sectors, or
companies that share common characteristics are often subject to similar
business risks and regulatory burdens, and often react similarly to specific
economic, market, political or other developments.
Although
the Fund is a diversified Fund, it may invest in securities of a limited number
of issuers in an effort to achieve a potentially greater investment return than
a fund that invests in a larger number of issuers. A fund that invests a
significant portion of its assets in a relatively small number of securities may
have more risk because changes in the value of a single security or the impact
of a single economic, political or regulatory occurrence may have a great
adverse impact on the fund’s net asset value.
Foreign Custody Risk: The risk associated with
foreign securities and cash of the Fund being held with foreign banks, agents,
and securities depositories appointed by the Fund’s custodian (each a “Foreign
Custodian”). Some Foreign Custodians may be recently organized or new to the
foreign custody business. In some countries, Foreign Custodians may be subject
to little or no regulatory oversight over or independent evaluation of their
operations. Further, the laws of certain countries may place limitations on the
Fund’s ability to recover its assets if a Foreign Custodian enters bankruptcy.
Investments in emerging markets may be subject to even greater custody risks
than investments in more developed markets. Custody services in emerging market
countries are very often undeveloped and may be considerably less well-regulated
than in more developed countries, and thus may not afford the same level of
investor protection as would apply in developed countries.
Hedging Risk: There are several risks in
connection with the use by the Fund of futures contracts and related options as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and options and movements in
the underlying securities or index or movements in the prices of the Fund’s
securities which are the subject of a hedge. The Adviser will, however, attempt
to reduce this risk by purchasing and selling, to the extent possible, futures
contracts and related options on securities and indices the movements of which
will, in its judgment, correlate closely with movements in the prices of the
underlying securities or index and the Fund’s portfolio securities sought to be
hedged. Successful use of futures contracts and options by the Fund for hedging
purposes is also subject to the Adviser’s ability to predict correctly movements
in the direction of the market. It is possible that, where the Fund has
purchased puts on futures contracts to hedge its portfolio against a decline in
the market, the securities or index on which the puts are purchased may increase
in value and the value of securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the puts and also experience a decline in
the value of its portfolio securities. In addition, the prices of futures, for a
number of reasons, may not correlate perfectly with movements in the underlying
securities or index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
security or index and futures markets. Second, the margin requirements in the
futures markets are less onerous than margin requirements in the securities
markets in general, and as a result the futures markets may attract more
speculators than the securities markets do. Increased participation by
speculators in the futures markets may also cause temporary price distortions.
Due to the possibility of price distortion, even a correct forecast of general
market trends by the Adviser still may not result in a successful hedging
transaction over a very short time period. In addition, to maintain margin
requirements, the Fund may have to sell portfolio securities at disadvantageous
prices or times because it may not be possible to liquidate a position at a
reasonable price. The earmarking of such assets also will have the effect of
limiting the Fund’s ability otherwise to invest those assets. Special tax
considerations apply to the Fund’s hedging transactions. See the “Taxation”
section below.
Illiquid and Restricted Securities Risk:
Illiquid investments may be difficult to resell or dispose of in seven
calendar days or less without the sale or disposition significantly changing the
market value of the investment. When investments cannot be sold readily at the
desired time or price, the Fund may have to accept a much lower price, may not
be able to sell the investment at all or may be forced to forego other
investment opportunities, all of which may adversely impact the Fund’s returns.
Illiquid investments also may be subject to valuation risk. Restricted
securities (including Rule 144A securities) may be subject to legal restraints
on resale and, therefore, are typically less liquid than other securities. The
prices received from selling restricted securities in privately negotiated
transactions may be less than those originally paid by the Fund. Investors in
restricted securities may not benefit from the same investor protections as
publicly traded securities.
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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
fixed-rate portfolio securities can be expected to decline. To the extent the
Fund invests in fixed-rate debt securities with longer maturities, the Fund is
subject to greater interest rate risk than funds investing solely in
shorter-term fixed-rate debt securities. 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. In a period of rising interest rates, the higher cost of any leverage
employed by the Fund and/or increasing defaults by issuers of high-yield
securities would likely exacerbate any decline in the Fund’s NAV. If an issuer
of a debt security containing a redemption or call provision exercises either
provision in a declining interest rate market, the Fund would likely replace the
security with a security having a lower interest rate, which could result in a
decreased return for shareholders.
Duration
is a measure used to determine the sensitivity of a security’s price to changes
in interest rates that incorporates a security’s yield, coupon, final maturity
and call features, among other characteristics. Duration is useful primarily as
a measure of the sensitivity of a fixed income security’s market price to
interest rate (i.e. yield) movements. All other things remaining equal, for each
one percentage point increase in interest rates, the value of a portfolio of
fixed income investments would generally be expected to decline by one percent
for every year of the portfolio’s average duration above zero. For example, the
value of a portfolio of fixed income securities with an average duration of
three years would generally be expected to decline by approximately 3% if
interest rates rose by one percentage point.
Legislation Risk: To the extent that state,
federal or international regulators impose additional requirements or
restrictions with respect to the MLPs, the availability of MLP investments for
the Fund may be adversely affected. Such requirements or restrictions may reduce
or eliminate sources of financing for affected borrowers. Further, to the extent
that legislation or federal or state regulators require such institutions to
dispose of debt securities relating to highly leveraged transactions or subject
such securities to increased regulatory scrutiny, such financial institutions
may determine to sell debt securities in a manner that results in a price that,
in the opinion of the Adviser is not indicative of fair value. Were the Fund to
attempt to sell a securities at a time when a financial institution was engaging
in such a sale with respect to the securities, the price at which the Fund could
consummate such a sale might be adversely affected.
Leverage Risk: When deemed appropriate by the
Adviser and subject to applicable regulations, 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 giving
the purchaser full exposure to movement in the price of those 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. The level of interest rates generally, and the rates at
which such funds may be borrowed in particular, could affect the operating
results of the Fund. 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.
If
the amount of borrowings that the Fund may have outstanding at any one time is
large in relation to its capital, fluctuations in the market value of the Fund’s
portfolio will have disproportionately large effects in relation to the Fund’s
capital and the possibilities for profit and the risk of loss will therefore be
increased. Any investment gains made with the additional monies borrowed will
generally cause the NAV of the Fund to rise more rapidly than would otherwise be
the case. Conversely, if the investment performance of the investments acquired
with borrowed money fails to cover their cost to the Fund, the NAV of the Fund
will generally decline faster than would otherwise be the case. If the Fund
employs leverage, the Adviser will benefit because the Fund’s Average Daily
Managed Assets, as defined below, will increase with leverage and the Adviser is
compensated based on a percentage of Average Daily Managed Assets.
Under
the terms of any credit facility, the Fund may be required to, among other
things, pledge some or all of its assets, limit its ability to pay distributions
in certain circumstances, incur additional debts and engage in certain
transactions. Such agreements could limit the Fund’s ability to pursue its
investment strategies. The terms of any credit facility may be more restrictive
than those described.
Management Risk: The Fund is subject to
management risk because it relies on the Adviser’s ability to achieve its
investment objective. The Fund runs the risk that the Adviser’s investment
techniques will fail to produce desired results and cause the Fund to incur
significant losses. The Adviser also may fail to use derivatives effectively,
choosing to hedge or not to hedge positions at disadvantageous times. In
addition, if one or more key individuals leave, the Adviser may not be able to
hire qualified replacements or may require an extended time to do so. This
situation could prevent the Fund from achieving its investment objectives. The
Fund’s portfolio managers use quantitative analyses and/
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or
models. Any imperfections or limitations in such analyses and models could
affect the ability of the portfolio managers to implement strategies. By
necessity, these analyses and models make simplifying assumptions that limit
their efficacy. Models that appear to explain prior market data can fail to
predict future market events. Further, the data used in models may be inaccurate
and/or it may not include the most recent information about a company or a
security.
Mid-Cap Company Risk: Investments in
securities of mid-cap companies entail greater risks than investments in larger,
more established companies. Mid-cap companies tend to have more narrow product
lines, more limited financial resources and a more limited trading market for
their stocks, as compared with larger companies. As a result, their stock prices
may decline significantly as market conditions change.
MLP Risk: The Fund may invest in MLP units. An
investment in MLP units involves some risks which differ from Equity Securities
Risk. Holders of MLP units have limited control and voting rights on matters
affecting the partnership. Holders of units issued by an MLP are exposed to a
remote possibility of liability for all of the obligations of that MLP in the
event that a court determines that the rights of the holders of MLP units to
vote to remove or replace the general partner of that MLP, to approve amendments
to that MLP’s partnership agreement, or to take other action under the
partnership agreement of that MLP would constitute “control” of the business of
that MLP, or a court or governmental agency determines that the MLP is
conducting business in a state without complying with the partnership statute of
that state. Holders of MLP units are also exposed to the risk that they will be
required to repay amounts to the MLP that are wrongfully distributed to them.
MLP Tax Risk: If an MLP does not meet current
legal requirements to maintain its partnership status, or if it is unable to do
so because of tax or other law changes, it would be treated as a corporation for
U.S. federal income tax purposes. In that case, the MLP would be obligated to
pay U.S. federal income tax (as well as state and local taxes) at the entity
level on its taxable income and distributions received by the Fund would be
taxable to the Fund as dividend income to the extent of the MLP’s current and
accumulated earnings and profits for federal tax purposes. In addition, any
distributions that the Fund receives from an MLP that were treated as dividends
in the hands of the Fund could materially affect the tax character of the Fund’s
distributions to shareholders. See “Distributions” and “Taxation” below.
Moreover, in the case of an MLP treated as a corporation for U.S. federal income
tax purposes, any items of loss or deduction in excess of such MLP’s items of
income or gain would not be treated as incurred directly by the Fund and would
be permitted to be used only by such MLP. Therefore, in general, the
classification of a MLP as a corporation for U.S. federal income tax purposes
could adversely affect the Fund and its shareholders, including by
(i) reducing the amount of cash available for distribution by the MLP to
the Fund and, in turn, for distribution by the Fund to the Fund’s shareholders
and (ii) reducing the value of the Fund’s investment in any such MLP and,
in turn, the value of the Fund’s shares.
Non-U.S. Securities Risk: Investing in non-U.S.
securities involves additional and more varied risks than investing in U.S.
investments, including, but not limited to: fluctuations in foreign exchange
rates (for non-U.S. securities not denominated in U.S. dollars); 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.
Uncertainties
surrounding the sovereign debt of a number of European Union (EU) countries and
the viability of the EU have disrupted and may in the future disrupt markets in
the United States and around the world. If one or more countries leave the EU or
the EU dissolves, the global securities markets likely will be significantly
disrupted. On January 31, 2020, the United Kingdom (UK) left the EU,
commonly referred to as “Brexit,” the UK ceased to be a member of the EU and the
UK and EU entered into a Trade and Cooperation Agreement.
While
the full impact of Brexit is unknown, Brexit has already resulted in volatility
in European and global markets. There remains significant market uncertainty
regarding Brexit’s ramifications, and the range and potential implications of
possible political, regulatory, economic, and market outcomes are difficult to
predict.
There
is significant market uncertainty regarding Brexit’s ramifications, and the
range and potential implications of possible political, regulatory, economic,
and market outcomes are difficult to predict. Political and military events,
including in Russia, North Korea, Venezuela, Iran, Ukraine, Syria, and other
areas of the Middle East, and nationalist unrest in Europe and South America,
also may cause market disruptions.
As
a result of continued political tensions and armed conflicts, including the
Russian invasion of Ukraine commencing in February of 2022, the extent and
ultimate result of which are unknown at this time, the United States and the EU,
along with the regulatory bodies of a number of countries, have imposed economic
sanctions on certain
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Russian
corporate entities and individuals, and certain sectors of Russia’s economy,
which may result in, among other things, the continued devaluation of Russian
currency, a downgrade in the country’s credit rating, and/or a decline in the
value and liquidity of Russian securities, property or interests. These
sanctions could also result in the immediate freeze of Russian securities and/or
funds invested in prohibited assets, impairing the ability of a Fund to buy,
sell, receive or deliver those securities and/or assets. These sanctions or the
threat of additional sanctions could also result in Russia taking counter
measures or retaliatory actions, which may further impair the value and
liquidity of Russian securities. The United States and other nations or
international organizations may also impose additional economic sanctions or
take other actions that may adversely affect Russia-exposed issuers and
companies in various sectors of the Russian economy. Any or all of these
potential results could lead Russia’s economy into a recession. Economic
sanctions and other actions against Russian institutions, companies, and
individuals resulting from the ongoing conflict may also have a substantial
negative impact on other economies and securities markets both regionally and
globally, as well as on companies with operations in the conflict region, the
extent to which is unknown at this time. The United States and the EU have also
imposed similar sanctions on Belarus for its support of Russia’s invasion of
Ukraine. Additional sanctions may be imposed on Belarus and other countries that
support Russia. Any such sanctions could present substantially similar risks as
those resulting from the sanctions imposed on Russia, including substantial
negative impacts on the regional and global economies and securities markets.
Because
non-U.S. issuers are not generally subject to uniform accounting, auditing and
financial reporting standards and practices comparable to those applicable to
U.S. issuers, there may be less publicly available information about certain
non-U.S. issuers than about U.S. issuers. Evidence of securities ownership may
be uncertain in many foreign countries. Securities of non-U.S. issuers are
generally less liquid than securities of comparable U.S. issuers. In certain
countries, there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the U.S. In addition, with
respect to certain foreign countries, especially emerging market countries,
there is the possibility of expropriation or confiscatory taxation, political or
social instability, war, terrorism, nationalization, limitations on the removal
of funds or other assets or diplomatic developments which could affect U.S.
investments in those countries. Commissions (and other transaction costs) for
non-U.S. securities are generally higher than those on U.S. securities. In
addition, it is expected that the expenses for custodian arrangements of the
Fund’s non-U.S. securities will be somewhat greater than the expenses for a fund
that invests primarily in domestic securities. Certain investments in non-U.S.
securities may also be subject to foreign withholding and other taxes on
interest, dividends, capital gains or other income or proceeds. Those taxes will
reduce the Fund’s yield on any such securities.
The
value of the non-U.S. securities held by the Fund that are not U.S.
dollar-denominated may be significantly affected by changes in currency exchange
rates. The U.S. dollar value of a foreign denominated non-U.S. security
generally decreases when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the U.S. dollar falls against such currency. Currencies of certain
countries may be volatile and therefore may affect the value of securities
denominated in such currencies, which means that the Fund’s NAV or current
income could decline as a result of changes in the exchange rates between
foreign currencies and the U.S. dollar. In addition, the value of the Fund’s
assets may be affected by losses and other expenses incurred in converting
between various currencies in order to purchase and sell foreign denominated
non-U.S. securities, and by currency restrictions, exchange control regulation,
currency devaluations and political and economic developments. The foregoing
risks often are heightened for investments in smaller, emerging capital markets.
In addition, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, capital reinvestment, resources, self-sufficiency and
balance of payments position. Governmental actions may also have a significant
effect on the economic conditions in emerging market countries, which may
adversely affect the value and liquidity of the Fund’s investments. In
particular, trade disputes may result in governmental actions that could have an
adverse effect on investments in emerging market countries, including but not
limited to restrictions on investments in particular companies.
As
a result of these potential risks, the Adviser may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including the Adviser have had
no or limited prior experience.
Depositary
receipts are subject to most of the risks associated with investing in non-U.S.
securities directly because the value of a depositary receipt is dependent upon
the market price of the underlying non-U.S. equity security. Depositary receipts
are also subject to liquidity risk. Additionally, the Holding Foreign Companies
Accountable Act (“HFCAA”) could cause securities of non-U.S. companies,
including American depositary receipts, to be delisted from U.S. stock exchanges
if the companies do not allow the U.S. government to oversee
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Funds II Prospectus
the
auditing of their financial information. Although the requirements of the HFCAA
apply to securities of all non-U.S. issuers, the SEC has thus far limited its
enforcement efforts to securities of Chinese companies. If securities are
delisted, a Fund’s ability to transact in such securities will be impaired, and
the liquidity and market price of the securities may decline. A Fund may also
need to seek other markets in which to transact in such securities, which could
increase the Fund’s costs.
Operational and Technology Risk: The Fund,
their service providers, and other market participants increasingly depend on
complex information technology and communications systems to conduct business
functions. These systems are subject to a number of different threats or risks
that could adversely affect the Fund and its shareholders, despite the efforts
of the Fund and its service providers to adopt technologies, processes, and
practices intended to mitigate these risks.
For
example, unauthorized third parties may attempt to improperly access, modify,
disrupt the operations of, or prevent access to these systems of the Fund, the
Fund’s service providers, counterparties, or other market participants or data
within them (a “cyber-attack”). Power or communications outages, acts of god,
information technology equipment malfunctions, operational errors, and
inaccuracies within software or data processing systems may also disrupt
business operations or impact critical data. Market events also may trigger a
volume of transactions that overloads current information technology and
communication systems and processes, impacting the ability to conduct the Fund’s
operations.
