-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OXLmtAr9oIX26DoNxXTzWOeOFQ0YJwXeJ5VCyCm0uXC1AY+VOjrMBIWUMmYmL0lu PRG0FXBAW5agLoMWrdpeqw== 0000935069-07-001574.txt : 20070712 0000935069-07-001574.hdr.sgml : 20070712 20070712150715 ACCESSION NUMBER: 0000935069-07-001574 CONFORMED SUBMISSION TYPE: N-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070531 FILED AS OF DATE: 20070712 DATE AS OF CHANGE: 20070712 EFFECTIVENESS DATE: 20070712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGHLAND FLOATING RATE LTD LIABILITY CO CENTRAL INDEX KEY: 0001068201 IRS NUMBER: 364251184 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-Q SEC ACT: 1940 Act SEC FILE NUMBER: 811-08957 FILM NUMBER: 07976325 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER STREET 2: 13455 NOEL ROAD, SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9726284100 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER STREET 2: 13455 NOEL ROAD, SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA FLOATING RATE LIMITED LIABILITY CO DATE OF NAME CHANGE: 20031107 FORMER COMPANY: FORMER CONFORMED NAME: STEIN ROE FLOATING RATE LIMITED LIABILITY CO DATE OF NAME CHANGE: 19980929 N-Q 1 limitedliabilitynq.txt HIGHLAND LIMITED LIABILITY NQ 0507 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-Q QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY Investment Company Act file number 811-08957 ---------------------------- HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Two Galleria Tower 13455 Noel Road, Suite 800 DALLAS, TEXAS 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) James D. Dondero Highland Capital Management, L.P. Two Galleria Tower 13455 Noel Road, Suite 800 DALLAS, TEXAS 75240 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (877) 665-1287 --------------- Date of fiscal year end: AUGUST 31 ---------- Date of reporting period: MAY 31, 2007 ------------- Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule of Investments is attached herewith. INVESTMENT PORTFOLIO (UNAUDITED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (a) - 86.2% AEROSPACE - AEROSPACE/DEFENSE - 2.1% AWAS Capital, Inc. First Priority Term Loan, 14,722,260 7.13%, 03/15/13 14,611,843 Second Priority Term Loan, 6,919,036 11.38%, 03/15/13 7,014,173 3,000,000 DeCrane Aircraft Holdings, Inc. First Lien Term Loan, 10.00%, 02/21/13 3,024,360 1,903,900 Forgings International Holdings. (Firth Rixon) Term D (USD), 9.73%, 03/22/15 1,941,978 Forgings International Ltd. (Firth Rixon) Term B2 (USD), 7.85%, 2,383,511 09/22/14 2,418,524 Term C2 (USD), 8.10%, 2,383,511 09/22/15 2,418,524 1,975,000 IAP Worldwide Services, Inc. First Lien Term Loan, 9.69%, 12/30/12 1,979,937 TDS Investor Corp. (Travelport) Dollar Term Loan, 7.85%, 8,385,151 08/23/13 (b) 8,447,117 Synthetic Letter of Credit, 841,347 7.85%, 08/23/13 (b) 847,135 2,936,471 Vought Aircraft Industries, Inc. Term Loan, 7.83%, 12/22/11 2,962,165 1,000,000 Wesco Aircraft Hardware Corp. First Lien Term Loan, 7.60%, 09/30/13 1,007,970 ------------- 46,673,726 ------------- AEROSPACE - AIRLINES - 3.3% Continental Airlines, Inc. Tranche A-1 Term Loan, 1,714,286 8.74%, 06/01/11 1,717,509 Tranche A-2 Term Loan, 4,285,714 8.74%, 06/01/11 4,296,429 Delta Airlines, Inc. Comair ALPA Claim, 2,000,000 12/31/10 (c) 1,030,000 Credit-Linked Deposit Loan, 1,000,000 7.36%, 04/30/12 1,005,200 Second Lien Term Loan, 2,000,000 8.61%, 04/24/14 (b) 2,028,120 1,500,000 Trade Claim, 12/31/10 (c) 957,510 Northwest Airlines, Inc. ALPA Trade Claim, 3,000,000 08/21/13 (b) 2,010,000 ALPA Trade Claim, 5,400,000 08/21/13 (b) 3,618,000 Bell Atlantic Trade Claims, 2,900,000 08/21/13 (b) 1,943,000 Citibank/Airbus Trade Claim, 2,250,000 08/21/13 (c) 1,507,500 EDC Trade Claims, 1,000,000 08/21/13 (b) 670,000 5,750,000 GE Trade Claim, 08/21/13 (b) 4,228,090 10,800,000 IAM Trade Claim, 08/21/13 (b) 7,236,000 Mesaba Trade Claim, 6,250,000 08/15/07 (c) 4,187,500 