Cyber-attacks,
disruptions, or failures that affect the Fund’s service providers or
counterparties may adversely affect the Fund and their shareholders, including
by causing losses for the Fund or impairing Fund operations. For example, the
Fund or its service providers’ assets or sensitive or confidential information
may be misappropriated, data may be corrupted, and operations may be disrupted
(e.g., cyber- attacks or operational failures may cause the release of private
shareholder information or confidential Fund information, interfere with the
processing of shareholder transactions, impact the ability to calculate the
Fund’s NAV, and impede trading). In addition, cyber-attacks, disruptions, or
failures may cause reputational damage and subject the Fund or its service
providers to regulatory fines, litigation costs, penalties or financial losses,
reimbursement or other compensation costs, and/or additional compliance costs.
While the Fund and their service providers may establish business continuity and
other plans and processes to address the possibility of cyber-attacks,
disruptions, or failures, there are inherent limitations in such plans and
systems, including that they do not apply to third parties, such as other market
participants, as well as the possibility that certain risks have not been
identified or that unknown threats may emerge in the future.
Similar
types of operational and technology risks are also present for issuers of the
Fund’s investments, which could have material adverse consequences for such
issuers, and may cause the Fund’s investments to lose value. In addition,
cyber-attacks involving the Fund counterparty could affect such counterparty’s
ability to meet its obligations to the Fund, which may result in losses to the
Fund and its shareholders. Furthermore, as a result of cyber-attacks,
disruptions, or failures, an exchange or market may close or issue trading halts
on specific securities or the entire market, which may result in the Fund being,
among other things, unable to buy or sell certain securities or financial
instruments or unable to accurately price its investments. The Fund cannot
directly control any cybersecurity plans and systems put in place by its service
providers, Fund counterparties, issuers in which the Fund invests, or securities
markets and exchanges.
Options Risk: The use of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. 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 at the
exercise 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. Special tax rules apply to the Fund’s,
or an underlying fund’s, transactions in options, which could increase the
amount of taxes payable by shareholders. While a the Fund’s potential gain in
writing a covered put option is
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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. An
option that was fully covered at the time it was entered may be unwound and no
longer covered in reaction to market price movements if the Adviser believes
such action is in the best interests of the Fund.
A
Fund may also write uncovered call and put options. In the case of an uncovered
call option, there is a risk of unlimited loss. When an uncovered call is
exercised, a Fund must purchase the underlying instrument to meet its call
obligations and the necessary instruments may be unavailable for purchase. When
writing uncovered call options, a Fund must deposit and maintain sufficient
margin with the broker-dealer through which it made the uncovered call option as
collateral to ensure that the securities can be purchased for delivery if and
when the option is exercised.
Other Investment Companies Risk: To the extent
the Fund invests a portion of its assets in investment companies, including
open-end funds, closed-end funds, ETFs and other types of investment companies,
those assets will be subject to the risks of the purchased investment companies’
portfolio securities, and a shareholder in the Fund will bear not only his or
her proportionate share of the Fund’s expenses, but also indirectly the expenses
of the purchased investment companies. Risks associated with investments in
closed-end funds also generally include market risk, leverage risk, risk of
market price discount from NAV, risk of anti-takeover provisions and
non-diversification.
Portfolio Turnover Risk: A high rate of
portfolio turnover (i.e., 100% or
more) will result in increased transaction costs for the Fund in the form of
increased dealer spreads and brokerage commissions. Greater transaction costs
may reduce Fund performance. High portfolio turnover also may result in
increased realization of net short-term capital gains (which are taxable to
shareholders as ordinary income when distributed to them), higher taxable
distributions and lower the Fund’s after-tax performance. The Fund’s annual
portfolio turnover rate may vary greatly from year to year.
Real Estate Securities Risk: The securities of
issuers that own, construct, manage or sell residential, commercial or
industrial real estate are subject to risks in addition to those of other
issuers. Such risks include: changes in real estate values and property taxes,
overbuilding, variations in rental income, interest rates and changes in tax and
regulatory requirements, such as those relating to the environment. Performance
of a particular real estate security depends on the structure, cash flow and
management skill of the particular company.
Regulatory Risk: Legal, tax and regulatory
changes could occur and may adversely affect the Fund and its ability to pursue
its investment strategies and/or increase the costs of implementing such
strategies. New (or revised) laws or regulations may be imposed by the CFTC, the
SEC, the IRS, the Fed or other banking regulators, other governmental regulatory
authorities or self-regulatory organizations that supervise the financial
markets that could adversely affect the Fund. In particular, these agencies are
empowered to promulgate a variety of new rules pursuant to financial reform
legislation in the United States. The Fund also may be adversely affected by
changes in the enforcement or interpretation of existing statutes and rules by
these governmental regulatory authorities or self-regulatory organizations.
REIT-Specific Risk: Equity REITs may be
affected by changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Further, equity and mortgage REITs are dependent upon management skill and are
not diversified. Such trusts are also subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation, and the possibility of failing to
qualify for special tax treatment under Subchapter M of the Internal Revenue
Code of 1986, as amended (the “Code”) and to maintain an exemption under the
1940 Act. For example, because the Fund may acquire debt securities of issuers
primarily engaged in or related to the real estate industry, it also could
conceivably own real estate directly as a result of a default on such
securities. Any rental income or income from the disposition of such real estate
could adversely affect its ability to retain its tax status, which would have
adverse tax consequences on its shareholders. Finally, certain REITs may be
self-liquidating at the end of a specified term, and run the risk of liquidating
at an economically inopportune time.
Securities Lending Risk: The Fund will continue
to receive interest on any securities loaned while simultaneously earning
interest on the investment of the cash collateral in short-term money market
instruments. However, the Fund will normally pay lending fees to broker-dealers
and related expenses from the interest earned on such invested collateral. 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. There
may be risks of delay in receiving additional collateral or risks of delay in
recovery of the securities, loss of rights in the collateral should the borrower
of the securities fail financially and possible investment losses in the
investment of collateral. Any loan may be terminated by either party upon
reasonable notice to the other party.
Securities Market Risk: The value of securities
owned by the Fund may go up or down, sometimes rapidly or
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Funds II Prospectus
unpredictably,
due to factors affecting particular companies or the securities markets
generally. Economic, political and financial conditions, industry or economic
trends and developments or public health risks, such as epidemics or pandemics,
may, from time to time, and for varying periods of time, cause volatility,
illiquidity or other potentially adverse effects in the financial markets. The
profitability of the Fund substantially depends upon the Adviser’s ability to
correctly assess the future price movements of stocks, bonds, loans, options on
stocks, and other securities and the movements of interest rates. The Adviser
cannot guarantee that it will be successful in accurately predicting price
movements.
The
market prices of equities may decline for reasons that directly relate to the
issuing company (such as poor management performance or reduced demand for its
goods or services), factors that affect a particular industry (such as a decline
in demand, labor or raw material shortages, or increased production costs) or
general market conditions not specifically related to a company or industry
(such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates,
unexpected trading activity among retail investors or adverse investor sentiment
generally). See also “Debt Securities Risk” above.
As
a result of the nature of the Fund’s investment activities, it is possible that
the Fund’s financial performance may fluctuate substantially from period to
period. Additionally, at any point in time an investment in the Fund may be
worth less than the original investment, even after taking into account the
reinvestment of dividends and distributions.
In
addition, there is a risk that the prices of goods and services in the United
States and many foreign economies may decline over time, known as deflation.
Deflation may have an adverse effect on stock prices and creditworthiness and
may make defaults on debt more likely. If a country’s economy slips into a
deflationary pattern, it could last for a prolonged period and may be difficult
to reverse. Further, there is a risk that the present value of assets or income
from investments will be less in the future, known as inflation. Inflation rates
may change frequently and drastically as a result of various factors, including
unexpected shifts in the domestic or global economy, and a fund’s investments
may be affected, which may reduce a fund’s performance. Further, inflation may
lead to the rise in interest rates, which may negatively affect the value of
debt instruments held by the fund, resulting in a negative impact on a fund’s
performance. Generally, securities issued in emerging markets are subject to a
greater risk of inflationary or deflationary forces, and more developed markets
are better able to use monetary policy to normalize markets.
Short Sales Risk: Short sales by the Fund that
are not made “against-the-box” (that is when the Fund has an offsetting long
position in the asset that is selling short) involve unlimited loss potential
since the market price of securities sold short may continuously increase. When
the Fund engages in a short sale on a security, they must borrow the security
sold short and deliver it to the counterparty. The Fund will ordinarily have to
pay a fee or premium to borrow particular securities and be obligated to repay
the lender of the security any dividends or interest that accrue on the security
during the period of the loan. The amount of any gain from a short sale will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses the Fund pays in connection with the short sale.
Short selling allows the Fund to profit from declines in market prices to the
extent such decline exceeds the transaction costs and the 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 the
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 their short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet their 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 “shorts
squeeze” can occur where demand exceeds the supply for the security sold short.
A short squeeze makes it more likely that the company will need to replace the
borrowed security at an unfavorable price. See “Taxation” below for special tax
considerations associated with engaging in short sales.
Small-Cap Company Risk: Investing in
securities of small-cap companies may involve greater risks than investing in
larger, more established companies. Smaller companies may have limited product
lines, markets and financial resources. Their securities may trade less
frequently and in more limited volume than securities of larger, more
established companies. In addition, smaller companies are typically subject to
greater changes in earnings and business prospects than are larger companies.
Consequently, the prices of small company stocks tend to rise and fall in value
more than other stocks. Although investing in small-cap companies may offer
potential for above-average returns, the companies may not succeed and their
stock prices could decline significantly. Investments in small-cap companies may
also be subject to valuation risk.
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Style Risk: Securities with different
characteristics tend to shift in and out of favor depending upon market and
economic conditions as well as investor sentiment. The Fund may underperform
other funds that employ a different style. The Fund also may employ a
combination of styles that impact its risk characteristics. Examples of
different styles include growth and value investing, as well as those focusing
on large, medium, or small company securities.
| |
• |
|
Growth
Investing Risk: Growth stocks may be more volatile than
other stocks because they are more sensitive to investor perceptions of
the issuing company’s growth potential. Growth-oriented funds will
typically underperform when value investing is in favor.
|
| |
• |
|
Value Investing
Risk: Undervalued stocks may not realize their perceived
value for extended periods of time or may never realize their perceived
value. An undervalued stock may decrease in price or may not increase in
price as anticipated by the Adviser if other investors fail to recognize
the company’s value or the factors that the Adviser believes will cause
the stock price to increase do not occur. Value stocks may respond
differently to market and other developments than other types of stocks.
Value-oriented funds will typically underperform when growth investing is
in favor. |
Swaps Risk: The use of swaps is a highly
specialized activity which involves investment techniques, risk analyses and tax
planning different from those associated with ordinary portfolio securities
transactions. These transactions can result in sizeable realized and unrealized
capital gains and losses relative to the gains and losses from the Fund’s direct
investments in securities. Transactions in swaps can involve greater risks than
if the Fund had invested in the reference assets directly since, in addition to
general market risks, swaps may be leveraged and are also subject to illiquidity
risk, counterparty risk, credit risk and pricing risk. However, certain risks
may be reduced (but not eliminated) if the Fund invests in cleared swaps.
Regulators also may impose limits on an entity’s or group of entities’ positions
in certain swaps. Because bilateral swap agreements are two party contracts and
because they may have terms of greater than seven days, these swaps may be
considered to be illiquid. Moreover, the Fund bears the risk of loss of the
amount expected to be received under a swap in the event of the default or
bankruptcy of a swap counterparty. Many swaps are complex and valued
subjectively. Swaps and other derivatives may also be subject to pricing or
“basis” risk, which exists when the price of a particular derivative diverges
from the price of corresponding cash market instruments. Under certain market
conditions it may not be economically feasible to initiate a transaction or
liquidate a position in time to avoid a loss or take advantage of an
opportunity. If a swap
transaction
is particularly large or if the relevant market is illiquid, it may not be
possible to initiate a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses.
The
value of swaps can be very volatile, and a variance in the degree of volatility
or in the direction of securities prices from the Adviser’s expectations may
produce significant losses in the Fund’s investments in swaps. In addition, a
perfect correlation between a swap and a reference asset may be impossible to
achieve. As a result, the Adviser’s use of swaps may not be effective in
fulfilling the Adviser’s investment strategies and may contribute to losses that
would not have been incurred otherwise.
Valuation Risk: Portfolio securities may be
valued using techniques other than market quotations, under the circumstances
described under “Net Asset Value.” The value established for a portfolio
security may be different than what would be produced through the use of another
methodology or if it had been priced using market quotations. Portfolio
securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations
were used. In addition, there is no assurance that the Fund could sell a
portfolio security for the value established for it at any time and it is
possible that the Fund would incur a loss because a portfolio security is sold
at a discount to its established value.
Disclosure
of Portfolio Holdings
The
Fund has adopted policies and procedures to protect the Fund’s portfolio
information and to prevent the misuse of that information by a third party. A
description of the Fund’s policies and procedures relating to the disclosure of
portfolio holdings is available in the Fund’s SAI on the Fund’s website https://www.nexpoint.com/funds/climate-tech-fund/#forms.
Management
of the Fund
The
Fund is a party to contractual arrangements with various parties, including,
among others, the Fund’s investment adviser, administrator, distributor, and
shareholder servicing agent, who provide services to the Fund. Shareholders are
not parties to, or intended (“third-party”) beneficiaries of, any such
contractual arrangements, and such contractual arrangements are not intended to
create in any individual shareholder or group of shareholders any right to
enforce them against the service providers or to seek any remedy under them
against the service providers, either directly or on behalf of the Fund.
Neither
this Prospectus, nor the related SAI, is intended, or should be read, to be or
to give rise to an agreement or
24
NexPoint
Funds II Prospectus
contract
between NexPoint Funds II (the “Trust”) or the Fund and any investor, or to give
rise to any rights in any shareholder or other person other than any rights
under federal or state law that may not be waived.
Board of
Trustees and Adviser
The
Board of Trustees (the “Board”) has overall management responsibility for each
series of NexPoint Funds I and NexPoint Funds II, Highland Global Allocation
Fund and Highland Opportunities and Income Fund. See “Management of the Trust”
in the SAI for the names of and other information about the Trustees and
officers of the Fund. The Board also has overall management responsibility for
funds advised by NexPoint Advisors, L.P., including NexPoint Capital, Inc. (a
closed-end management investment company that has elected to be treated as a
business development company under the 1940 Act); and NexPoint Real Estate
Strategies Fund, a closed-end fund that operates as an interval fund. NexPoint
Advisors, L.P. is an affiliate of NexPoint Asset Management, L.P.
NexPoint
Asset Management, L.P. (“NexPoint” or the “Adviser”) serves as investment
adviser to the Fund. The address of the Adviser is 300 Crescent Court, Suite
700, Dallas, Texas 75201. Organized in February 2009, NexPoint is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended.
As
of December 31, 2024, NexPoint had approximately $2.5billion in assets
under management. NexPoint is owned by Highland Capital Management Services,
Inc., a Delaware corporation (“HCM Services”) and its general partner, Strand
Advisors XVI, Inc., of which James Dondero is the sole stockholder. HCM Services
is controlled by Mr. Dondero and Mr. Mark Okada by virtue of their
respective share ownership.
NexPoint
has entered into a Services Agreement (the “Services Agreement”) with Skyview
Group (“Skyview”) pursuant to which NexPoint will receive administrative and
operational support services to enable it to provide the required advisory
services to the Fund.
Certain
Skyview personnel are dual-employees of NexPoint Services, Inc., a wholly-owned
subsidiary of the Adviser. The same services are being performed by the
dual-employees. The Adviser, and not the Fund, will compensate all Adviser,
Skyview, and dual-employee personnel who provide services to the Fund.
Management
Fee
The
Fund has entered into an investment advisory agreement with NexPoint (each, an
“Investment Advisory Agreement”) pursuant to which NexPoint provides the
day-to-day management of the Fund’s portfolio of securities, which includes
buying and selling securities for the Fund and conducting investment research.
In
return for its advisory services, the Fund pays the 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 the Fund shall mean the
average daily value of the total assets of the Fund, less all accrued
liabilities of the Fund (other than the aggregate amount of any outstanding
borrowings constituting financial leverage).
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement for the Fund appears in the Fund’s annual report to
shareholders for the period ended September 30, 2024.
The
Investment Advisory Agreement may be terminated at any time, without payment of
any penalty, by the Board, or by vote of a majority of the outstanding voting
securities of the Fund or by the Adviser, in each case on not more than
60 days’ nor less than 30 days’ prior written notice to the other party. In
addition, each Investment Advisory Agreement automatically terminates in the
event of its “assignment”, as defined in the 1940 Act and the rules thereunder,
or upon the termination of the relevant Investment Advisory Agreement.