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- AEROSPACE - AIRLINES (CONTINUED) 10,800,000 Retiree Claim, 08/21/13 (b) 7,236,000 Term Loan DIP, 7.32%, 5,000,000 08/21/08 5,025,000 25,250,000 US Airways, Inc. Term Loan, 7.85%, 03/23/14 25,459,070 ------------- 74,154,928 ------------- BROADCASTING - 3.1% 2,883,246 All3Media Intermediate Ltd. USD Term Loan B, 7.74%, 08/31/14 2,894,059 28,139,616 Millennium Digital Media Systems, LLC Facility B Term Loan, 8.86%, 06/30/11 28,353,477 NextMedia Operating, Inc Delay Draw Term Loan, 1,185,930 7.32%, 11/15/12 1,188,894 Initial First Lien Term Loan, 2,668,341 7.32%, 11/15/12 2,675,012 11,000,000 Paxson Communications Corp. First Lien Term Loan, 8.61%, 01/15/12 11,261,250 1,500,000 Persona Communications Corp. Second Lien Term Loan, 11.36%, 04/12/14 1,528,125 21,635,660 Young Broadcasting, Inc. Term Loan, 7.88%, 11/03/12 (b) 21,793,601 ------------- 69,694,418 ------------- CABLE - INTERNATIONAL CABLE - 0.8% 1,846,768 Bragg Communications, Inc. Term Loan B, 7.12%, 08/31/11 1,852,530 2,775,000 Puerto Rico Cable Acquisition Co., Inc. First Lien Term Loan, 8.63%, 07/28/11 2,788,875 805,000 San Juan Cable, LLC Second Lien Term Loan, 10.85%, 10/31/13 815,739 9,442,500 UPC Financing Partnership Facility N1, 7.08%, 12/31/14 (b) 9,463,179 3,000,000 Virgin Media Inc. B4 Facility, 7.36%, 07/30/12 3,022,920 ------------- 17,943,243 ------------- CABLE - US CABLE - 7.0% 4,175,000 Bresnan Communications LLC Add On Term Loan B, 7.38%, 09/29/13 (b) 4,192,869 2,000,000 CCO Holdings, LLC Incremental Loan, 7.85%, 09/06/14 2,007,520 123,952 Century Cable Holdings LLC Term Loan, 10.25%, 06/30/09 121,783 1 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) CABLE - US CABLE (CONTINUED) Cequel Communications LLC 1,000,000 NC Term Facility, 10/30/07 (b) 1,002,500 Second Lien Tranche A Term 250,000 Loan, 9.86%, 05/05/14 258,673 8,750,000 Term Loan, 7.35%, 11/05/13 8,769,163 Charter Communications Operating, LLC New Term Loan, 7.35%, 65,500,000 03/05/14 (b) 65,613,375 Term Facility, 7.32%, 36,166,667 04/28/13 (b) 36,234,660 1,000,000 Term Loan, 08/14/14 (b) 1,003,760 Knology, Inc. 7,000,000 Term Loan, 04/30/12 (b) 7,065,660 10,000,000 Term Loan, 7.59%, 06/30/12 10,093,800 2,820,000 Mediacom Broadband Group Tranche A Term Loan, 7.11%, 03/31/10 2,808,156 997,500 Mediacom Illinois, LLC Tranche C Term Loan, 7.10%, 01/31/15 1,000,612 Northland Cable Television, Inc. First Lien Term Loan B, 4,937,500 9.36%, 12/22/12 4,949,844 Second Lien Term Loan, 4,000,000 13.36%, 06/22/13 4,000,000 5,000,000 RCN Corp. Term Loan, 9.50%, 05/25/14 (b) 5,042,200 WideOpenWest Finance LLC First Lien Term Loan, 7.61%, 4,000,000 04/28/13 4,012,000 Second Lien Term Loan, 1,000,000 10.36%, 05/01/14 1,015,000 ------------- 159,191,575 ------------- CHEMICALS - COMMODITY & FERTILIZER - 0.4% 7,000,000 Celanese US Holdings, LLC Term Loan, 7.10%, 04/20/14 7,045,080 2,028,250 Ferro Corp. Term Loan, 8.07%, 06/06/12 2,028,899 ------------- 9,073,979 ------------- CHEMICALS - SPECIALTY CHEMICALS - 0.5% 1,000,000 Berry Plastics Holding Corp. Term C Loan, 04/03/15 (b) 1,005,620 Hexion Specialty Chemicals, Inc. Tranche C-1 Term Loan, 2,341,539 05/05/13 (b) 2,363,269 Tranche C-2 Term Loan, 508,649 05/05/13 (b) 513,369 1,800,000 Ineos U S Finance LLC Term Loan A4 Facility, 7.58%, 12/14/12 1,803,996 1,281,818 Innophos, Inc. Tranche B Term Loan, 7.57%, 08/13/10 1,289,022 972,740 Kraton Polymers Group of Cos. Term Loan, 7.38%, 12/23/10 981,261 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- CHEMICALS - SPECIALTY CHEMICALS (CONTINUED) 1,216,351 Mosaic Co. Tranche B Term Loan, 7.13%, 12/01/13 1,224,719 896,000 Nusil Technology LLC Tranche B Term Loan, 8.07%, 10/24/13 902,720 1,000,000 Panda Hereford Ethanol, L.P. Tranche A Term Loan, 9.07%, 07/28/13 975,000 ------------- 11,058,976 ------------- CONSUMER DURABLES - 0.1% 2,745,484 Rexair LLC First Lien Term Loan, 9.61%, 06/30/10 2,752,348 ------------- CONSUMER NON-DURABLES - 1.8% 4,000,000 Amscan Holdings Term Loan, 05/25/13 (b) 4,017,520 995,556 BioTech Research Labs/Philosophy Merger Sub, Inc. First Lien Term Loan, 7.36%, 03/17/14 995,874 1,555,556 Camelbak Products, Inc. Second Lien Term Loan, 12.91%, 02/04/12 1,493,333 2,992,500 DS Waters of America, Inc. Term Loan B, 7.59%, 10/27/12 2,999,981 72 Eastman Kodak Co. Term B-1 Advance, 10/18/12 72 556,429 Hanesbrands, Inc. Term Loan B, 7.11%, 09/05/13 560,257 1,697,795 Hillman Group, Inc. Term Loan B, 8.38%, 03/30/11 1,716,896 Smart & Final Stores, Corp. First Lien Delay Draw, 804,020 05/31/14 (b) 804,020 First Lien Term Loan, 1,195,980 05/31/14 (b) 1,195,980 Solo Cup Co. Term B1 Loan, 8.82%, 851,796 02/27/11 867,589 Term B1 Loan, 8.83%, 7,233,486 02/27/11 7,367,594 Spectrum Brands Dollar Term B II Loan, 9.32%, 1,739,831 03/30/13 1,747,451 Dollar Term B Loan, 9.33%, 9,776,883 03/30/13 9,911,315 Synthetic Letter of Credit, 483,286 5.17%, 03/30/13 490,236 UCG Paper Crafts, Inc. First Lien Synthetic Facility, 400,000 5.22%, 02/17/13 400,000 First Lien Term Facility, 8.57%, 1,570,453 02/17/13 1,570,453 Second Lien Term Loan, 1,980,000 12.82%, 08/17/13 1,989,900 3,500,000 Yankee Candle Co., Inc. Term Loan, 02/06/14 (b) 3,522,610 ------------- 41,651,081 ------------- 2 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) DIVERSIFIED MEDIA - 7.0% 3,186,740 American Lawyer Media Holdings, Inc. First Lien Term Loan, 7.85%, 03/05/10 3,194,038 374,944 Black Press Group Ltd. Term B-2 Tranche Loan, 7.36%, 08/01/13 377,877 617,556 Black Press U S Partnership Term B-1 Tranche Loan, 7.36%, 08/01/13 622,385 Cenveo Corp. Delayed Draw Term Loan, 55,172 7.10%, 06/21/13 55,241 1,655,172 Term Loan C, 7.10%, 06/21/13 1,659,046 3,980,000 Cinemark USA, Inc. Term Loan, 7.16%, 10/05/13 4,001,890 8,000,000 Discovery Communications Holding, LLC Term B Loan, 7.34%, 05/14/14 8,077,520 Endurance Business Media, Inc. First Lien Term Loan, 8.07%, 2,878,333 07/24/13 (b) 2,911,607 Second Lien Term Loan, 2,000,000 12.57%, 01/24/14 2,050,000 998,150 HIT Entertainment PLC Term Facility, 7.34%, 02/03/13 1,004,259 1,000,000 Knowledgepoint360 Group LLC Second Lien Term Loan, 12.32%, 04/26/15 1,000,000 2,962,500 Merrill Communications LLC Combined Term Loan, 7.57%, 05/15/11 2,988,866 23,093,399 Metro-Goldwyn-Mayer Holdings II, Inc. Tranche B Term Loan, 8.60%, 04/08/12 (b) 23,192,238 North American Membership Group, Inc. First Lien Tranche B Term 982,096 Loan, 10.61%, 05/19/11 947,723 Second Lien Term Loan, 3,012,833 1.66%, 11/18/11 2,952,577 Penton Media, Inc. First Lien Term Loan, 7.61%, 6,500,000 02/01/13 6,544,720 Second Lien Term Loan, 5,500,000 10.36%, 02/01/14 5,555,000 3,333,333 RD German Holdings GMBH Euro Term Commitment, 03/02/14 (b) 3,344,067 Readers Digest Association, Inc. 300,500 Revolver, 9.50%, 02/17/13 (d) 299,004 U.S. Term Loan, 7.38%, 5,000,000 03/02/14 5,016,100 Riverdeep Interactive Learning USA, Inc. Bridge Facility, 11.55%, 2,376,499 12/05/14 (b) 2,385,411 14,478,601 Term Loan, 8.10%, 12/20/13 14,576,766 1,961,759 Term Loan, 8.88%, 11/30/11 1,961,759 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- DIVERSIFIED MEDIA (CONTINUED) Springer Science+Business Media S.A. 562,496 Tranche B-2, 7.99%, 09/16/11 569,528 562,496 Tranche C-2, 8.37%, 07/05/14 571,637 USD Tranche B-2 Add On, 338,124 8.37%, 07/05/13 342,351 USD Tranche C-2 Add On, 338,124 8.37%, 07/05/14 343,619 USD Tranche E-2 Add On, 366,301 8.37%, 07/05/14 372,254 Tribune Co. Tranche B Facility, 36,000,000 05/17/14 (b) 36,084,240 21,500,000 Tranche X, 05/17/09 (b) 21,652,220 Valassis Communications, Inc. Delayed Draw Term Loan, 213,333 03/02/14 (b) 213,289 Tranche B Term Loan, 7.10%, 753,333 03/02/14 752,746 2,000,000 West Corp. Term B-2 Loan, 7.75%, 10/24/13 2,018,120 938,938 WMG Acquisitions Corp. Term Loan, 7.36%, 02/28/11 943,717 ------------- 158,581,815 ------------- ENERGY - EXPLORATION & PRODUCTION - 0.8% 