The
table below shows the advisory fees that the Adviser received for the Fund for
the fiscal year ended September 30, 2024 and the Fund’s contractual
advisory fee with the Adviser:
|
|
|
|
|
|
|
|
| |
| Fund |
|
Advisory Fees Paid as a
Percentage of Average
Daily
Managed Assets
for
the Fiscal Period
Ended September 30, 2024 |
|
|
Contractual Advisory
Fee as a Percentage of
Average
Daily
Managed
Assets |
|
|
NexPoint Climate
Tech Fund |
|
|
(3.53 |
)% |
|
|
0.95 |
% |
NexPoint
has contractually agreed to limit the total annual operating expenses (exclusive
of fees paid by the Fund pursuant to its distribution plan under Rule 12b-1
under the 1940 Act, taxes, such as deferred tax expenses, dividend expenses on
short sales, interest payments, brokerage commissions and other transaction
costs, acquired fund fees and expenses, and extraordinary expenses
(collectively, the “Excluded Expenses”)) of the Fund to 1.15% of average daily
net assets attributable to any class of such Fund, respectively (the “Expense
Cap”). The Expense Cap will continue through at least January 31, 2026, and
may not be terminated prior to this date without the action or consent of the
Board. Under the expense limitation agreement, the Adviser may recoup waived
and/or reimbursed amounts with respect to the Fund within thirty-six months of
the date such amounts were
25
Management
of the Fund
waived
or reimbursed, provided the Fund’s total annual operating expenses, including
such recoupment, do not exceed the Expense Cap in effect at the time of such
waiver/ reimbursement. Additionally, the Fund may invest in securities issued by
other investment companies and exchange-traded funds (“ETFs”) that are advised
by the Adviser or its affiliates, to the extent permitted by applicable law
and/or pursuant to exemptive relief from the SEC. Fees and expenses of such
investments will be borne by shareholders of the Fund. However, to avoid
charging duplicative fees, the Adviser will waive and/or reimburse the Fund’s
Management Fee with respect to the amount of its net assets invested in
underlying affiliated funds. The amount of this waiver will fluctuate depending
on the Fund’s daily allocations to underlying affiliated funds. For the fiscal
year ended September 30, 2024, the fund did not have any waivers for
affiliated fund investments . This affiliated fund fee waiver is expected to
remain in effect permanently, and it cannot be terminated without the approval
of the Fund’s Board of Trustees.
Administrator
On
behalf of the Fund, NexPoint Funds II has entered into an administration
agreement with SEI Global Funds Services (“SEI”), One Freedom Valley Drive,
Oaks, PA 19456, and pays SEI a monthly fee for administration services. NexPoint
generally
assists in all aspects of the Fund’s administration and operations and furnishes
offices, necessary facilities, equipment and personnel.
For
more information about the Fund’s administration agreements, please see
“Administrator” in the SAI.
Multi-Manager Structure
The
Trust and the Adviser qualify for exemptive relief under a multi-managers’
exemptive order (the “Order”) from certain provisions of the 1940 Act, pursuant
to which the Adviser will, subject to the oversight of the Board, be permitted
to enter into and materially amend sub-advisory agreements on behalf of the Fund
with sub-advisers unaffiliated with the Adviser without such agreements being
approved by the shareholders of the Fund (the “Multi-Manager Structure”). The
Board and the Adviser will therefore have the right to hire, terminate or
replace sub-advisers without first obtaining shareholder approval, including in
the event that a sub-advisory agreement has automatically terminated as a result
of an assignment. The Adviser will continue to have the ultimate responsibility
to oversee each sub-adviser and recommend its hiring, termination and
replacement. Shareholders of the NexPoint Climate Tech Fund have already
approved the adoption of a Multi- Manager Structure, which enables the Fund to
operate with greater efficiency and without incurring the expense and delays
associated with obtaining shareholder approvals for matters relating to
sub-advisers or sub-advisory agreements.
The
Trust and the Adviser will be subject to certain conditions imposed by the
Order, including the condition that within 90 days of hiring of a new
non-affiliated sub-adviser, the Fund will provide shareholders with an
information statement containing information about the sub-adviser. Shareholders
of the Fund retain the right to terminate a sub-advisory agreement for the Fund
at any time by a vote of the majority of such outstanding securities of the
Fund.
Operation
of the Fund under the Multi-Manager Structure will not: (1) permit
management fees paid by the Fund to NexPoint to be increased without shareholder
approval; or (2) diminish NexPoint’s responsibilities to the Fund,
including NexPoint’s overall responsibility for overseeing the portfolio
management services furnished by its sub-advisers. Shareholders will be notified
of any changes made to sub-advisers or sub-advisory agreements within 90 days of
the change.
About the
Fund’s Portfolio Managers
The
Fund is managed by a team of portfolio managers, who are jointly and primarily
responsible for the day-to-day management of the Fund. The portfolio managers of
the Fund generally have final authority over all aspects of their portions of
the Fund’s investment portfolio, including securities purchase and sale
decisions, portfolio construction techniques and portfolio risk assessment. The
following sets forth the roles of the primary portfolio managers of the Fund
followed by biographical information for each portfolio manager. The Fund’s SAI
provides the following additional information about the:
(i)
portfolio managers’ compensation; (ii) other accounts managed by the
portfolio managers; and (ii) portfolio managers’ ownership of shares of the
Fund, if any.
Portfolio
Management Team
NexPoint Climate Tech Fund is managed by James
Dondero and Scott Johnson.
Portfolio
Manager Biographies
The
following sets forth biographical information for the individuals who are
primarily responsible for managing the Fund’s investments. The portfolio
managers may change from time to time.
James Dondero is the founder of NexPoint, a
leading alternative investment group comprised of a set of investment advisers
and sponsors, a broker-dealer, and a suite of related investment vehicles.
NexPoint specializes in real estate ventures, with offerings in public and
private real estate investment trusts (REITs), tax advantaged real estate
26
NexPoint
Funds II Prospectus
vehicles,
closed-end funds, interval funds, and other real estate-focused investment
solutions. Mr. Dondero holds various leadership roles across the NexPoint
businesses; he serves as a portfolio manager for several funds and is an officer
and director at NexPoint’s publicly traded REITs. Mr. Dondero has over 30 years
of experience investing across the alternative landscape. In that time, he has
established a number of integrated businesses to manage investments in credit,
real estate, and private equity, among other areas, building a global investment
network. Mr. Dondero holds a number of board positions at companies within
financial services, healthcare, and real estate, among other industries. He is
the chairman of NexBank Capital, Inc., a director of NexBank, and a manager of
SeaOne Holdings, LLC. Mr. Dondero has also been instrumental in supporting a
number of civic and cultural institutions in the Dallas-Fort Worth area. He is a
member of the Southern Methodist University Cox School of Business Executive
Board and the George W. Bush Presidential Center Executive Advisory Council. Mr.
Dondero graduated from the University of Virginia, where he earned the highest
honors (Beta Gamma Sigma, Beta Alpha Psi) from the McIntire School of Commerce
with dual majors in accounting and finance. He has received certification as a
Certified Public Accountant (CPA) and a Certified Managerial Accountant (CMA),
and has earned the right to use the Chartered Financial Analyst (CFA)
designation.
Scott Johnson has managed the Fund’s portfolio
since September 14, 2022. Mr. Johnson is a Managing Director and
Portfolio Manager at NexPoint Advisors, L.P. He has over 25 years of
investment management experience with extensive experience in private equity,
mergers and acquisitions and long/short hedge funds. Prior to joining NexPoint
he was the CEO of Enviroklean Product Development which he purchased along with
a private equity group. Previously, Mr. Johnson also held positions as
President of Trisun Energy Services and was the Portfolio Manager of the Income
Fund, L.P., an investment fund focused on making opportunistic investments in
public and private debt and equity securities. Prior to managing the Income
Fund, he was a Portfolio Manager at a former NexPoint affiliate. Prior to that,
Mr. Johnson was an Associate at Wellspring Capital Management, a private
equity firm focused on control-oriented buyout investments. Mr. Johnson
started his career as an Analyst in the Mergers & Acquisitions group at
Lehman Brothers. Mr. Johnson received a B.B.A. in Finance with honors from
the University of Texas at Austin and an MBA from Harvard Business School.
About the
Fund’s Underwriter
The
Fund’s shares are offered for sale through NexPoint Securities, Inc. (the
“Underwriter”), 200 Crescent Court, Suite 700, Dallas, Texas 75201.
Shareholders and Financial Advisors (as defined under “How to Buy Shares”)
should not send any transaction or account requests to this address. Transaction
or account requests should be directed to NexPoint Funds II — NexPoint
Climate Tech Fund, 801 Pennsylvania Ave, Kansas City, Missouri 64105.
Shareowner
Guide — How to Invest in NexPoint Funds II
How to Buy Shares
You
can purchase shares of the Fund on any day that the New York Stock Exchange
(“NYSE”) is open for business (see “Net Asset Value”). You can purchase shares
of the Fund from any financial advisor, broker-dealer or other financial
intermediary that has entered into an agreement with the Underwriter or the Fund
with respect to the sale of shares of the Fund (a “Financial Advisor”), or
SS&C Technologies, Inc. 430 W. 7th Street, Suite 219424, Kansas City,
Missouri 64105-1407, the Fund’s transfer agent (the “Transfer Agent”). Your
Financial Advisor can help you establish an appropriate investment portfolio,
buy shares, and monitor your investments. The Fund has authorized Financial
Advisors to receive purchase and redemption orders on its behalf. Financial
Advisors are authorized to designate other intermediaries to receive purchase
and redemption orders on the Fund’s behalf. The Fund will be deemed to have
received a purchase or redemption order when a Financial Advisor or its
authorized designee receives the order in “good order.” The specific
requirements for “good order” depend on the type of transaction and method of
purchase. Contact the Adviser if you have questions about your circumstances.
Generally, “good order” means that you placed your order with your Financial
Advisor or its authorized designee or your payment (made in accordance with any
of the methods set forth in the table below) has been received and your
application is complete, including all necessary documentation and signatures.
Customer orders will be priced at the Fund’s NAV per share next computed after
the orders are received by a Financial Advisor or its authorized designee in
good order. Investors may be charged a fee by their Financial Advisors, payable
to the Financial Advisor and not the Fund, if investors effect a transaction in
Fund shares through either a Financial Advisor or its authorized designee.
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from the Fund or through a financial
intermediary. Intermediaries may have different policies and procedures
regarding the availability of front-end sales charge waivers or contingent
deferred (back-end) sales charge (“CDSC”) waivers, which are discussed below. In
all instances, it is the purchaser’s responsibility to notify the Fund or the
purchaser’s financial intermediary at the time of purchase of any relationship
or other facts qualifying the purchaser for
27
Shareowner
Guide—How to Invest in Nexpoint funds
sales
charge waivers or discounts. For waivers and
discounts not available through a
particular intermediary, shareholders will have to purchase Fund shares directly
from the Fund or through another intermediary to receive these waivers or
discounts. Shares purchased through certain financial intermediaries (a
“Specified Intermediary”) may be subject to different initial sales charges or
the initial sales charge or CDSC may be waived in certain circumstances. Please
refer to the Appendix to the Fund’s Prospectus for the sales charge or CDSC
waivers that are applicable to each Specified Intermediary.
The
USA PATRIOT Act may require the Fund, a Financial Advisor or its authorized
designee to obtain certain personal information from you which will be used to
verify your identity. If you do not provide the information, it may not be
possible to open your account. If the Fund, a Financial Advisor or authorized
designee is unable to verify your customer information, the Fund reserves the
right to close your account or to take such other steps as it deems reasonable.
Outlined
below are various methods for buying shares of the Fund:
|
|
| |
| Method |
|
Instructions |
|
Through your
Financial Advisor |
|
Your
Financial Advisor can help you establish your account and buy shares on
your behalf. To receive the current trading day’s price, your Financial
Advisor must receive your request in good order prior to the close of
regular trading on the NYSE, usually 4:00 p.m., Eastern time. Your
Financial Advisor may charge you fees for executing the purchase for
you. |
|
By
check (new account)(1) |
|
For new
accounts, send to the applicable Fund, at the address noted below,(2) a completed
application and check made payable to “NexPoint Funds II — NexPoint
Climate Tech Fund.” All purchases must be in U.S. Dollars and must be
drawn on a U.S. bank. NexPoint Funds II does not accept cash, U.S. savings
bonds, traveler’s checks, money orders, California warrant checks, starter
checks, third-party checks, or credit card courtesy checks. Checks dated
six months old or older and post-dated checks will not be accepted. |
|
By
check (existing account)(1) |
|
For
existing accounts, fill out and return to the applicable Fund, at the
address noted below,(2) the additional
investment stub included in your account statement, or send a letter of
instruction, including the applicable Fund name and account number, with a
check made payable to “NexPoint Funds II — NexPoint Climate Tech Equity
Fund.” All purchases must be in U.S. Dollars and must be drawn on a U.S.
bank. NexPoint Funds II does not accept cash, U.S. savings bonds,
traveler’s checks, money orders, California warrant checks, starter
checks, third- party checks, or credit card courtesy checks. Checks dated
six months old or older and post- dated checks will not be accepted.
Financial
Advisor may exchange shares of a class of the Fund you own for shares of a
different class of the same Fund, subject to the conditions described in
“Exchange of Shares” below. To exchange, send written instructions to the
applicable Fund, at the address noted below(2) or call
1-877-665-1287. |
|
By
wire |
|
You may
purchase shares of the Fund by wiring money from your bank account to your
Fund account. Prior to sending wire transfers, please contact Shareholder
Services at 1-877-665-1287 for specific wiring instructions and to
facilitate prompt and accurate credit upon receipt of your wire. You can
also find the specific wiring instructions at https://www.nexpoint.com/funds/climate-tech-fund/#forms.
To receive the current trading day’s price, your wire, along with a valid
account number, must be received in your Fund account prior to the close
of regular trading on the NYSE, usually 4:00 p.m., Eastern time. If your
initial purchase of shares is by wire, you must first complete a new
account application and promptly mail it to NexPoint Funds II — NexPoint
Climate Tech Fund, at the address noted below.(2) After completing a
new account application, please call 1-877-665-1287 to obtain your account
number. Please include your account number on the wire. |
|
By
electronic funds transfer via an automated clearing house (“ACH”)
transaction(1) |
|
You may
purchase shares of the Fund by electronically transferring money from your
bank account to your Fund account by calling 1-877-665-1287. An electronic
funds transfer may take up to two business days to settle and be
considered in good order. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate section of the
application. |
|
Automatic
investment plan |
|
You may
make monthly or quarterly investments automatically from your bank account
to your Fund account. You may select a pre-authorized amount to be sent
via electronic funds transfer. For this feature, please call the
applicable Fund at 1-877-665-1287 or visit the Fund’s website, https://www.nexpoint.com/funds/climate-tech-fund/#forms,
where you may obtain a copy of the “Account Options
Form.” |
28
NexPoint
Funds II Prospectus
|
|
| |
| Method |
|
Instructions |
|
By
exchange |
|
You or
your Financial Advisor may acquire shares of the Fund for your account by
exchanging shares you own in certain other funds advised by NexPoint for
shares of the same class of the Fund, subject to the conditions described
in “Exchange of Shares” below. In addition, you or your. Financial Advisor
may exchange shares of a class of a Fund you own for shares of a different
class of the same Fund, subject to the conditions described in “Exchange
of Shares” below. To exchange, send written instructions to the applicable
Fund, at the address noted below(2) or call
1-877-665-1287. |
| (1) |
The
redemption of shares purchased by check or an automated clearing house
(“ACH”) transaction is subject to certain limitations (see “Redemption of
Shares”). Any purchase by check or ACH transaction that does not clear may
be cancelled, and the investor will be responsible for any associated
expenses and losses to the Fund. |
| (2) |
Regular
Mail: Send to “NexPoint Funds II — NexPoint Climate Tech Fund,” 801
Pennsylvania Ave, Kansas City, MO 64105. Overnight Mail: Send to “NexPoint
Funds II — (Fund Name),” 430 W 7th Street, Suite 219424, Kansas City, MO
64105-1407. |
The
following minimum investment amounts apply to direct accounts with the Fund.
Minimum Investments
for Class A and Class C
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
By mail |
|
|
By wire |
|
|
Automatic |
|
|
Initial
Investment |
|
$ |
500 |
|
|
$ |
1,000 |
|
|
$ |
25 |
|
|
Subsequent
Investments |
|
$ |
100 |
|
|
$ |
1,000 |
|
|
$ |
25 |
|
Accounts
that fall below the $500 account minimum may be automatically redeemed by the
Fund on 30 days’ notice and the account shareholder will bear any associated
transaction costs, market exposure risks and tax consequences.