4,250,000 III Exploration II LP Initial Term Loan, 8.85%, 10/28/13 4,255,313 3,000,000 Paramount Resources Ltd. Term Loan, 9.82%, 08/28/12 3,052,500 Targa Resources, Inc. Synthetic Term Loan, 5.23%, 771,822 10/31/12 782,434 3,167,236 Term Loan, 7.36%, 10/31/12 3,200,872 5,940,000 TARH E&P Holdings, LP Second Lien Term Loan, 10.88%, 11/15/10 5,940,000 ------------- 17,231,119 ------------- ENERGY - OTHER ENERGY - 1.6% Alon USA Energy, Inc. Edgington Facility, 7.57%, 220,556 06/22/13 222,141 Paramount Facility, 7.61%, 1,764,444 06/22/13 1,777,131 Coffeyville Resources, LLC Funded Letter of Credit, 486,146 5.25%, 12/28/10 491,008 Tranche D Term Loan, 8.35%, 2,505,476 12/28/13 2,530,530 Delphi Acquisition Holding I B.V. 488,759 Facility B, 7.69%, 01/12/15 489,981 488,759 Facility C, 8.19%, 01/12/16 489,981 4,500,000 Endeavour International Holding B.V. Second Lien Term Loan, 12.36%, 11/01/11 4,635,000 7,443,413 Helix Energy Solutions Group, Inc. Term Loan, 7.33%, 07/01/13 7,484,352 3 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) ENERGY - OTHER ENERGY (CONTINUED) 997,481 MEG Energy Corp. Initial Term Loan, 7.35%, 04/03/13 1,006,937 Monitor US Finco, Inc. First Lien Term Loan, 10.85%, 3,990,000 01/11/14 4,009,950 Second Lien Term Loan, 3,000,000 17.35%, 01/11/15 3,007,500 356,897 SemCrude LP U.S. Term Loan, 7.59%, 03/16/11 358,460 4,987,500 Volnay Acquisition Co. I Term Loan, 7.32%, 01/12/14 5,040,467 4,000,000 Willbros USA, Inc. Syndicate Term Loan, 10.28%, 10/27/09 4,020,000 ------------- 35,563,438 ------------- ENERGY - REFINING - 0.5% 1,500,000 Concho Resources, Inc. Second Lien Term Loan, 9.10%, 03/27/12 1,503,750 3,000,000 Connacher Finance Corp. Term Loan, 8.60%, 10/20/13 3,026,250 2,500,000 J Ray McDermott SA Synthetic Facility, 5.26%, 06/06/12 2,525,000 2,000,000 Port Barre Investments, LLC Term Loan B, 7.48%, 09/06/14 2,007,500 Western Refining, Inc. Delayed Draw Term Loan, 589,286 04/08/14 (b) 592,232 Initial Advance Loan, 2,410,714 04/08/14 (b) 2,422,768 ------------- 12,077,500 ------------- FINANCIAL - 1.7% 1,745,625 AlixPartners, LLP Tranche B Term Loan, 7.61%, 10/12/13 1,760,899 2,000,000 American Wholesale Insurance Group, Inc. Second Lien Term Loan B, 14.75%, 04/27/12 2,005,000 2,623,393 Arias Acquisitions, Inc. Term Loan, 9.10%, 07/26/11 2,527,482 Checksmart Financial Co. First Lien Tranche B Term 1,918,188 Loan, 8.12%, 05/01/12 1,927,779 Second Lien Term Loan, 2,500,000 10.87%, 05/01/13 2,531,250 4,145,833 Crump Group, Inc. Tranche B Term Loan, 8.32%, 12/19/12 4,151,016 Dollar Financial Corp. Canadian Borrower Term 1,146,780 Loan, 8.05%, 10/30/12 1,153,225 Delayed Draw Term Loan, 843,220 8.05%, 10/30/12 847,706 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- FINANCIAL (CONTINUED) 995,000 First American Payment Systems, L.P. Term Loan, 8.63%, 10/06/13 999,975 Flatiron Re Ltd. Closing Date Term Loan, 1,684,211 9.59%, 12/20/10 1,703,158 Delayed Draw Term Loan, 815,789 9.59%, 12/29/10 824,967 2,083,333 FleetCor Technologies Operating Co., LLC Tranche 1 Term Loan, 7.57%, 04/30/13 2,096,354 4,000,000 Kepler Holdings, Ltd. Term Loan, 10.82%, 06/30/09 4,042,480 2,850,000 MPH Mezzanine III LLC (Macklowe/EOP NYC Portfolio Pool 1) Mezzanine 3, 02/09/08 (b) 2,857,125 1,000,000 Online Resources Corp. Term Loan A, 8.07%, 02/09/12 1,002,500 8,795,676 Wind Acquisition Holdings Finance S.A. PIK Term Loan USD, 12.61%, 12/21/11 9,037,557 ------------- 39,468,473 ------------- FOOD AND DRUG - 0.6% 4,000,000 CTI Food Holdings Co. LLC Secured Loan, 11.34%, 06/02/12 4,060,000 190,260 Duloxetine Royalty Sub Term Loan, 9.86%, 10/18/13 191,687 8,000,000 Rite Aid Corp. Senior Secured Bridge Loan, 10/23/07 (b) 7,960,000 1,496,250 Weight Watchers International, Inc. Term Loan B, 6.88%, 01/26/14 1,504,434 ------------- 13,716,121 ------------- FOOD/TOBACCO - BEVERAGES & BOTTLING - 0.1% 1,990,000 PBM Holdings, Inc. Term Loan, 7.82%, 09/29/12 2,003,691 ------------- FOOD/TOBACCO - FOOD/TOBACCO PRODUCERS - 0.4% 2,591,499 Chiquita Brands LLC Term Loan C, 8.38%, 06/28/12 2,624,308 FSB Holdings, Inc. First Lien Tranche B Term 1,500,000 Loan, 7.88%, 09/29/13 1,511,250 Second Lien Term Loan, 1,000,000 11.13%, 03/29/14 1,012,500 3,837,857 Michelina's Term Loan, 8.38%, 04/02/11 3,890,628 ------------- 9,038,686 ------------- FOOD/TOBACCO - RESTAURANTS - 1.3% 3,990,000 Aramark Canada Ltd. Canadian Term Loan, 7.48%, 01/26/14 4,004,963 4 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) FOOD/TOBACCO - RESTAURANTS (CONTINUED) Aramark Corp. Line of Credit Facility, 7.35%, 425,823 01/26/14 429,124 U.S. Term Loan, 7.35%, 2,876,145 01/26/14 2,898,234 Buffets Holdings, Inc. 2,306,250 Revolver, 10.26%, 11/01/11 (d) 2,303,529 476,577 Revolver, 8.37%, 11/01/13 476,014 4,416,667 Term Loan, 8.37%, 11/01/13 4,451,647 1,447,614 Caribbean Restaurant LLC Tranche B Term Loan, 8.07%, 06/30/09 1,458,471 1,956,550 El Pollo Loco, Inc. Term Loan, 7.86%, 11/18/11 1,968,798 976,250 New World Restaurant Group, Inc. First Lien Term Loan, 8.46%, 03/31/11 983,572 5,000,000 OSI Restaurant Partners, Inc. Term Loan B, 05/09/14 (b) 5,043,150 5,000,000 Pinnacle Foods Finance LLC Term Loan, 8.10%, 04/02/14 5,042,400 1,000,000 Sbarro, Inc. Term Loan B, 7.85%, 01/31/14 1,011,040 ------------- 30,070,942 ------------- FOREST PRODUCTS - PACKAGING - 0.5% 4,329,304 Georgia-Pacific Corp. Term Loan B, 7.09%, 02/14/13 4,359,479 6,000,000 Graham Packaging Co. Term Loan B, 7.63%, 10/07/11 6,054,000 Smurfit Kappa Acquisitions B1 Term Loan Facility, 7.73%, 1,000,000 12/01/13 1,007,500 C1 Term Loan Facility, 8.23%, 1,000,000 12/01/14 1,012,500 ------------- 12,433,479 ------------- FOREST PRODUCTS - PAPER - 0.2% 1,671,921 Appleton Papers, Inc. Term Loan, 7.60%, 06/11/10 1,678,877 2,500,000 Graphic Packaging International, Inc. Term Loan B, 04/13/14 (b) 2,517,950 1,496,193 NewPage Corp. Term Loan, 7.63%, 05/02/11 1,509,988 ------------- 5,706,815 ------------- GAMING/LEISURE - GAMING - 0.5% 3,946,088 CCM Merger, Inc./MotorCity Casino Term Loan B, 7.36%, 04/25/12 3,974,461 997,500 Great Canadian Gaming Corp. Tranche B Term Loan, 6.86%, 02/14/14 1,001,031 6,000,000 VML U S Finance LLC Term B Funded Project Loan, 8.10%, 05/25/13 6,055,200 ------------- 11,030,692 ------------- PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- GAMING/LEISURE - OTHER LEISURE - 2.2% 1,921,795 AMF Bowling Worldwide, Inc. Term Loan B, 8.32%, 08/27/09 1,924,235 2,325,000 BRE/ESA MEZZ 5 LLC Mezzanine D Loan, 8.57%, 07/11/08 2,330,813 12,675,000 BRE/Homestead MEZZ 4 LLC Mezzanine D Loan, 8.57%, 07/11/08 12,706,687 5,000,000 Edge Las Vegas Development LLC Second Lien Term Loan, 14.32%, 06/01/07 5,025,000 Fontainebleau Las Vegas LLC Delayed Draw Term Loan, 2,333,333 05/17/14 (b) 2,353,027 4,666,667 Term Loan, 05/17/14 (b) 4,706,053 Fontainebleu Florida Hotel LLC Tranche A Term Loan, 8.07%, 3,000,000 05/11/08 3,000,000 Tranche B Term Loan, 8.07%, 2,000,000 05/11/08 2,000,000 Tranche C Term Loan, 5,000,000 06/06/12 (b) 5,043,750 997,500 Greenwood Racing Inc. Term Loan, 7.57%, 11/28/11 1,003,734 3,660,201 Kuilima Resort Co. First Lien Term Loan, 8.07%, 09/30/10 (b) 3,622,684 Trump Entertainment Resorts Holdings, L.P. Term C-1 Facility, 7.87%, 2,214,337 05/20/12 2,226,804 Term C-2 Facility, 7.82%, 2,214,337 05/20/12 2,226,804 1,945,000 Wallace Theaters First Lien Term Loan, 8.60%, 07/31/09 1,964,450 956,989 Yellowstone Mountain Club, LLC Term Loan, 7.70%, 09/30/10 956,587 ------------- 51,090,628 ------------- HEALTHCARE - ACUTE CARE - 2.8% 3,396,862 Alliance Imaging, Inc. Tranche C1 Term Loan, 7.88%, 12/29/11 3,418,092 375,017 Cornerstone Healthcare Group Holding, Inc. Revolver, 9.35%, 07/15/11 (d) (e) 348,289 HCA, Inc. Tranche A Term Loan, 7.60%, 989,773 11/17/12 997,869 Tranche B Term Loan, 7.60%, 51,870,000 11/17/13 52,522,525 2,992,500 ReAble Therapeutics Finance, LLC Term Loan, 7.88%, 11/04/13 