Minimum Investments
for Class Y Shares (eligible investors only)
|
|
|
|
| |
|
Initial
Investment |
|
|
None |
|
|
Subsequent
Investments |
|
|
None |
|
Class Y
Shares are available to investors who invest through programs or platforms
maintained by an authorized financial intermediary. There is no minimum
investment for purchases of shares by eligible investors. Individual investors
that invest directly with the Fund are not eligible to invest in Class Y
Shares.
Unless
the requirement is expressly waived by the Fund, the Fund reserves the right to
change or waive the investment minimums and reserves the right to liquidate a
shareholder’s account if the value of shares held in the account is less than
the minimum account size. The Fund also reserves the right to reject for any
reason, or cancel as permitted or required by law, any purchase order. In
addition, without notice, the Fund may stop offering shares completely, or may
offer shares only on a limited basis, for a period of time or permanently.
Retirement
Plans
The
Fund is available for purchase through individual retirement accounts (IRAs) and
other retirement plans. The Fund offers several different types of IRAs,
including prototype IRAs, Roth IRAs, simplified employee pension (“SEP”) IRAs
and Simple IRAs for both individuals and employers. For further information,
please call the Fund at 1-877-665-1287 or your Financial Advisor.
Purchases
in Kind — If You Invest More than $10 Million
Large
investments in the Fund ($10 million or more) may be detrimental to
existing shareholders because they can significantly increase transaction costs
charged to existing shareholders. In these circumstances, the Fund may require
that you purchase Fund shares “in kind,” or provide the Fund with securities
instead of cash. The Fund or the Transfer Agent would inform you of the
securities acceptable to the Fund. The securities would be accepted by the Fund
at their market value in return for Fund shares of equal value. You may have to
pay associated brokerage commissions for the securities that you purchase. The
transfer of securities to the Fund will be a taxable event.
Choosing a Share Class
The
Fund offers three classes of shares — Class A, Class C, and
Class Y Shares. Each share class has its own sales charge and expense
structure. Determining which share class is best for you depends on the dollar
amount you are investing and number of years for which you are willing to
invest. Based on your personal situation, your Financial Advisor can help you
decide which class of shares makes the most sense for you. Sales charges and
expenses are determined by the share class you select and manner in which you
purchase.
Class A
Shares carry an initial sales charge. Class A Shares bought without an
initial sales charge in accounts aggregating $1 million or more at the time
of purchase are subject to a 0.50% contingent deferred sales charge (“CDSC”) if
the shares are sold within one year of purchase. Class C Shares are offered
without an initial sales charge, but are subject to a CDSC for one year after
purchase. Class Y Shares are offered without an initial sales charge or a
CDSC, but are not available to individual investors that invest directly with
the Fund. Class C Shares have higher annual operating expenses than
Class A and Class Y Shares because of higher distribution and
shareholder service fees.
Your
Financial Advisor may receive different compensation for selling one class of
shares than for selling another class. It is important to remember that the
CDSCs and distribution and shareholder service fees for the Class C Shares
have the same purpose as the front-end sales charge on sales of Class A
Shares: to compensate the Underwriter for concessions and expenses it pays to
Financial Advisors.
29
Shareowner
Guide — How to Invest in NexPoint Funds II
The
Fund may modify the manner in which shares are offered, minimum investments, or
sales charge rates or waivers at any time without prior notice.
Purchasing
Class A Shares
Class A
Shares may be appropriate for long-term investors who compensate their
investment professionals for the services they provide with traditional
front-end sales charges and for investors who qualify for quantity discounts or
waivers. Your purchases of Class A Shares are made at the public offering
price for these shares, that is, the NAV per share for Class A Shares plus
a front-end sales charge that is based on the amount of your initial investment
when you open your account. The front-end sales charge you pay on an additional
investment is based on your total net investment in the Fund, including the
amount of your additional purchase. Shares you purchase with reinvested
dividends or other distributions are not subject to a sales charge. As shown in
the tables below, a portion of the sales charge may be paid as a commission (or
dealers’ reallowance) to your Financial Advisor on the sale of Class A
Shares. The total amount of the sales charge, if any, differs depending on the
amount you invest as shown in the tables below.
30
NexPoint
Funds II Prospectus
NexPoint Climate Tech Fund
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
Front-End Sales Charge |
|
|
Maximum Dealers’
Reallowance* |
|
| Your Investment** |
|
(As a % of Purchase Price) |
|
|
(As a % of Your Net Investment) |
|
|
(As a % of Purchase Price) |
|
|
Less
than $50,000 |
|
|
5.75 |
% |
|
|
6.10 |
% |
|
|
5.25 |
% |
|
$50,000
but less than $100,000 |
|
|
4.25 |
% |
|
|
4.44 |
% |
|
|
3.75 |
% |
|
$100,000
but less than $250,000 |
|
|
3.25 |
% |
|
|
3.36 |
% |
|
|
2.75 |
% |
|
$250,000
but less than $500,000 |
|
|
2.50 |
% |
|
|
2.56 |
% |
|
|
2.00 |
% |
|
$500,000
but less than $1,000,000 |
|
|
2.00 |
% |
|
|
2.04 |
% |
|
|
1.55 |
% |
|
$1,000,000
or more*** |
|
|
None |
|
|
|
None |
|
|
|
| † |
| * |
From
time to time, the Fund may decide to reallow the entire amount of the
front-end sales charge to dealers. Dealers who receive more than 90% of
the sales charge may be considered “underwriters” under the U.S.
securities laws. |
| ** |
Except
for certain employee benefit plans that select Class C Shares (see
“Purchasing Class C Shares” below), purchases of $1,000,000 or more
intended for Class C Shares should be made in Class A Shares
(for individual investors) or in Class Y Shares (for institutional
investors). |
| *** |
Purchases
of $1 million or more of Class A Shares pursuant to a sales
charge waiver are subject to a 0.50% CDSC if redeemed within one year of
purchase. The Class A Shares CDSC does not apply to investors
purchasing $1 million or more of any Fund’s Class A Shares if
such investors are otherwise eligible to purchase Class A Shares
pursuant to another sales charge waiver. The CDSC is calculated by
multiplying the CDSC percentage by the lesser of the share class’ net
asset value at the time of the purchase or its net asset value at the time
of redemption. |
| † |
For
purchases through a Financial Advisor that exceed $1 million, the
Financial Advisor will receive a concession of 0.50% of any amounts under
$3 million, 0.40% of any amounts greater than $3 million and
less than $5 million, 0.25% of any amounts greater than
$5 million and less than $25 million and 0.12% thereafter, to
the selling dealer. |
Reduced
Sales Charges for Class A Shares
You
may pay a lower sales charge when purchasing Class A Shares through Rights
of Accumulation, which works as follows: if the combined value (determined at
the current public offering price) of your accounts in all classes of shares of
the Fund and other Participating Funds (as defined below) maintained by you,
your spouse or domestic partner or your minor children, together with the value
(also determined at the current public offering price) of your current purchase,
reaches a sales charge discount level (according to the above chart), your
current purchase will receive the lower sales charge, provided that you have
notified the Fund’s Underwriter or the Fund and your Financial Advisor, if any,
in writing of the identity of such other accounts and your relationship to the
other account holders and submitted information (such as account statements)
sufficient to substantiate your eligibility for a reduced sales charge. Such
reduced sales charge will be applied upon confirmation of such shareholders’
holdings by the Transfer Agent. The Fund may terminate or amend this Right of
Accumulation at any time without notice. As used herein, “Participating Funds”
refers to any series of NexPoint Funds I and NexPoint Funds II (each as defined
below under “Exchange of Shares”) and registered, open-end investment companies
advised by the Adviser and distributed by the Underwriters and as otherwise
permitted from time to time by the Board.
You
may also pay a lower sales charge when purchasing Class A Shares and shares
of other Participating Funds by signing a Letter of Intent within 90 days of
your purchase. By doing so, you would be able to pay the lower sales charge on
all purchases by agreeing to invest a total of at least $100,000 within 13
months. If your Letter of Intent purchases are not completed within 13 months,
your account will be adjusted by redemption of the amount of shares needed to
pay the higher initial sales charge level for the amount actually purchased.
Upon your request, a Letter of Intent may reflect purchases within the previous
90 days. See the SAI for additional information about this privilege. More
information regarding reduced sales charges is available, free of charge, at:
http://nexpointassetmgmt/resources/.
In
addition, certain investors may purchase shares at no sales charge or at a
reduced sales charge. For example, Class A Shares are offered at no sales
charge to investors who are clients of financial intermediaries who have entered
into an agreement with the Underwriter to offer Fund shares through
self-directed investment brokerage accounts that do not charge transaction fees
to their clients or through other platforms. Whether a sales charge waiver is
available for your retirement plan or charitable account depends upon the
policies and procedures of your intermediary. Please consult your financial
adviser for further information. See the SAI for a description of this and other
situations in which sales charges are reduced or waived.
Variations
in sales charges for Class A Shares reflect the varying efforts required to
sell Class A Shares to separate categories of purchasers. These provisions
may be altered or discontinued at any time. Any sales charge discounts described
herein do not apply to investors purchasing shares of the Fund through any
Specified Intermediary as detailed in the Appendix to the Fund’s Prospectus.
Please refer to the Appendix to the Fund’s Prospectus for the sales charge
discounts that are applicable to each Specified Intermediary.
31
Shareowner
Guide — How to Invest in NexPoint Funds II
Purchasing
Class C Shares
Class C
Shares may be appropriate for shorter-term investors, if you do not want to pay
a traditional front-end sales charge on your purchase of Fund shares or are
unsure of the length of time you will hold your investment.
Class C
Shares are available for investment through programs or platforms maintained by
Financial Advisors, provided that the cost to NexPoint (or its affiliates) for
providing or paying for any selling or administrative servicing activities in
connection with investor accounts on such programs or platforms does not
typically exceed an amount equal to 1.00% (reflecting the Class C Shares
distribution and service fees or Rule 12b-1 fees) of the average net asset value
of such accounts. There is no program asset size or minimum investment
requirements for initial and subsequent purchases of shares by eligible omnibus
account investors.
Because
you may purchase Class C Shares at the NAV next determined without paying
an initial sales charge, your entire investment in Class C Shares is
available to work for you. However, Class C Shares pay higher Rule 12b-1
fees than each of the other share classes and never convert to Class A
Shares. In that regard, Class C Shares may be more appropriate for
investors with a shorter investment horizon because long-term shareholders of
Class C Shares may pay more than the economic equivalent of Class A
Shares’ maximum front-end sales charge.
Trail
commissions of up to 1.00% may be paid by the Underwriter or Adviser to
Financial Advisors that provide on-going services with respect to Class C
Shares.
Class C
Shares are subject to a 0.50% CDSC if redeemed within one year of purchase.
Proceeds from the CDSC may be used to defray the expenses of the Fund and
NexPoint related to the sale of Class C Shares, including the payment of
compensation to Financial Advisors. The CDSC is applied to the NAV at the time
of purchase or redemption, whichever is lower. For purposes of calculating the
CDSC, the start of the holding period is the date on which the purchase is made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When shares are redeemed, the Fund will automatically redeem those
shares (if any) not subject to a CDSC and then those you have held the longest.
In
certain circumstances, CDSCs may be waived, as described in the SAI.
The
CDSC is calculated by multiplying the CDSC percentage by the lesser of the share
class’s net asset value of the block of shares being redeemed at the time of
their purchase or the net asset value at the time of redemption. An amount up to
1.50% of the amount invested in Class C Shares may be paid to Financial
Advisors.
Purchasing
Class Y Shares
Your
purchase of Class Y Shares are made at NAV without a sales charge or CDSC.
Class Y Shares are only available to eligible investors.
Eligible
Investors
The
Fund offer Class Y Shares exclusively to certain institutional and other
eligible investors. Eligible investors are as follows:
| |
• |
|
Clients
of broker-dealers or registered investment advisers that both recommend
the purchase of Fund shares and charge clients an asset-based fee;
|
| |
• |
|
A
retirement plan (or the custodian for such plan) with aggregate plan
assets of at least $5 million at the time of purchase and that
purchases shares directly from the Fund or through a third party
broker-dealer; |
| |
• |
|
Any
insurance company, trust company or bank purchasing shares for its own
account; |
| |
• |
|
Any
endowment, investment company or foundation; and
|
| |
• |
|
Any
trustee of the Fund, any employee of NexPoint and any family member of any
such trustee or employee. |
The
Fund reserves the right to change the criteria for eligible investors. The Fund
also reserves the right to refuse a purchase order for any reason, including if
it believes that doing so would be in the best interests of the Fund and its
shareholders.
Redemption
of Shares
The
Fund redeems its shares based on the NAV next determined after the Transfer
Agent or Financial Advisor receives your redemption request in good order. The
Fund reserves the right to reject any redemption request that is not in good
order. The specific requirements for good order depend on the type of account
and transaction and the method of redemption. Contact NexPoint if you have any
questions about your particular circumstances. Generally, “good order” means
that the redemption request meets all applicable requirements described in this
Prospectus. See “Net Asset Value” for a description of the calculation of NAV
per share.
You
can redeem shares of the Fund on any day that the NYSE is open for business. The
Fund, however, may suspend the right of redemption and postpone payment for more
than seven days: (i) during periods when trading on the NYSE is closed on
days other than weekdays or holidays; (ii) during periods when trading on
the NYSE is restricted; (iii) during any emergency which makes it
impractical for the Fund to dispose
32
NexPoint
Funds II Prospectus
of
its securities or fairly determine the NAV of the Fund; and (ii) during any
other period permitted by the SEC for your protection.
The
Fund typically expects that it will take one to three days following the receipt
of your redemption request to pay out redemption proceeds; however, while not
expected, payment of redemption proceeds may take up to seven days. The Fund
typically expects that it will hold cash or cash equivalents or use proceeds
from the sale of portfolio securities to meet redemption requests. The Fund
expects to use these sources to meet redemptions under normal market conditions
and may also use them under stressed market conditions. Generally, all
redemptions will be for cash, although the Fund reserves the right to redeem
in-kind as described below. Redemptions in-kind are typically used to meet
redemption requests that represent a large percentage of the Fund’s net assets,
and may be used in the event that a substantial portion of the Fund’s assets is
represented by one or more illiquid assets, in order to minimize the effect of
large redemptions on the Fund and its remaining shareholders. Redemptions
in-kind may be used under normal market conditions and under stressed market
conditions. You may experience a delay in converting illiquid securities to
cash. If payment is made in securities, the Fund will value the securities
selected in the same manner in which it computes its NAV. If you receive
securities when redeeming your account, the securities will be subject to market
fluctuation and you may incur tax and transaction costs if you sell the
securities.
The
Fund is meant for long-term investing. It is not meant for “market timing” or
other types of frequent or short- term trading (“disruptive trading”).
Disruptive trading can adversely affect Fund performance and the interests of
long- term investors by, among other things, interfering with the efficient
management of the Fund’s investment portfolio. Accordingly, the Fund has
adopted, and the Board has approved, policies and procedures reasonably designed
to monitor Fund trading activity and, where disruptive trading is detected, to
take action to stop such activity. The Fund reserves the right to amend these
policies and procedures at any time without prior notice to investors or
Financial Advisor.
Direct Investor Accounts. An investor that
redeems or exchanges out of (or purchases) the Fund within 30 days of a purchase
or exchange into (or redemption out of) the Fund may be restricted from further
investing in any series of NexPoint Funds I or exchanging between Participating
Funds, as defined in this Prospectus, subject to the exceptions described below,
all without prior notice to the investor. The Fund may also restrict investments
and exchanges by investors that are believed to have engaged in a pattern of
disruptive trading. In addition, the Fund may reject purchase orders or
terminate or restrict the exchange privileges of any account associated with a
broker-dealer representative, branch office, or firm that the Fund have
determined to be a source or facilitator of disruptive trading, even if no
disruptive trading has occurred in that particular account. Exchanges and
purchases may be permitted again for restricted investors under certain
circumstances in the sole discretion of NexPoint. The foregoing restrictions
apply to direct investor accounts and do not apply to shares held on the books
of Financial Advisors through omnibus accounts with the Fund. The restrictions
applicable to omnibus accounts with Financial Advisors are discussed below.
The
restrictions described above do not apply to (1) systematic withdrawals
(e.g., regular periodic automatic
redemptions, dividend and capital gain distributions, and systematic share class
conversions); (2) systematic purchases (e.g., regular periodic automatic purchases,
payroll contributions, and dividend reinvestments) where the entity maintaining
the shareholder account is able to identify the transaction as a systematic
withdrawal or purchase; (3) transactions by fund-of-funds advised by
NexPoint; (4) transactions initiated by the trustee or adviser to a donor
advised charitable fund; and (5) certain transactions (plan contributions,
plan benefit payments, plan expenses and portfolio rebalancing) by defined
benefit plans that receive asset allocation services from NexPoint. The Fund may
also exclude small transactions less than an amount set from time to time under
the Fund’s policies and procedures.