3,002,794 5 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) HEALTHCARE - ACUTE CARE (CONTINUED) 1,997,500 Triumph Healthcare Second Holdings LLC First Lien Term Loan, 8.35%, 07/28/13 (b) 2,011,243 1,000,000 Second Lien Term Loan, 13.36%, 07/28/14 1,002,500 ------------- 63,303,312 ------------- HEALTHCARE - ALTERNATE SITE SERVICES - 1.3% 1,426,568 American HomePatient, Inc. Secured Promissory Note, 6.79%, 08/01/09 (e) 1,426,568 997,494 CRC Health Corp. New Term Loan, 7.60%, 02/06/13 1,009,344 FHC Health Systems, Inc. Delayed Draw Term Loan, 513,978 14.11%, 12/18/09 531,967 Initial Term Loan, 12.11%, 734,254 12/18/09 759,953 Third Lien Additional Term 1,500,000 Loan, 15.12%, 02/09/11 1,552,500 Third Lien Term Loan, 15.11%, 5,000,000 02/09/11 5,175,000 16,379,480 LifeCare Holdings (Rainier Acquisition Corp.) Term Loan, 7.60%, 08/11/12 (b) 15,985,389 1,965,000 Skilled Healthcare LLC First Lien Term Loan, 7.57%, 06/15/12 1,979,738 331,070 Sunrise Medical Holdings, Inc. Term Loan B-1, 8.88%, 05/13/10 330,242 1,945,000 WellCare Health Plans, Inc. Term Loan, 7.88%, 05/13/09 1,955,950 ------------- 30,706,651 ------------- HEALTHCARE - MEDICAL PRODUCTS - 5.3% 1,845,537 American Medical Systems, Inc. Term Loan, 7.68%, 07/20/12 1,863,992 1,000,000 Carl Zeiss Vision Holding GMBH Term B2 Facility, 7.84%, 07/24/15 1,011,250 CB Diagnostics AB 1,349,530 Facility B2, 7.46%, 03/09/15 1,366,400 3,959,790 Facility C2, 7.73%, 03/09/16 4,029,086 CCS Medical, Inc. First Lien Term Loan, 8.60%, 29,528,257 09/30/12 (b) 29,618,023 Second Lien Term Loan, 4,750,000 13.35%, 03/30/13 4,773,750 1,902,938 CompBenefits Corp. Tranche B Term Loan, 8.34%, 04/12/12 1,916,030 9,000,000 Fenwal, Inc. Initial First Lien Term Loan, 7.57%, 02/28/14 9,033,840 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- HEALTHCARE - MEDICAL PRODUCTS (CONTINUED) 1,000,000 Golden Gate National Senior Care LLC Second Lien Term Loan, 13.11%, 09/14/11 1,017,500 5,000,000 Graceway Pharmaceuticals LLC First Lien Term B Loan, 12/29/11 (b) 5,007,200 12,721,504 HealthSouth Corp. Term Loan, 7.85%, 03/10/13 12,835,235 1,471,338 National Renal Intitutes, Inc. Term Facility, 7.63%, 03/31/13 1,473,177 Nyco Holdings 3 ApS 3,875,000 Facility B2, 7.85%, 12/29/14 3,872,598 3,875,000 Facility C2, 8.35%, 12/29/15 3,891,973 Patheon, Inc. Tranche PB Loan, 7.82%, 1,200,000 04/27/14 1,197,000 Tranche USB Loan, 7.82%, 800,000 04/27/14 798,000 4,000,000 Pharmaceutical Holdings Corp. Term Loan, 8.57%, 01/30/12 4,010,000 2,372,093 Reliant Pharmaceuticals, Inc. Initial Term Loan, 8.59%, 03/31/12 2,391,354 Talecris Biotherapeutics Holdings Corp. First Lien Term Loan, 8.86%, 16,458,750 12/06/13 16,623,338 Second Lien Term Loan, 7,500,000 11.86%, 12/08/14 7,762,500 Warner Chilcott Co., Inc. Dovonex Delayed Draw Term 647,337 Loan, 7.35%, 01/18/12 (b) 649,951 Tranche B Acquisition Date Term Loan, 7.43%, 5,080,401 01/18/12 (b) 5,106,870 728,037 Warner Chilcott Corp. Tranche C Acquisition Date Term Loan, 7.35%, 01/18/12 (b) 732,361 ------------- 120,981,428 ------------- HOUSING - BUILDING MATERIALS - 1.8% American Buildings Co. 1,474,430 Term Loan A, 8.85%, 12/31/08 1,359,661 Term Loan B, 10.00%, 928,972 12/31/08 873,234 2,120,000 Associated Materials Inc. Term Loan, 7.87%, 08/29/10 2,120,000 5,300,646 Atrium Cos., Inc. Closing Date Term Facility, 8.61%, 06/21/12 5,267,517 1,866,523 Custom Building Products, Inc. First Lien Term Loan, 7.60%, 10/20/11 1,871,973 1,760,667 DESA LLC Term Loan, 13.00%, 11/26/11 1,685,838 1,000,000 Jacuzzi Brands Corp. First Lien Term Loan B, 02/07/14 (b) (f) 995,940 4,476,982 Nortek, Inc. Term Loan, 7.36%, 08/27/11 4,497,039 6 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) HOUSING - BUILDING MATERIALS (CONTINUED) 1,588,840 PGT Industries, Inc. First Lien Tranche A-2 Term Loan, 8.32%, 02/14/12 1,600,756 321,782 Professional Paint, Inc. First Lien Term Loan, 05/31/12 (b) 321,782 2,000,000 Roofing Supply Group, LLC