Omnibus Accounts with Financial Advisors. The
Fund is also offered through Financial Advisors that may establish an “omnibus”
account with the Fund. Because the Fund may not receive information on the
trading activity of the underlying individual investors, it may be difficult or
impossible for the Fund to detect or stop disruptive trading in omnibus
accounts. The difficulty may be even greater if there are multiple tiers of
Financial Advisors or if omnibus accounts are used to hide disruptive trading
within the trading activity of a large number of underlying investors.
In
deciding whether to establish an omnibus account with a Financial Advisor, the
Fund will consider whether the Financial Advisor has its own disruptive trading
policies and procedures (which policies and procedures may differ materially
from those applied by the Fund to direct accounts). If the Financial Advisor has
its own disruptive trading policies and procedures, the Fund will seek assurance
from the Financial Advisor that such policies and procedures will be effectively
enforced.
If
the Financial Advisor does not have its own disruptive trading policies and
procedures, the Fund will seek to obtain the Financial Advisor’s cooperation in
enforcing the Fund’s disruptive trading policies and procedures to the extent
33
Shareowner
Guide — How to Invest in NexPoint Funds II
feasible.
Such cooperation may include periodically providing the Fund with the trading
activity of its underlying investors and, if disruptive trading is detected by
the Fund, making efforts to stop it.
There
are a number of existing omnibus accounts with Financial Advisors that were
established prior to the adoption of the foregoing policies and procedures.
These Financial Advisors may not have their own disruptive trading policies and
procedures and/or the Fund may not have obtained their cooperation in enforcing
the Fund’s disruptive trading policies and procedures. The Fund will continue to
make reasonable efforts to work with these Financial Advisors to implement the
policies and procedures described above, although there is no guarantee that
such efforts will be successful.
Defined Contribution Plans. Participants in
certain defined contribution plans that exchange out of the Fund may be
restricted from further exchanging back into the Fund for a period of at least
30 days. This restriction does not affect the participant’s ability to exchange
into any investment option that has not been restricted or the participant’s
ability to continue contributions into the participant’s defined contribution
plan (including the Fund). This restriction also does not apply to certain
withdrawals (such as distributions, hardship withdrawals and plan loans),
systematic rebalancing or loan repayments. Ask your plan administrator or visit
your plan administrator’s website for more information.
Reservation of Rights to Reject Purchase or Exchange
Orders. The Fund reserves the right to reject any purchase or exchange
order at any time for any reason without prior notice to the investor or
Financial Advisor.
Limitations on Ability to Prevent Disruptive Trading.
Despite the efforts of the Fund and the Underwriter to protect the Fund
from harm caused by disruptive trading, there is no guarantee that the Fund’s
disruptive trading policies and procedures will be effective. As discussed
above, it may be difficult or impossible for the Fund to detect or stop
disruptive trading in certain omnibus accounts with Financial Advisors.
Regardless of whether those Financial Advisors have their own disruptive trading
policies and procedures or cooperate in enforcing the Fund’s policies and
procedures to the extent feasible, there is no guarantee that they will be
effective and they may differ materially from those applied by the Fund to
direct accounts. In addition, investors that purposely engage in disruptive
trading may employ strategies to avoid detection. Consequently, the Fund may not
be able to detect or stop disruptive trading until harm to the Fund has already
occurred.
Risks of Disruptive Trading. Disruptive
trading, especially involving large dollar amounts, may adversely affect Fund
performance and the interests of long-term investors by interfering with
efficient portfolio management and the implementation of long-term investment
strategies. In particular, disruptive trading may: (1) require the Fund to
keep more assets in cash or other liquid holdings than it would otherwise
consider appropriate, causing the Fund to miss out on gains in a rising market;
(2) require the Fund to sell some of its investments sooner than it would
otherwise consider appropriate in order to honor redemptions; and
(3) increase brokerage commissions and other portfolio transaction expenses
by causing the Fund to buy and sell securities more frequently as assets move in
and out.
If
the Fund invests in foreign securities it may be particularly susceptible to
disruptive trading because of investors attempting to engage in “time-zone
arbitrage,” a trading strategy that exploits the fact that the closing prices of
foreign securities owned by the Fund are established some time before the Fund
calculates its own share price (which typically occurs at 4:00 p.m. Eastern
Time). If the Fund invests significantly in high-yield securities or small-cap
equity securities may be particularly susceptible to disruptive trading because
of investors attempting to engage in “liquidity arbitrage,” a trading strategy
that exploits knowledge of the value of securities and the fact that they are
often infrequently traded. Such disruptive trading strategies may interfere with
the efficient management of the Fund’s portfolio to an even greater degree than
other types of disruptive trading and may dilute the value of Fund shares held
by other investors.
Financial
Advisors may impose short-term trading restrictions that differ from those of
the Fund. Any shareholder purchasing shares of the Fund through a Financial
Advisor should check with the Financial Advisor or the Fund to determine whether
the shares will be subject to a short-term trading fee.
The
Fund reserves all rights, including the right to refuse any purchase request
(including requests to purchase by exchange) from any person or group who, in
the Fund’s view, is likely to engage in excessive trading or if such purchase or
exchange is not in the best interests of the Fund and to limit, delay or impose
other conditions on purchases or exchanges. The Fund has adopted a policy of
seeking to minimize short- term trading in its shares and monitors purchase,
exchange and redemption activities to assist in minimizing short-term trading.
You
may redeem shares of the Fund through your Financial Advisor or its authorized
designee or directly from the Fund through the Transfer Agent. Your Financial
Advisor may charge a fee for such services. If you hold your shares in an
individual retirement account (“IRA”), you should consult a
34
NexPoint
Funds II Prospectus
tax
adviser concerning the current tax rules applicable to IRAs. Outlined below are
various methods for redeeming shares:
|
|
| |
| Method |
|
Instructions |
|
By
letter |
|
You may
mail a letter requesting redemption of shares to: “NexPoint Funds II —
NexPoint Climate Tech Fund,” 801 Pennsylvania Ave, Kansas City, Missouri
64105. Your letter should state the name of the Fund, the share class, the
dollar amount or number of shares you are redeeming and your account
number. You must sign the letter in exactly the same way the account is
registered. If there is more than one owner of shares, all must sign. A
Medallion signature guarantee is required for each signature on your
redemption letter. You can obtain a Medallion signature guarantee from
financial institutions, such as commercial banks, brokers, dealers and
savings associations. A notary public cannot provide a Medallion signature
guarantee. If the account is registered to a corporation, trust or other
entity, additional documentation may be needed. Please call 1-877-665-1287
for further details. |
|
By
telephone or the Internet |
|
Unless
you have requested that telephone or Internet redemptions from your
account not be permitted, you may redeem your shares in an account
(excluding an IRA) directly registered with the Transfer Agent by calling
1-877-665-1287 or visiting the Fund’s website at http://www.nexpoint.com.
If the Transfer Agent acts on telephone or Internet instructions after
following reasonable procedures to protect against unauthorized
transactions, neither the Transfer Agent nor the Fund will be responsible
for any losses due to unauthorized telephone or Internet transactions and
instead you would be responsible. You may request that proceeds from
telephone or Internet redemptions be mailed to you by check (if your
address has not changed in the prior 30 days) or forwarded to you by bank
wire. If you would like to request that such proceeds be invested in
shares of other NexPoint funds or other registered, open-end investment
companies advised by the Adviser and distributed by the Underwriter,
please see “Exchange of Shares” below. Among the procedures the Transfer
Agent may use are passwords or verification of personal information. The
Fund may impose limitations from time to time on telephone or Internet
redemptions. |
|
Proceeds
by check |
|
The Fund
will make checks payable to the name(s) in which the account is registered
and normally will mail the check to the address of record within seven
days. |
|
Proceeds
by bank
wire |
|
The Fund
accepts telephone or Internet requests for wire redemption in amounts of
at least $1,000. The Fund will send a wire to either a bank designated on
your new account application or on a subsequent letter in good order as
described above under the instructions for redeeming shares “By letter.”
The proceeds are normally wired on the next business
day. |
Automatic
Cash Withdrawal Plan
You
may automatically redeem shares on a monthly basis if you have at least $10,000
in your account and if your account is directly registered with the Transfer
Agent. Call 1-877-665-1287 or visit the Fund’s website https://www.nexpoint.com/funds/climate-tech-fund/#forms
for more information about this plan.
Involuntary
Redemption
The
Fund may redeem all shares in your account (other than an IRA) if their
aggregate value falls below $5,000 as a result of redemptions (but not as a
result of a decline in NAV). You will be notified in writing if the Fund
initiates such action and allowed 30 days to increase the value of your account
to at least $5,000.
Redemption
Proceeds
A
redemption request received by the Fund will be effected at the NAV per share
next determined after the Fund receives the request in good order. If you
request redemption proceeds by check, the Fund will normally mail the check to
you within seven days after receipt of your redemption request. If, however, you
purchased your Fund shares by check or ACH transaction, and unless you have
documentation satisfactory to the Fund that your transaction has cleared, the
Fund may hold proceeds for shares purchased by check or ACH until the purchase
amount has been deemed collected, which is eight business days from the date of
purchase for checks and five business days from the date of purchase for ACH
transactions. While the Fund will delay the processing of the payment until the
check clears, your shares will be valued at the NAV per share next determined
after receipt by the Transfer Agent or your Financial Advisor of your redemption
request in good order.
The
Fund may pay your redemption proceeds wholly or partially in portfolio
securities. Payments would be made in portfolio securities, which may include
illiquid securities, only if the Adviser or the Board believes that it would be
in the Fund’s best interests not to pay redemption proceeds in cash. If the Fund
pays your redemption proceeds in portfolio securities, you will be exposed to
market risk until you convert these portfolio securities into cash, and you will
likely pay commissions upon any such conversion. If you receive illiquid
securities, you could find it more difficult to sell such securities and may not
be able to sell such securities at prices that reflect the Adviser’s or your
assessment of their fair value or the amount paid for them by the Fund.
Illiquidity may result from the absence of an established market for such
securities as well as legal, contractual or other restrictions on their resale
and other factors. Unless you are a tax-exempt investor or investing through a
tax-deferred retirement plan or other tax-advantaged arrangement, a
35
Shareowner
Guide — How to Invest in NexPoint Funds II
redemption
of shares, whether you receive the redemption proceeds in cash or securities, is
generally a taxable event, and you may realize a gain or a loss for U.S. federal
income tax purposes (see “Taxation” below).
Exchange of
Shares
Shareholders
of the Fund may exchange their Fund shares on any business day for shares of the
same share class of any series of NexPoint Funds II and NexPoint Funds I, and
any other Participating Fund and such exchanges will be effected at the relative
daily NAVs per share, plus any applicable redemption/exchange fee with respect
to the exchanged shares (see “Redemption of Shares”). If you do not currently
have an account in the fund into which you wish to exchange your shares, you
will need to exchange enough Fund shares to satisfy such fund’s current minimum
investment account requirement. Call 1-877-665-1287 for the applicable
prospectus, including applicable minimums, and read it carefully before
investing.
Shareholders
of the Fund may exchange their shares in a class of the Fund daily for shares of
a different class of the same Fund, provided that such shareholder is eligible
to purchase shares of the requested class (a “Same-Fund Exchange”).
If
the shares of the Fund or any Participating Fund that you are exchanging (the
“Exchanged Shares”) are subject to a CDSC, you will not be charged that CDSC
upon the exchange. However, when you sell the shares acquired through the
exchange (the “Acquired Shares”), the shares sold may be subject to a CDSC,
depending upon when you originally purchased the Exchanged Shares. For purposes
of determining the applicability of a CDSC, the length of time you own your
shares will be computed from the date of your original purchase of the Exchanged
Shares (and includes the period during which the Acquired Shares were held), and
the applicable CDSC will be based on the CDSC schedule of the Exchanged Shares.
Your
exchange privilege will be revoked if the exchange activity is considered
excessive. In addition, the Participating Funds may reject any exchange request
for any reason, including if they do not think that the exchange is in the best
interests of the Participating Funds and/or their shareholders. The
Participating Funds may also terminate your exchange privilege if the Adviser
determines that your exchange activity is likely to adversely impact its ability
to manage the Participating Funds or if the Participating Funds otherwise
determine that your exchange activity is contrary to their short- term trading
policies and procedures.
Unless
you are a tax-exempt investor or investing through a tax-deferred retirement
plan or other tax-advantaged arrangement, an exchange, other than a Same-Fund
Exchange, is generally a taxable event, and you may realize a gain or a loss for
U.S. federal income tax purposes. A Same-Fund Exchange is not expected to result
in your realization of a gain or loss for U.S. federal income tax purposes. See
“Taxation” below.
To
exchange via the Internet, visit the Fund’s website at http://www.nexpoint.com.
To exchange by telephone, call 1‑877‑665‑1287. Please have your account number
and taxpayer identification number available when calling.
Cost
Basis Reporting
Upon
the redemption or exchange of your shares in the Fund, the Fund or, if you
purchase your shares through a Financial Advisor or other intermediary, your
Financial Advisor or other intermediary, as applicable, generally will be
required to provide you and the Internal Revenue Service (“IRS”) with cost basis
and certain other related tax information about the Fund shares you redeemed or
exchanged. This cost basis reporting requirement is effective for shares
purchased, including through dividend reinvestment, on or after January 1,
2012. Please contact the Fund’s Transfer Agent at 1-877-665-1287 or consult your
Financial Advisor or other intermediary, as appropriate, for more information
regarding available methods for cost basis reporting and how to select a
particular method. Please consult your tax adviser to determine which available
cost basis method is best for you.
Distribution
and Shareholder Service Fees
The
Fund is authorized under a distribution plan (each a “Plan” and collectively the
“Plans”) to use the assets attributable to such Fund’s Class A and
Class C, as applicable, to finance certain activities relating to the
distribution of shares to investors and maintenance of shareholder accounts.
These activities include marketing and other activities to support the
distribution of the Class A and Class C and the services provided to
you by your Financial Advisor. The Plan operates in a manner consistent with
Rule 12b-1 under the 1940 Act, which regulates the manner in which an open-end
investment company may directly or indirectly bear the expenses of distributing
its shares.
Under
the Plans, distribution and service fees paid by the Fund to the Underwriter
will be at the rates shown in the table below. The Underwriter may pay all or a
portion of these fees to Financial Advisors whose clients own shares of the
Fund. In addition, these fees may include reimbursements to NexPoint for certain
distribution-and service-related expenses actually incurred by NexPoint on
behalf of the Fund, pursuant to reimbursement guidelines approved by the Board,
and to the extent consistent with the Plans and the 1940 Act. The Underwriter
may also make payments from the distribution and service fees they receive from
the Fund to NexPoint Securities, Inc., a FINRA member
36
NexPoint
Funds II Prospectus
broker-dealer
that is an affiliate of the Adviser. NexPoint and
its
affiliates may benefit from such arrangements. Because the distribution and
service fees are payable regardless of the Underwriter’s expenses, the
Underwriter may realize a profit from the fees. The Plans authorize any other
payments by the Fund to the Underwriter and its affiliates to the extent that
such payments might be construed to be indirect financing of the distribution of
shares of the Fund. Because these fees are paid out of the Fund’s assets on an
ongoing basis, these fees will increase the cost of your investment in the Fund.
By purchasing a class of shares subject to higher distribution fees and service
fees, you may pay more over time than on a class of shares with other types of
sales charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
FINRA.
The
Plans will continue in effect from year to year so long as continuance is
specifically approved at least annually by a vote of the Board, including a
majority of the Trustees who are not “interested persons” (as defined in the
1940 Act) of the Fund and who have no direct or indirect financial interest in
the operation of the Plans or in any agreements related to the Plans (the
“Independent Trustees”), cast at a meeting called for the purpose of voting on
the Plans. The Plans may not be amended to increase the fees materially without
approval by a vote of a majority of the outstanding voting securities of the
relevant class of shares, and all material amendments of the Plans must be
approved by the Trustees in the manner provided in the foregoing sentence. The
Plans may be terminated with respect to a class at any time by a vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the relevant class of shares.
In
addition to payments under the Plans, the Fund may from time to time pay
account-based service fees to intermediaries such as broker-dealers, financial
advisers, or other financial institutions. These payments are sometimes referred
to as “revenue sharing.” Many firms that sell shares of the Fund receive one or
more types of these cash payments. The types of payments that the Underwriter
provides to firms are described below. These categories are not mutually
exclusive and the Underwriter may make additional types of revenue sharing
payments in the future. The same firms may receive payments under more than one
or all categories. These payments assist in the Underwriter’s efforts to promote
the sale of the Fund’s shares. Not all firms receive additional compensation and
the amount of compensation varies. These payments could be significant to a firm
and are an important factor in a firm’s willingness to support the sale of the
Fund through its distribution system. To the extent firms receiving such
payments purchase shares of the Fund on behalf of their clients, NexPoint and/or
the Underwriter benefit from increased management and other fees with respect to
those assets. The services provided vary by financial intermediary and according
to distribution channel and may include sub-accounting, sub-transfer agency,
participant recordkeeping, shareholder or participant reporting, shareholder or
participant transaction processing, shareholder or participant tax monitoring
and reporting, maintenance of shareholder records, preparation of account
statements and provision of customer service, and are not intended to include
services that are primarily intended to result in the sale of Fund shares. These
additional fees paid by the Fund to intermediaries may take three forms:
(i) basis point payments on net assets; (ii) fixed dollar amount
payments per shareholder account; and/or (iii) a combination of basis point
payments on net assets and fixed dollar amount payments per shareholder account.
These may include payments for 401(K) sub-accounting services, networking fees,
and omnibus account servicing fees.
In
addition, NexPoint and/or the Underwriter may, from time to time, at their own
expense out of the revenues they receive from the Fund and/or their own
financial resources, make cash payments to broker-dealers and other financial
intermediaries (directly and not as an expense of the Fund) as an incentive to
sell shares of the Fund and/or to promote retention of their customers’ assets
in the Fund. The amounts of these payments could be significant, and may create
an incentive for the financial intermediary or its employees or associated
persons to recommend or sell Fund shares to you. Such cash payments may be
calculated on sales of shares of the Fund (“Sales-Based Payments”) or on the
average daily net assets of the Fund attributable to that particular broker-
dealer or other financial intermediary (“Asset-Based Payments”). Each of
NexPoint and/or the Underwriter may agree to make such cash payments to a
broker-dealer or other financial intermediary in the form of either or both
Sales-Based Payments and Asset-Based Payments.
NexPoint
and/or the Underwriter may also make other cash payments to broker-dealers or
other financial intermediaries in addition to or in lieu of Sales-Based Payments
and Asset-Based Payments, in the form of payment for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives of those broker-dealers or other financial intermediaries and
their families to places within or outside the United States; meeting fees;
entertainment; transaction processing and transmission charges; advertising or
other promotional expenses; allocable portions, based on shares of the Fund
sold, of salaries and bonuses of registered representatives of an affiliated
broker-dealer or other financial intermediary that is a Financial Advisor; or
other expenses as determined in NexPoint’s or the Underwriter’s discretion, as
applicable. In certain cases these other payments could be significant to the
broker-
37
Shareowner
Guide — How to Invest in NexPoint Funds II
dealers
or other financial intermediaries. Any payments
described
above will not change the price paid by investors for the purchase of the shares
of the Fund, the amount that the Fund will receive as proceeds from such sales,
or the amounts payable under the Plans.
Each
of NexPoint and/or the Underwriter determines the cash payments described above
in its discretion in response to requests from broker-dealers or other financial
intermediaries, based on factors it deems relevant. Broker-dealers or other
financial intermediaries may not use sales of the Fund’s shares to qualify for
any incentives to the extent that such incentives may be prohibited by law.
Amounts paid by NexPoint and/or the Underwriter to any broker-dealer or other
financial intermediary in connection with the distribution of any shares of the
Fund will count towards the maximum imposed by FINRA on underwriter compensation
in connection with the public offering of securities. In addition, NexPoint may
utilize its own resources to compensate the Underwriter for distribution or
service activities on behalf of the Fund. These payments are not reflected in
the “Annual Fund Operating Expenses” table for the Fund.
Distribution and Shareholder Service Fee Rates
|
|
|
|
|
|
|
|
| |
| |
|
Distribution Fee |
|
|
Service Fee |
|
|
Class A |
|
|
0.00% |
* |
|
|
0.25% |
* |
|
Class C |
|
|
0.75% |
|
|
|
0.25% |
|
|
Class Y |
|
|
None |
|
|
|
None |
|
| * |
Under
the Fund’s Plan, the Fund may pay up to 0.25% for distribution fees and/or
shareholder servicing fees. |
These
distribution and service fees may be voluntarily reduced on a temporary basis
for certain share classes, and may be returned to their stated levels, at any
time, without prior notice.
The
provision of these additional payments, the varying fee structures and the basis
on which a firm compensates its registered representatives or salespersons
creates an incentive for a particular firm, registered representative, or
salesperson to highlight, feature or recommend funds, including the Fund, or
other investments based, at least in part, on the level of compensation paid.
Additionally, if one mutual fund sponsor makes greater payments than another, a
firm has an incentive to recommend one fund complex over another. Similarly, if
a firm receives greater compensation for one share class versus another, that
firm has an incentive to recommend the share class with the greater
compensation. Shareholders should consider whether such incentives exist when
evaluating any recommendations from a firm to purchase or sell shares of the
Fund and when considering which share class is most appropriate. Shareholders
should ask their salesperson or visit their firm’s website for more information
about the additional payments they receive and any potential conflicts of
interest, as well as for information regarding any fees and/or commissions the
firm charges. Firms may categorize and disclose these arrangements differently
than the Underwriter and its affiliates.
As
of September 30, 2024, the following member firms of the Financial Industry
Regulatory Authority (“FINRA”) have arrangements in effect with the Underwriter
or the Adviser pursuant to which the firm is entitled to a revenue sharing
payment:
| |
• |
|
Morgan
Stanley Smith Barney LLC |
| |
• |
|
Ameriprise
Financial Services, Inc. |
Contingent
Deferred Sales Charges
As
described above, certain investments in Class A and Class C Shares are
subject to a CDSC. You will pay the CDSC only on shares you redeem within the
prescribed amount of time after purchase. The CDSC is applied to the NAV at the
time of purchase or redemption, whichever is lower. For purposes of calculating
the CDSC, the start of the holding period is the date on which the purchase is
made. Shares you purchase with reinvested dividends or capital gains are not
subject to a CDSC. When shares are redeemed, the Fund will automatically redeem
those shares (if any) not subject to a CDSC and then those you have held the
longest. In certain circumstances, CDSCs may be waived, as described in the SAI.
Availability
of Information
Information
regarding sales charges of the Fund and the applicability and availability of
discounts from sales charges is available free of charge through the Fund’s
website at http://www.nexpoint.com, which provides links to the Prospectus and
SAI containing the relevant information.
38
NexPoint
Funds II Prospectus
Net
Asset Value (NAV)
The
NAV per share of each class of shares of the Fund is calculated as of 4:00 p.m.,
Eastern Time, on each day that the NYSE is open for business, except on days on
which regular trading on the NYSE is scheduled to close before 4:00 p.m., when
the Fund calculates NAV as of the scheduled close of regular trading. The NYSE
is open Monday through Friday, but currently is scheduled to be closed on New
Year’s Day, Dr. Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day or on the preceding Friday or subsequent
Monday when a holiday falls on a Saturday or Sunday, respectively.
The
NAV per share of each class of shares of the Fund is computed by dividing the
value of the Fund’s net assets (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus)
attributable to the class of shares by the total number of shares of the class
outstanding at the time the determination is made. The price of a particular
class of the Fund’s shares for the purpose of purchase and redemption orders
will be based upon the calculation of NAV per share of the Fund next made after
the purchase or redemption order is received in good order. The value of the
Fund’s portfolio assets may change on days the Fund is closed and on which you
are not able to purchase or sell your shares.
Pursuant
to Rule 2a-5 under the 1940 Act, the Board has designated the Adviser as the
Fund’s valuation designee to perform the fair valuation determination for
securities and other assets held by the Fund. The Adviser, 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 the Adviser and certain of the Adviser’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 the Adviser’s fair value determinations
The
Fund’s portfolio securities are valued in accordance with valuation policies and
procedures established by the Adviser and approved by the Board. The value of
the Fund’s investments is generally determined as follows:
| |
• |
|
Portfolio
securities for which market quotations are readily available are valued at
their current market value. |
| |
• |
|
Foreign
securities listed on foreign exchanges are valued based on quotations from
the primary market in which they are traded and are translated from the
local currency into U.S. dollars using current exchange rates. Foreign
securities may trade on weekends or other days when the Fund does not
calculate NAV. As a result, the market value of these investments may
change on days when you cannot buy or redeem shares of the Fund.
|
| |
• |
|
Investments
by the Fund in any other mutual fund are valued at their respective NAVs
as determined by those mutual funds each business day. The prospectuses
for those mutual funds explain the circumstances under which those funds
will use fair value pricing and the effects of using fair value pricing.
|
| |
• |
|
All
other portfolio securities, including derivatives and cases where market
quotations are not readily available are valued at fair value as
determined in good faith by the Adviser as valuation designee pursuant to
procedures approved by the Board. Rule 2a-5 states that a market quotation
is readily available only when that quotation is a quoted price
(unadjusted) in active markets for identical investments that a Fund can
access at the measurement date, provided that a quotation will not be
readily available if it is not reliable. Market quotations may also be not
“readily available” if a significant event occurs that causes the Adviser
to believe that the market price of a security no longer represents the
security’s current value at the time of a Fund’s NAV calculation. In
determining the fair value price of a security, NexPoint may use a number
of other methodologies, including those based on discounted cash flows,
multiples, recovery rates, yield to maturity or discounts to public
comparables. |
| |
• |
|
Fair
value pricing involves judgments that are inherently subjective and
inexact; as a result, there can be no assurance that fair value pricing
will reflect actual market value, and it is possible that the fair value
determined for a security will be materially different from the value that
actually could be or is realized upon the sale of that asset.
|
Dividends
and Other Distributions
The
Fund declares and pay dividends of its net investment income and any net
realized capital gains according to the schedule below. Unless you instruct the
Fund to pay dividends of net investment income and dividends of net realized
capital gains to you in a check mailed to you, it will automatically be
reinvested in your account. There are no fees or charges to reinvest dividends
or other distributions.
Dividends
are generally taxable to you in the manner described below even if they are
reinvested in additional shares of the Fund.
39
Dividends
and Other Distributions
The
Fund is generally subject to a 4% excise tax on net investment income and net
realized capital gains that are not distributed on a calendar-year basis. To
avoid this tax or Fund-level U.S. federal income taxes, the Fund may pay
dividends of net investment income and net realized capital gains more
frequently than shown in the schedule below. See “Taxation” below.
|
|
| |
| Fund |
|
Distribution Schedule |
|
NexPoint
Climate Tech Fund |
|
• Short-term and long-term capital gains,
if any, are typically declared and paid annually.
• Dividends of net investment income are
declared and paid annually. |
Taxation
The
following discussion is a summary of some of the important U.S. federal income
tax considerations generally applicable to an investment in the Fund. Your
investment may have other tax implications. The discussion reflects provisions
of the Code, existing Treasury regulations, rulings published by the IRS, and
other applicable authorities, as of the date of this Prospectus. These
authorities may be changed, possibly with retroactive effect, or subject to new
legislation or administrative or judicial interpretations. No attempt is made to
present a detailed explanation of all U.S. federal, state, local and foreign tax
law concerns affecting the Fund and its shareholders, or to address all aspects
of taxation that may apply to individual shareholders or to specific types of
shareholders, such as foreign persons, that may qualify for special treatment
under U.S. federal income tax laws. The discussion set forth herein does not
constitute tax advice. Please consult your tax advisor about foreign, federal,
state, local or other tax laws applicable to you in light of your particular
circumstances. For more information, including for a summary of certain tax
consequences to foreign investors of investing in the Fund, please see “Income
Tax Considerations” in the SAI.
Taxation
of the Fund
The
Fund has elected to be treated and intends to qualify annually for treatment as
a RIC under Subchapter M of the Code, including by complying with the applicable
qualifying income and diversification requirements. If the Fund so qualifies and
satisfies certain distribution requirements, the Fund generally will not be
subject to U.S. federal income tax on income and gains that the Fund distributes
to its shareholders in a timely manner in the form of dividends, including
capital gain dividends (as defined below). As described in “Dividends and Other
Distributions” above, the Fund intends to distribute at least annually all or
substantially all of its net investment income and net realized capital gains.
The Fund will be subject to the Fund-level income tax at regular corporate
income tax rates on any taxable income or gains that it does not distribute to
its shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement will be subject to a nondeductible 4%
U.S. federal excise tax at the Fund level. To avoid the tax, the Fund must
distribute during each calendar year an amount at least equal to the sum of
(i) 98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (ii) 98.2% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses) for a one-year
period ending on October 31 of the calendar year, and (iii) any
undistributed amounts described in (i) and (ii) above from the prior
year on which the Fund paid no U.S. federal income tax. While the Fund intends
to distribute any income and capital gain in the manner necessary to minimize
imposition of the 4% U.S. federal excise tax, there can be no assurance that
sufficient amounts of the Fund’s taxable income and capital gain will be
distributed to avoid entirely the imposition of the tax. In that event, the Fund
will be liable for the excise tax only on the amount by which it does not meet
the foregoing distribution requirement.
Additionally,
if for any taxable year the Fund were not to qualify as a RIC, and were
ineligible to or otherwise did not cure such failure, all of its taxable income
and gain would be subject to the Fund-level tax at regular corporate income tax
rates without any deduction for distributions to shareholders. This treatment
would reduce the Fund’s net income available for investment or distribution to
its shareholders. In addition, all distributions from earnings and profits,
including any net long- term capital gains, would be taxable to shareholders as
ordinary income. Some portions of such distributions might be eligible for the
dividends-received deduction in the case of corporate shareholders or to be
treated as “qualified dividend income” in the case of individual shareholders.
The Fund also could be required to recognize unrealized gains, pay substantial
taxes and interest and make substantial distributions before requalifying as a
RIC that is accorded special tax treatment.
The
tax rules applicable to certain derivative instruments, as well as certain
exchange-traded notes (“ETNs”), in which the Fund may invest are uncertain under
current law, including the provisions applicable to RICs under Subchapter M of
the Code. For instance, the timing and character of income or gains arising from
ETNs can be uncertain, including for purposes of the RIC qualification
requirements under Subchapter M. Accordingly, while the Fund intends to account
for such transactions in a manner it deems to be appropriate, an adverse
determination or future guidance by the IRS with respect to one or more of these
rules (which determination or guidance could be retroactive) may adversely
affect the Fund’s ability to meet one or more of the relevant requirements to
maintain its qualification as a RIC, as well as to avoid Fund-level taxes.
40
NexPoint
Funds II Prospectus
Certain
of the Fund’s investment practices, including entering into futures, options and
other derivative transactions, short sales, and its hedging activities,
generally, as well as the Fund’s investments in certain types of securities,
including certain preferred stock, debt obligations issued or purchased at a
discount, foreign debt securities, and securities of REITs may be subject to
special and complex U.S. federal income tax provisions that may, among other
things: (i) disallow, suspend or otherwise limit the allowance of certain
losses or deductions; (ii) convert lower taxed long-term capital gain or
“qualified dividend income” into higher taxed short-term capital gain or
ordinary income; (iii) accelerate the recognition of income;
(iv) convert short-term losses into long-term losses; (v) cause the
Fund to recognize income or gain without a corresponding receipt of cash;
(vi) adversely affect the time as to when a purchase or sale of stock or
other securities is deemed to occur; (vii) cause adjustments in the holding
periods of the Fund’s securities; or (viii) otherwise adversely alter the
characterization of certain complex financial transactions. These U.S. federal
income tax provisions could therefore affect the amount, timing and/or character
of distributions to Fund shareholders. The Fund intends to monitor its
transactions, may make certain tax elections, and may be required to, among
other things, dispose of securities (including at a time when it is not
advantageous to do so) to mitigate the effect of these provisions, prevent the
Fund’s disqualification as a RIC, or avoid incurring Fund-level U.S. federal
income and/or excise tax. The Fund’s investments in certain derivative
instruments and certain commodity-related investments, including ETFs and ETNs
providing exposure to a single commodity or a commodities index, are or may be
limited by its intention to qualify as a RIC, and, in certain cases, may
adversely affect the Fund’s ability to qualify as a RIC in a particular year.
Interest
and other income, as well as gain or proceeds received by the Fund from
investments in foreign securities may be subject to withholding and other taxes
imposed by foreign countries on dividends, interest, capital gains or other
income or proceeds. Tax treaties between the U.S. and other countries may reduce
or eliminate such taxes. Foreign withholding and other taxes paid by the Fund
will reduce the return from the Fund’s investments to the extent that the Fund
is unable to claim foreign tax credits in respect of such taxes. Under some
circumstances, the Fund may be eligible to make a special election that
generally will require you to include in income your share of any foreign income
taxes paid by the Fund or by certain underlying investment companies in which
the Fund invests. You may be able either to deduct this amount from your income
or claim it as a foreign tax credit. There is no assurance that the Fund will
make this special election for a taxable year even if it is eligible to do so.
The Fund may have high portfolio turnover during a year. High portfolio turnover
can cause the Fund to realize greater amounts of short-term capital gains or
other income than in the absence of such turnover and these amounts will
generally be taxable to shareholders as ordinary income when distributed to
them. As noted above, the Fund is generally required to distribute such
additional income to its shareholders in respect of each taxable year.