First Lien Term Loan, 08/31/13 (b) 1,960,000 1,000,000 Standard Pacific Corp. Term Loan B, 6.86%, 05/05/13 988,750 8,065,752 Stile Acquisition Corp. Canadian Term Loan, 7.35%, 04/06/13 (b) 7,975,013 8,376,474 Stile U.S. Acquisition Corp. U.S. Term Loan, 7.35%, 04/06/13 (b) 8,280,731 ------------- 39,798,234 ------------- HOUSING - REAL ESTATE DEVELOPMENT - 3.4% 6,000,000 Edge Star Partners LLC First Lien Term Loan, 9.36%, 11/18/07 6,015,000 EH/Transeastern, LLC/TE TOUSA 4,000,000 Term Loan, 8.25%, 08/01/08 (f) 3,930,000 5,500,000 Term Loan, 12.25%, 08/01/08 2,750,000 Ginn LA Conduit Lender, Inc. First Lien Tranche A Credit- Linked Deposit, 5.25%, 2,043,130 06/08/11 1,980,569 First Lien Tranche B Term 4,424,305 Loan, 8.35%, 06/08/11 4,288,832 2,143,382 Giraffe Intermediate, LLC Mezzanine Note A-1, 7.08%, 08/09/07 2,143,382 Kyle Acquisition Group LLC 1,142,857 Facility B, 07/20/09 (b) 1,157,143 857,143 Facility C, 07/20/11 (b) 867,857 2,993,273 Lake at Las Vegas Joint Venture First Lien Term Loan, 12.00%, 11/01/09 2,927,002 3,960,000 LBREP/L-Suncal Master I LLC First Lien Term Loan, 8.57%, 01/18/10 3,955,050 3,000,000 LNR Property Corp. Initial Tranche B Term Loan, 07/12/11 (b) 3,015,000 3,283,813 Morningside Assisted Living Senior Mortgage Loan, 8.13%, 10/12/08 3,292,023 4,500,000 MPH Mezzanine II, LLC (Macklowe/EOP NYC Portfolio Pool 1) Mezzanine 2B, 02/09/08 (b) 4,511,250 606,618 MPO Intermediate LLC Mezzanine Note A-1, 7.08%, 08/09/07 606,618 1,454,555 November 2005 Land Investors, LLC First Lien Term Loan, 8.10%, 05/09/11 1,465,464 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- HOUSING - REAL ESTATE DEVELOPMENT (CONTINUED) Pro-Build Holdings, Inc. Delayed Draw Term Loan, 458,850 7.10%, 06/29/13 455,982 Initial Term Loan, 7.10%, 538,650 06/29/13 535,790 1,990,000 Shea Capital I, LLC Facility B, 7.37%, 10/27/11 1,957,662 Tamarack Resort LLC Tranche A Credit-Linked 2,697,248 Deposit, 5.25%, 05/19/11 2,697,248 Tranche B Term Loan, 8.60%, 4,005,413 05/19/11 4,005,413 16,892,762 Westgate Investments, LLC Senior Secured Loan, 13.00%, 07/15/10 PIK (e) 17,568,472 4,000,000 Weststate Land Partners LLC First Lien Term Loan, 8.61%, 11/01/07 4,020,000 4,000,000 Woodlands Commercial Properties Co., LP Bridge Loan, 8.11%, 02/28/08 4,005,000 ------------- 78,150,757 ------------- INFORMATION TECHNOLOGY - 5.8% 5,084,015 Advanced Micro Devices, Inc. Term Loan, 7.32%, 12/31/13 5,109,435 4,975,000 Applied Systems, Inc. Term Loan, 7.92%, 09/26/13 (b) 5,006,094 1,000,000 Aspect Software, Inc. Second Lien Term Loan, 12.44%, 07/05/12 1,016,250 1,900,000 Billing Services Group North America, Inc. U.S. Term Loan, 7.88%, 05/05/12 1,902,375 480,286 Bridge Information Systems, Inc. Multidraw Term Loan, 11.00%, 07/07/13 (c) (f) 36,021 Caritor, Inc. Synthetic Line of Credit, 558,140 05/18/13 (b) 560,233 7,441,860 Term Loan, 05/18/13 (b) 7,469,767 989,960 Deltek Systems, Inc. Term Loan, 7.60%, 04/22/11 994,910 8,975,013 DTN, Inc. Tranche C Term Loan, 8.35%, 03/10/13 (b) 9,019,888 19,950,000 Freescale Semiconductor, Inc. Term Loan, 7.12%, 12/02/13 19,981,122 2,000,000 GXS Corp. Second Lien Term Loan, 14.61%, 12/20/11 2,030,000 Infor Enterprise Solutions Holdings, Inc. Delayed Draw Term Loan, 3,753,426 9.10%, 07/28/12 3,785,481 Initial U.S. Term Facility, 7,194,067 9.12%, 07/28/12 7,255,505 Stage One U.S. Bridge 3,069,304 Facility, 12.37%, 07/29/13 3,069,304 6,702,262 Intergraph Corp. First Lien Term Loan, 05/29/14 (b) 6,765,129 7 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) INFORMATION TECHNOLOGY (CONTINUED) IPC Systems, Inc. Second Lien Term Loan, 3,000,000 05/31/15 (b) 3,037,500 15,250,000 Tranche B-1, 05/31/14 (b) 15,326,250 4,987 MediMedia USA, Inc. Tranche B Term Loan, 7.82%, 10/05/13 5,012 8,000,000 NameMedia, Inc. Term Loan, 11.37%, 08/31/08 8,040,000 3,500,000 Open Solutions, Inc. Term Loan, 7.49%, 01/23/14 3,530,625 4,683,282 Ridgefield Midco Sarl Facility A2, 