Federal
Income Taxation of Shareholders of the Fund
Taxation of Distributions. Distributions paid
to you by the Fund from net capital gain realized by the Fund (that is, the
excess of any net long-term capital gain over net short-term capital loss, in
each case determined with reference to any loss carryforwards) that the Fund
properly reports as capital gain dividends (“capital gain dividends”) generally
are treated as long-term capital gain includible in net capital gain and taxable
to individuals at reduced rates, regardless of how long you have held your
shares. Distributions of investment income reported by the Fund as derived from
“qualified dividend income” will be taxed in the hands of individuals at the
rates applicable to net capital gains, provided holding periods and other
requirements are met at both the shareholder and Fund level. All other dividends
paid to you by the Fund (including dividends from short-term capital gain (that
is, the excess of any net short-term capital gain over any net long-term capital
loss)) from its current or accumulated earnings and profits, generally are
taxable to you as ordinary income. Corporations are taxed at the same rate on
ordinary income as on capital gains.
Medicare Tax. A 3.8% Medicare contribution tax
is imposed on the net investment income of certain individuals, trusts and
estates to the extent their income exceeds certain threshold amounts. Net
investment income generally includes for this purpose dividends paid by the
Fund, including any capital gain dividends and net gains recognized on the
taxable sale, redemption or exchange of shares of the Fund. Shareholders are
advised to consult their tax advisors regarding the possible implications of
this additional tax on their investment in the Fund.
To
the extent that the amount of the Fund’s total distributions exceeds the Fund’s
current accumulated earnings and profits for a taxable year, the excess will
generally be treated as a tax-free return of capital up to the amount of your
tax basis in the shares. The amount treated as a tax-free return of capital will
reduce your tax basis in the shares, thereby increasing the amount of gain or
reducing the amount of loss on a subsequent sale of the shares. Any amounts
distributed to you in excess of your tax basis in the shares will be taxable to
you as capital gain (assuming the shares are held as a capital asset). Any such
capital gain will be includible in net capital gain if you have held the
applicable Fund share for more than one year.
41
Taxation
Dividends
and other taxable distributions are taxable to you as described herein, whether
you receive them in cash or reinvest them in additional shares. Dividends and
other distributions paid by the Fund generally are treated as received by you at
the time the dividend or distribution is made. If, however, the Fund pays you a
dividend in January that was declared in the previous October, November or
December and you were a shareholder of record on a specified record date in one
of those months, then such dividend will be treated for tax purposes as having
been paid by the Fund and received by you on December 31 of the year in
which the dividend was declared.
The
price of shares purchased at any time may reflect the amount of a forthcoming
dividend or other distribution. If you purchase shares just prior to a
distribution, you will receive a distribution that will be taxable to you even
though it represents in part a return of your invested capital.
The
Fund (or, if Fund shares are purchased through a Financial Advisor, the
Financial Advisor) will send you information after the end of each calendar year
setting forth the amount and tax status of any dividends or other distributions
paid to you by the Fund. Dividends and other distributions may also be subject
to state, local and other taxes.
Taxation of Sales, Exchanges and Redemptions.
If you sell, exchange or otherwise dispose of any of your shares of the Fund
(including (i) exchanging them for shares of another eligible fund (but not
for shares of another class of the same Fund in a Same-Fund Exchange) as
described in “Exchange of Shares” above or (ii) through a redemption) you
will generally recognize a gain or loss in an amount equal to the difference
between your tax basis in such shares of the Fund and the amount you receive
upon disposition of such shares. If you hold your shares as capital assets, any
such gain or loss will be long-term capital gain or loss if you have held (or
are treated as having held) such shares for more than one year at the time of
sale. All or a portion of any loss you realize on a taxable sale or exchange of
your shares of the Fund will be disallowed if you acquire other shares of the
same Fund (whether through the automatic reinvestment of dividends or otherwise)
within a 61-day period beginning 30 days before and ending 30 days after your
sale or exchange of the shares. In such case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
In
addition, any loss realized upon a taxable sale or exchange of Fund shares held
(or deemed held) by you for six months or less will be treated as long-term,
rather than short-term, to the extent of any capital gain dividends received (or
deemed received) by you with respect to those shares. Present law taxes both
long-term and short-term capital gains of corporations at the rates applicable
to ordinary income.
Backup Withholding and Information Reporting.
The Fund (or, if Fund shares are purchased through a Financial Advisor, the
Financial Advisor) may be required to withhold, for U.S. federal backup
withholding tax purposes, a portion of the dividends, distributions and
redemption proceeds payable to you if: (i) you fail to provide the Fund (or
Financial Advisor) with your correct taxpayer identification number (in the case
of an individual, generally, such individual’s social security number) or to
make the required certification; or (ii) the Fund (or Financial Advisor)
has been notified by the IRS that you are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be refunded or credited against your
U.S. federal income tax liability, if any, provided that you furnish the
required information to the IRS.
THE
FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE PROVISIONS OF THE CODE AND
THE TREASURY REGULATIONS IN EFFECT AS THEY DIRECTLY GOVERN THE TAXATION OF THE
FUND AND ITS SHAREHOLDERS. THESE PROVISIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE
OR ADMINISTRATIVE ACTION, AND ANY SUCH CHANGE MAY BE RETROACTIVE. A MORE
COMPLETE DISCUSSION OF THE TAX RULES APPLICABLE TO THE FUND CAN BE FOUND IN THE
STATEMENT OF ADDITIONAL INFORMATION, WHICH IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING
SPECIFIC QUESTIONS AS TO U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME OR OTHER
TAXES.
42
NexPoint
Funds II Prospectus
Financial
Highlights
The financial highlights tables that follow are
intended to help you understand the Fund’s financial performance for the past
five fiscal years.
Certain information reflects the financial results
for a single Fund share. The total returns in the tables represent the rate that
an investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The information for the years
ended September 30, 2024, 2023, 2022, 2021 and 2020 has been audited by
Cohen & Company, Ltd. (“Cohen”) an independent registered public
accounting firm located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115,
whose report, along with the Fund’s financial statements, are included in the
Fund’s Form N-CSR filing, which is available upon request.
43
Financial
Highlights
|
|
| |
|
| |
|
| |
NexPoint Climate Tech Fund, Class
A |
Selected
data for a share outstanding throughout each period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
|
For the Years Ended September
30, |
|
|
|
|
|
|
| |
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
| |
|
Net
Asset Value, Beginning of Year |
|
$ |
5.64 |
|
|
$ |
6.59 |
|
|
$ |
7.15 |
|
|
$ |
4.19 |
|
|
$ |
12.05 |
|
|
|
|
|
|
| |
|
Income
from Investment Operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
Net
investment income (loss)(a) |
|
|
0.07 |
|
|
|
0.02 |
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
| |
|
Net
realized and unrealized gain (loss) |
|
|
0.09 |
|
|
|
(0.97 |
) |
|
|
(0.55 |
) |
|
|
3.04 |
|
|
|
(6.70 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
from Investment Operations |
|
|
0.16 |
|
|
|
(0.95 |
) |
|
|
(0.56 |
) |
|
|
3.03 |
|
|
|
(6.73 |
) |
|
|
|
|
|
| |
|
Less
Distributions Declared to shareholders: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
From
net investment income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
|
|
— |
|
|
|
|
|
|
| |
|
From
net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.13 |
) |
|
|
|
|
|
| |
|
From
return of capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.02 |
) |
|
|
— |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
distributions declared to shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.07 |
) |
|
|
(1.13 |
) |
|
|
|
|
|
| |
|
Net
Asset Value, End of Year(b) |
|
$ |
5.80 |
|
|
$ |
5.64 |
|
|
$ |
6.59 |
|
|
$ |
7.15 |
|
|
$ |
4.19 |
|
|
|
|
|
|
| |
|
Total
Return(b)(c) |
|
|
2.84 |
% |
|
|
(14.42 |
)% |
|
|
(7.83 |
)% |
|
|
72.74 |
% |
|
|
(61.72 |
)% |
|
|
|
|
|
| |
|
Ratios
to Average Net Assets:(d) |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
Net
Assets, End of Year (000’s) |
|
$ |
5,356 |
|
|
$ |
6,556 |
|
|
$ |
10,664 |
|
|
$ |
11,672 |
|
|
$ |
9,059 |
|
|
|
|
|
|
| |
|
Gross
expenses(e) |
|
|
6.19 |
% |
|
|
4.57 |
% |
|
|
3.25 |
% |
|
|
3.33 |
% |
|
|
4.28 |
% |
|
|
|
|
|
| |
|
Net
investment income (loss) |
|
|
1.18 |
% |
|
|
0.36 |
% |
|
|
(0.13 |
)% |
|
|
(0.13 |
)% |
|
|
(0.36 |
)% |
|
|
|
|
|
| |
|
Portfolio
turnover rate |
|
|
65 |
% |
|
|
119 |
% |
|
|
32 |
% |
|
|
— |
% |
|
|
15 |
% |
| (a) |
Net
investment income (loss) per share 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 at net asset value assuming all distributions are reinvested and
no initial sales charge or CDSC. For periods with waivers/reimbursements,
had the Fund’s Investment Adviser not waived or reimbursed a portion of
expenses, total return would have been lower. |
| (d) |
All
ratios for the period have been annualized, unless otherwise indicated.
|
| (e) |
Supplemental
expense ratios are shown below: |
Supplemental
Expense Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
|
For the Years Ended September
30, |
|
| |
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
| |
|
Net
expenses (net of
waiver/reimbursement, if applicable, but gross
of
all other expenses) |
|
|
1.71 |
% |
|
|
1.60 |
% |
|
|
1.26 |
% |
|
|
1.45 |
% |
|
|
2.33 |
% |
|
|
|
|
|
| |
|
Interest
expense and commitment fees |
|
|
— |
% |
|
|
— |
% |
|
|
0.03 |
% |
|
|
0.17 |
% |
|
|
0.93 |
% |
|
|
|
|
|
| |
|
Dividends
and fees on securities sold short |
|
|
0.31 |
% |
|
|
0.26 |
% |
|
|
0.03 |
% |
|
|
— |
% |
|
|
— |
% |
Amounts
designated as “—” are zero or have been rounded to zero.
44
Financial
Highlights
|
|
| |
|
| |
|
| |
NexPoint Climate Tech Fund, Class
C |
Selected
data for a share outstanding throughout each period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
|
For the Years Ended
September 30, |
|
|
|
|
|
|
| |
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
| |
|
Net
Asset Value, Beginning of Year |
|
$ |
3.09 |
|
|
$ |
3.63 |
|
|
$ |
3.97 |
|
|
$ |
2.34 |
|
|
$ |
7.27 |
|
|
|
|
|
|
| |
|
Income
from Investment Operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
Net
investment income (loss)(a) |
|
|
0.01 |
|
|
|
(0.01 |
) |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
|
|
|
| |
|
Net
realized and unrealized gain (loss) |
|
|
0.05 |
|
|
|
(0.53 |
) |
|
|
(0.30 |
) |
|
|
1.69 |
|
|
|
(3.75 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
from Investment Operations |
|
|
0.06 |
|
|
|
(0.54 |
) |
|
|
(0.34 |
) |
|
|
1.66 |
|
|
|
(3.80 |
) |
|
|
|
|
|
| |
|
Less
Distributions Declared to shareholders: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
From
net investment income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.02 |
) |
|
|
— |
|
|
|
|
|
|
| |
|
From
net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.13 |
) |
|
|
|
|
|
| |
|
From
return of capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
|
|
— |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
distributions declared to shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
|
(1.13 |
) |
|
|
|
|
|
| |
|
Net
Asset Value, End of Year(b) |
|
$ |
3.15 |
|
|
$ |
3.09 |
|
|
$ |
3.63 |
|
|
$ |
3.97 |
|
|
$ |
2.34 |
|
|
|
|
|
|
| |
|
Total
Return(b)(c) |
|
|
1.94 |
% |
|
|
(14.88 |
)% |
|
|
(8.56 |
)% |
|
|
71.54 |
% |
|
|
(62.04 |
)% |
|
|
|
|
|
| |
|
Ratios
to Average Net Assets:(d) |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
Net
Assets, End of Year (000’s) |
|
$ |
448 |
|
|
$ |
599 |
|
|
$ |
809 |
|
|
$ |
1,006 |
|
|
$ |
833 |
|
|
|
|
|
|
| |
|
Gross
expenses(e) |
|
|
6.90 |
% |
|
|
5.37 |
% |
|
|
4.00 |
% |
|
|
4.08 |
% |
|
|
5.03 |
% |
|
|
|
|
|
| |
|
Net
investment income (loss) |
|
|
0.42 |
% |
|
|
(0.42 |
)% |
|
|
(0.88 |
)% |
|
|
(0.87 |
)% |
|
|
(1.06 |
)% |
|
|
|
|
|
| |
|
Portfolio
turnover rate |
|
|
65 |
% |
|
|
119 |
% |
|
|
32 |
% |
|
|
— |
% |
|
|
15 |
% |
| (a) |
Net
investment income (loss) per share 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 at net asset value assuming all distributions are reinvested and
no initial sales charge or CDSC. For periods with waivers/reimbursements,
had the Fund’s Investment Adviser not waived or reimbursed a portion of
expenses, total return would have been lower. |
| (d) |
All
ratios for the period have been annualized, unless otherwise indicated.
|
| (e) |
Supplemental
expense ratios are shown below: |
Supplemental
Expense Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
|
For the Years Ended September
30, |
|
|
|
|
|
|
| |
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
| |
|
Net
expenses (net of
waiver/reimbursement, if applicable, but gross
of
all other expenses) |
|
|
2.46 |
% |
|
|
2.36 |
% |
|
|
2.01 |
% |
|
|
2.20 |
% |
|
|
3.08 |
% |
|
|
|
|
|
| |
|
Interest
expense and commitment fees |
|
|
— |
% |
|
|
— |
% |
|
|
0.03 |
% |
|
|
0.17 |
% |
|
|
0.93 |
% |
|
|
|
|
|
| |
|
Dividends
and fees on securities sold short |
|
|
0.31 |
% |
|
|
0.26 |
% |
|
|
0.03 |
% |
|
|
— |
% |
|
|
— |
% |
Amounts
designated as “—” are zero or have been rounded to zero.
45
Financial
Highlights
|
|
| |
|
| |
|
| |
NexPoint Climate Tech Fund, Class
Y |
Selected
data for a share outstanding throughout each period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
|
For the Years Ended
September 30, |
|
|
|
|
|
|
| |
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
| |
|
Net
Asset Value, Beginning of Year |
|
$ |
6.48 |
|
|
$ |
7.54 |
|
|
$ |
8.17 |
|
|
$ |
4.78 |
|
|
$ |
13.56 |
|
|
|
|
|
|
| |
|
Income
from Investment Operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
Net
investment income(a) |
|
|
0.09 |
|
|
|
0.03 |
|
|
|
0.01 |
(b) |
|
|
0.01 |
(b) |
|
|
0.01 |
|
|
|
|
|
|
| |
|
Net
realized and unrealized gain (loss) |
|
|
0.11 |
|
|
|
(1.09 |
) |
|
|
(0.64 |
) |
|
|
3.46 |
|
|
|
(7.66 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
from Investment Operations |
|
|
0.20 |
|
|
|
(1.06 |
) |
|
|
(0.63 |
) |
|
|
3.47 |
|
|
|
(7.65 |
) |
|
|
|
|
|
| |
|
Less
Distributions Declared to shareholders: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
From
net investment income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
|
|
— |
|
|
|
|
|
|
| |
|
From
net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.13 |
) |
|
|
|
|
|
| |
|
From
return of capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
|
— |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
distributions declared to shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.08 |
) |
|
|
(1.13 |
) |
|
|
|
|
|
| |
|
Net
Asset Value, End of Year(c) |
|
$ |
6.68 |
|
|
$ |
6.48 |
|
|
$ |
7.54 |
|
|
$ |
8.17 |
|
|
$ |
4.78 |
|
|
|
|
|
|
| |
|
Total
Return(c)(d) |
|
|
3.09 |
% |
|
|
(14.06 |
)% |
|
|
(7.71 |
)% |
|
|
73.28 |
% |
|
|
(61.63 |
)% |
|
|
|
|
|
| |
|
Ratios
to Average Net Assets:(e) |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
|
|
|
| |
|
Net
Assets, End of Year (000’s) |
|
$ |
968 |
|
|
$ |
1,155 |
|
|
$ |
2,407 |
|
|
$ |
2,268 |
|
|
$ |
1,634 |
|
|
|
|
|
|
| |
|
Gross
expenses(f) |
|
|
5.94 |
% |
|
|
4.27 |
% |
|
|
3.00 |
% |
|
|
3.08 |
% |
|
|
4.03 |
% |
|
|
|
|
|
| |
|
Net
investment income |
|
|
1.37 |
% |
|
|
0.45 |
% |
|
|
0.14 |
% |
|
|
0.11 |
% |
|
|
0.08 |
% |
|
|
|
|
|
| |
|
Portfolio
turnover rate |
|
|
65 |
% |
|
|
119 |
% |
|
|
32 |
% |
|
|
— |
% |
|
|
15 |
% |
| (a) |
Net
investment income (loss) per share was calculated using average shares
outstanding during the period. |
| (b) |
The
per share amount for net investment income (loss) between classes does not
accord to the aggregate net investment income (loss) for the period due to
class specific distribution and shareholder service fees charged to Class
A and Class C. |
| (c) |
The
Net Asset Value per share and total return have been calculated based on
net assets which include adjustments made in accordance with U.S.
Generally Accepted Accounting Principles required at period end for
financial reporting purposes. These figures do not necessarily reflect the
Net Asset Value per share or total return experienced by the shareholder
at period end. |
| (d) |
Total
return is at net asset value assuming all distributions are reinvested and
no initial sales charge or CDSC. For periods with waivers/reimbursements,
had the Fund’s Investment Adviser not waived or reimbursed a portion of
expenses, total return would have been lower. |
| (e) |
All
ratios for the period have been annualized, unless otherwise indicated.
|
| (f) |
Supplemental
expense ratios are shown below: |
Supplemental
Expense Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
|
For the Years Ended September
30, |
|
|
|
|
|
|
| |
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
| |
|
Net
expenses (net of
waiver/reimbursement, if applicable, but gross
of
all other expenses) |
|
|
1.46 |
% |
|
|
1.34 |
% |
|
|
1.01 |
% |
|
|
1.20 |
% |
|
|
2.08 |
% |
|
|
|
|
|
| |
|
Interest
expense and commitment fees |
|
|
— |
% |
|
|
— |
% |
|
|
0.03 |
% |
|
|
0.17 |
% |
|
|
0.93 |
% |
|
|
|
|
|
| |
|
Dividends
and fees on securities sold short |
|
|
0.31 |
% |
|
|
0.26 |
% |
|
|
0.03 |
% |
|
|
— |
% |
|
|
— |
% |
Amounts
designated as “—” are zero or have been rounded to zero.
46
Additional
Information
Appendix —
Intermediary Sales Charge Discounts and Waivers contains more information
about specific sales charge discounts and waivers available for shareholders who
purchase Fund shares through a Specified Intermediary. The Appendix is
incorporated herein by reference (it is legally part of this Prospectus).
Statement of Additional Information (SAI): The
SAI contains additional information about the Fund’s investment strategies and
policies and is incorporated by reference and is legally considered a part of
this Prospectus.
Annual/Semi-Annual Reports to Shareholders:
Additional information about the Fund’s investments will be available in the
Fund’s annual and semi-annual reports to shareholders and in Form N-CSR. In the
Fund’s annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Funds’ performance during
its last fiscal year. In Form N-CSR, you will find the Fund’s annual and
semi-annual financial statements.
You
may review and obtain information about the Fund (including the SAI and other
reports) on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov.
Copies of this information may also be obtained, after paying a duplicating fee,
by electronic request at the following e-mail address:
[email protected].
You
may obtain a free copy of the SAI, the Fund’s annual/semi-annual reports to
shareholders, Form N-CSR and other information such as the Fund’s financial
statements and make shareholder inquiries by contacting:
Telephone
1-877-665-1287
Websites
http://nexpoint.com
Standard
Mail:
NexPoint
Funds
801
Pennsylvania Ave
Kansas
City, Missouri 64121-9424
Overnight
Mail:
NexPoint
Funds
430
W 7th Street, Suite 219424
Kansas
City, Missouri 64105-1407
In
order to reduce duplicative mail and expenses of the Fund, we may, in accordance
with applicable law, send a single copy of the Fund’s Prospectus and shareholder
reports to your household even if more than one family member in your household
owns shares of the Fund. Additional copies of the Prospectus and shareholder
reports may be obtained by calling 1-877-665-1287. If you do not want us to
consolidate your Fund mailings and would prefer to receive separate mailings at
any time in the future, please call us at the telephone number above and we will
furnish separate mailings, in accordance with instructions, within 30 days of
your request.
The
Trust’s Investment Company Act file number is 811-07142.
|
|
| |
|
Investment
Adviser
NexPoint
Asset Management, L.P.
300
Crescent Court, Suite 700
Dallas,
Texas 75201
Transfer
Agent
SS&C
Technologies, Inc.
430
W. 7th Street, Suite 219424
Kansas
City, Missouri 64105-1407 |
|
Distributor
NexPoint
Securities, Inc.
200
Crescent Court, Suite 700
Dallas,
Texas 75201
Custodian
Bank
of New York Mellon
240
Greenwich Street
New
York, New York 10286 |
|
| |
|
Independent
Registered Public Accounting Firm
Cohen &
Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
|
|
NPII-PROS-0125
47
Appendix
Intermediary
Sales Charge Discounts and Waivers
As
described in the Prospectus, Class A Shares of the Fund, as applicable, are
subject to an initial sales charge and Class C Shares are subject to a
contingent deferred sales charge (“CDSC”). Class A and Class C shares
purchased through certain financial intermediaries may be subject to different
initial sales charges or the initial sales charge or CDSC may be waived in
certain circumstances. This Appendix details some of the variations in sales
charge waivers for Class A and Class C shares purchased through
certain specified financial intermediaries. The term “fund family,” as used in
this Appendix, refers to those registered investment companies that are advised
by NexPoint Asset Management, L.P. (“NexPoint” or the “Adviser”) or its
affiliates.
You
should consult your financial representative for assistance in determining
whether you may qualify for a particular sales charge waiver or discount.
The
information in this Appendix is part of, and incorporated in, the Fund’s
Prospectus.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated (“Merrill Lynch”):
Purchases
or sales of front-end (i.e. Class A) or level-load (i.e., Class C) mutual fund
shares through a Merrill platform or account will be eligible only for the
following sales load waivers (front-end, contingent deferred, or back-end
waivers) and discounts, which differ from those disclosed elsewhere in this
Fund’s prospectus. Purchasers will have to buy mutual fund shares directly from
the mutual fund company or through another intermediary to be eligible for
waivers or discounts not listed below.
It
is the client’s responsibility to notify Merrill at the time of purchase or sale
of any relationship or other facts that qualify the transaction for a waiver or
discount. A Merrill representative may ask for reasonable documentation of such
facts and Merrill may condition the granting of a waiver or discount on the
timely receipt of such documentation.
Additional
information on waivers and discounts is available in the Merrill Sales Load
Waiver and Discounts Supplement (the “Merrill SLWD Supplement”) and in the
Mutual Fund Investing at Merrill pamphlet at ml.com/funds. Clients are
encouraged to review these documents and speak with their financial advisor to
determine whether a transaction is eligible for a waiver or discount.
Front-End
Sales Charge Waivers on Class A Shares available at Merrill Lynch
| |
• |
|
Shares
of mutual funds available for purchase by employer-sponsored retirement,
deferred compensation, and employee benefit plans (including health
savings accounts) and trusts used to fund those plans provided the shares
are not held in a commission-based brokerage account and shares are held
for the benefit of the plan. For purposes of this provision,
employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs,
SAR-SEPs or Keogh plans |
| |
• |
|
Shares
purchased through a Merrill Lynch investment advisory program
|
| |
• |
|
Brokerage
class shares exchanged from advisory class shares due to the holdings
moving from a Merrill Lynch investment advisory program to a Merrill Lynch
brokerage account |
| |
• |
|
Shares
purchased through the Merrill Lynch Edge Self-Directed platform
|
| |
• |
|
Shares
purchased through the systematic reinvestment of capital gains
distributions and dividend reinvestment when purchasing shares of the same
mutual fund in the same account |
| |
• |
|
Shares
exchanged from level-load shares to front-end load shares of the same
mutual fund in accordance with the description in the Merrill Lynch SLWD
Supplement |
| |
• |
|
Shares
purchased by eligible employees of Merrill Lynch or its affiliates and
their family members who purchase shares in accounts within the employee’s
Merrill Lynch Household (as defined in the Merrill Lynch SLWD Supplement)
|
| |
• |
|
Shares
purchased by eligible persons associated with the fund as defined in this
prospectus (e.g. the fund’s officers or trustees)
|
| |
• |
|
Shares
purchased from the proceeds of a mutual fund redemption in front-end load
shares provided (1) the repurchase is in a mutual fund within the
same fund family; (2) the repurchase occurs within 90 calendar days
from the redemption trade date, and (3) the redemption and purchase
occur in the same account (known as Rights of Reinstatement). Automated
transactions (i.e. systematic purchases and withdrawals) and purchases
made after shares are automatically sold to pay Merrill Lynch’s account
maintenance fees are not eligible for Rights of Reinstatement
|
CDSC
Waivers on Class A and C Shares available at Merrill Lynch
| |
• |
|
Shares
sold due to the client’s death or disability (as defined by Internal
Revenue Code Section 22e(3)) |
| |
• |
|
Shares
sold pursuant to a systematic withdrawal program subject to Merrill
Lynch’s maximum systematic withdrawal limits as described in the Merrill
Lynch SLWD Supplement |
| |
• |
|
Shares
sold due to return of excess contributions from an IRA account
|
| |
• |
|
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the investor reaching the qualified age based on
applicable IRS regulation |
| |
• |
|
Front-end
or level-load shares held in commission-based, non-taxable retirement
brokerage accounts (e.g. traditional, Roth, rollover, SEP IRAs, Simple
IRAs, SAR-SEPs or Keogh plans) that are transferred to fee-based accounts
or platforms and exchanged for a lower cost share class of the same mutual
fund |
Front-End
Sales Charge Discounts Available at Merrill Lynch: Breakpoints, Rights of
Accumulation & Letters of Intent (Class A and C Shares)
| |
• |
|
Breakpoint
discounts, as described in this prospectus, where the sales load is at or
below the maximum sales load that Merrill Lynch permits to be assessed to
a front-end load purchase, as described in the Merrill Lynch SLWD
Supplement |
| |
• |
|
Rights
of Accumulation (ROA), as described in the Merrill Lynch SLWD Supplement,
which entitle clients to breakpoint discounts based on the aggregated
holdings of mutual fund family assets held in accounts in their Merrill
Lynch Household |
| |
• |
|
Letters
of Intent (LOI), which allow for breakpoint discounts on eligible new
purchases based on anticipated future eligible purchases within a fund
family at Merrill Lynch, in accounts within your Merrill Lynch Household,
as further described in the Merrill Lynch SLWD Supplement
|
Morgan Stanley Wealth Management
| |
• |
|
Shareholders
purchasing Fund shares through a Morgan Stanley Wealth Management
transactional brokerage account will be eligible only for the following
front-end sales charge waivers with respect to Class A shares, which
may differ from and may be more limited than those disclosed elsewhere in
the Fund’s Prospectus or SAI. |
Front-end
Sales Charge Waivers on Class A Shares available at Morgan Stanley Wealth
Management
| |
• |
|
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and defined benefit
plans). For purposes of this provision, employer- sponsored retirement
plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans.
|
| |
• |
|
Morgan
Stanley employee and employee-related accounts according to Morgan
Stanley’s account linking rules. |
| |
• |
|
Shares
purchased through reinvestment of dividends and capital gains
distributions when purchasing shares of the same fund.
|
| |
• |
|
Shares
purchased through a Morgan Stanley self-directed brokerage account.
|
| |
• |
|
Class C
(i.e., level-load) shares that are no longer subject to a contingent
deferred sales charge and are converted to Class A shares of the same
fund pursuant to Morgan Stanley Wealth Management’s share class conversion
program. |
| |
• |
|
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (i) the repurchase occurs within 90 days following the
redemption, (ii) the redemption and purchase occur in the same
account, and (iii) redeemed shares were subject to a front-end or
deferred sales charge. |
Oppenheimer & Co. Inc. (“OPCO”):
Shareholders
purchasing Fund shares through an OPCO platform or account are eligible only for
the following load waivers (front-end sales charge waivers and contingent
deferred, or back-end, sales charge waivers) and discounts, which may differ
from those disclosed elsewhere in this Fund’s prospectus or SAI.
Front-end
Sales Load Waivers on Class A Shares available at OPCO
| |
• |
|
Employer-sponsored
retirement, deferred compensation and employee benefit plans (including
health savings accounts) and trusts used to fund those plans, provided
that the shares are not held in a commission-based brokerage account and
shares are held for the benefit of the plan |
| |
• |
|
Shares
purchased by or through a 529 Plan |
| |
• |
|
Shares
purchased through a OPCO affiliated investment advisory program
|
| |
• |
|
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other
fund within the fund family) |
| |
• |
|
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same amount,
and (3) redeemed shares were subject to a front-end or deferred sales
load (known as Rights of Restatement). |
| |
• |
|
A
shareholder in the Fund’s Class C shares will have their shares
converted at net asset value to Class A shares (or the appropriate
share class) of the Fund if the shares are no longer subject to a CDSC and
the conversion is in line with the policies and procedures of OPCO
|
| |
• |
|
Employees
and registered representatives of OPCO or its affiliates and their family
members |
| |
• |
|
Directors
or Trustees of the Fund, and employees of the Fund’s investment adviser or
any of its affiliates, as described in this prospectus
|
CDSC
Waivers on A and C Shares available at OPCO
| |
• |
|
Death
or disability of the shareholder |
| |
• |
|
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
prospectus |
| |
• |
|
Return
of excess contributions from an IRA Account |
| |
• |
|
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching the qualified age based on
applicable IRS regulations |
| |
• |
|
Shares
sold to pay OPCO fees but only if the transaction is initiated by OPCO
|
| |
• |
|
Shares
acquired through a right of reinstatement |
Front-end
load Discounts Available at OPCO: Breakpoints, Rights of Accumulation &
Letters of Intent
| |
• |
|
Breakpoints
as described in this prospectus. |
| |
• |
|
Rights
of Accumulation (ROA) which entitle shareholders to breakpoint discounts
will be automatically calculated based on the aggregated holding of fund
family assets held by accounts within the purchaser’s household at OPCO.
Eligible fund family assets not held at OPCO may be included in the ROA
calculation only if the shareholder notifies his or her financial advisor
about such assets |
Raymond James & Associates, Inc.,
Raymond James Financial Services, Inc., and each entity’s affiliates (“Raymond
James”)
Shareholders
purchasing fund shares through a Raymond James platform or account, or through
an introducing broker-dealer or independent registered investment adviser for
which Raymond James provides trade execution, clearance, and/or custody
services, will be eligible only for the following load waivers (front-end sales
charge waivers and contingent deferred, or back-end, sales charge waivers) and
discounts, which may differ from those disclosed elsewhere in the Fund’s
Prospectus or SAI.
Front-end
sales load waivers on Class A shares available at Raymond James
| |
• |
|
Shares
purchased in an investment advisory program. |
| |
• |
|
Shares
purchased within the same fund family through a systematic reinvestment of
capital gains and dividend distributions. |
| |
• |
|
Employees
and registered representatives of Raymond James or its affiliates and
their family members as designated by Raymond James.
|
| |
• |
|
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same
account, and (3) redeemed shares were subject to a front-end or
deferred sales load (known as Rights of Reinstatement).
|
| |
• |
|
A
shareholder in the Fund’s Class C shares will have their shares
converted at net asset value to Class A shares (or the appropriate
share class) of the Fund if the shares are no longer subject to a CDSC and
the conversion is in line with the policies and procedures of Raymond
James. |
CDSC
Waivers on Classes A and C shares available at Raymond James
| |
• |
|
Death
or disability of the shareholder. |
| |
• |
|
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
Prospectus. |
| |
• |
|
Return
of excess contributions from an IRA Account. |
| |
• |
|
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching the qualified age based on
applicable IRS regulations as described in the Fund’s Prospectus.
|
| |
• |
|
Shares
sold to pay Raymond James fees but only if the transaction is initiated by
Raymond James. |
| |
• |
|
Shares
acquired through a right of reinstatement. |
Front-end
load discounts available at Raymond James: breakpoints, rights of accumulation,
and/or letters of intent
| |
• |
|
Breakpoints
as described in the Fund’s Prospectus. |
| |
• |
|
Rights
of accumulation which entitle shareholders to breakpoint discounts will be
automatically calculated based on the aggregated holding of fund family
assets held by accounts within the purchaser’s household at Raymond James.
Eligible fund family assets not held at Raymond James may be included in
the calculation of rights of accumulation only if the shareholder notifies
his or her financial advisor about such assets. |
| |
• |
|
Letters
of intent which allow for breakpoint discounts based on anticipated
purchases within a fund family, over a 13-month time period. Eligible fund
family assets not held at Raymond James may be included in the calculation
of letters of intent only if the shareholder notifies his or her financial
advisor about such assets. |