13.07%, 09/30/16 PIK (b) 4,772,561 1,000,000 Serena Software, Inc. Term Loan, 03/10/13 (b) 1,005,630 1,946,921 Sitel, LLC U.S. Term Loan, 7.86%, 01/30/14 1,961,523 6,582,376 SunGard Data Systems, Inc. Term Loan B, 7.36%, 02/28/14 6,642,342 2,000,000 Transfirst Holdings, Inc. Second Lien Term Loan, 11.62%, 08/15/13 2,005,000 4,750,000 Vagent, Inc. Term Loan, 7.61%, 02/14/13 4,803,438 5,000,000 Verint Systems, Inc. Term Loan, 05/25/14 (b) 5,021,100 1,000,000 Vertafore, Inc. Term Loan, 7.82%, 01/31/12 1,008,120 ------------- 131,160,615 ------------- MANUFACTURING - 0.8% 1,890,000 Baldor Electric Co. Term Loan, 7.13%, 03/31/14 1,902,285 1,492,434 Coinmach Corp. Tranche B-1 Term Loan, 7.88%, 12/16/12 1,503,941 FCI International S.A.S 127,374 Term Loan B2A, 03/10/14 (b) 129,110 127,374 Term Loan C2A, 03/10/15 (b) 128,966 FCI SA 122,626 Term Loan B2B, 03/10/14 (b) 124,297 122,626 Tranche B4B, 11/03/13 (b) 124,297 FCI USA, Inc. 250,000 Facility B1, 03/10/14 (b) 253,408 250,000 Tranche B5B, 03/10/14 (b) 253,408 FR Brand Acquisition Corp. First Lien Term Loan B, 3,000,000 7.63%, 02/07/14 3,016,860 Second Lien Term Loan, 1,000,000 11.38%, 02/07/15 1,010,620 Generac Acquisition Corp. First Lien Term Loan, 7.85%, 2,000,000 11/11/13 1,995,000 Second Lien Term Loan, 2,000,000 11.35%, 05/12/14 1,958,320 1,985,000 Global Petroleum Inc. (SPI Petroleum) Term Loan, 9.86%, 09/18/13 1,999,888 2,000,000 Mueller Water Products, Inc. Term Loan B, 05/08/14 (b) 2,017,500 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- MANUFACTURING (CONTINUED) 1,764,711 Polypore, Inc. U.S. Term Loan, 8.32%, 11/12/11 1,769,122 ------------- 18,187,022 ------------- METALS/MINERALS - OTHER METALS/MINERALS - 1.1% 1,160,526 Euramax International Holdings B.V. Second Lien European Term Loan, 12.36%, 06/29/13 (b) 1,152,445 Euramax International, Inc. First Lien Domestic Term 2,057,247 Loan, 7.88%, 06/29/12 2,054,676 Second Lien Domestic Term 4,339,474 Loan, 12.36%, 06/29/13 (b) 4,287,921 5,000,000 Kaiser Aluminum & Fabricated Products, LLC Term Loan, 9.60%, 04/24/11 5,025,000 8,073,376 Murray Energy Corp. Tranche B Term Loan, 8.36%, 01/28/10 8,154,110 765,225 Oglebay Norton Co. Tranche B Term Loan, 7.85%, 07/31/12 772,877 4,399,444 Universal Buildings Products, Inc. Term Loan, 8.85%, 04/28/12 4,377,447 ------------- 25,824,476 ------------- METALS/MINERALS - STEEL - 0.5% 1,481,156 CII Carbon LLC Term Loan B, 7.38%, 08/23/12 1,487,643 9,799,200 Freeport-McMoRan Copper & Gold, Inc. Tranche B Term Loan, 7.07%, 03/19/14 9,844,668 Standard Steel, LLC Delayed Draw Term Loan, 125,000 7.82%, 07/02/12 (d) 126,250 Initial Term Loan, 7.85%, 827,083 06/30/12 835,354 ------------- 12,293,915 ------------- RETAIL - 4.8% 20,469,471 Blockbuster Entertainment Corp. Tranche B Term Loan, 8.81%, 08/20/11 20,593,106 31,575,741 Burlington Coat Factory Warehouse Corp. Term Loan, 7.61%, 05/28/13 31,554,270 947,913 Dollarama Group LP Term Loan B, 7.36%, 11/18/11 953,837 2,472,900 Eddie Bauer, Inc. Term Loan, 8.57%, 04/01/14 2,488,356 3,500,000 General Nutrition Centers, Inc. Term Loan, 7.58%, 09/16/13 3,501,470 958,018 Harbor Freight Tools USA, Inc. Tranche C Term Loan, 7.57%, 02/12/13 964,408 8 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) RETAIL (CONTINUED) Home Interiors & Gifts, Inc. Initial Term Loan, 10.32%, 4,515,939 03/31/11 (b) 3,326,757 Initial Term Loan, 10.41%, 25,541,354 03/31/11 18,815,550 8,500,000 Michaels Stores, Inc. Replacement Loan, 7.63%, 10/31/13 8,553,125 2,000,000 Mother's Work, Inc. Term Loan, 7.86%, 03/13/13 2,011,240 1,995,000 PetCo Animal Supplies, Inc. Term Loan, 7.98%, 10/28/13 2,014,112 Sally Holdings, LLC 1,500,000 Term Loan A, 11/01/12 (b) 1,502,820 1,496,241 Term Loan B, 7.86%, 11/18/13 1,510,575 992,500 Sports Authority, Inc., The Term Loan B, 7.60%, 05/03/13 994,664 Totes Isotoner Corp. First Lien Term Loan, 7.84%, 3,491,250 01/31/13 3,518,168 Second Lien Term Loan, 1,000,000 11.35%, 01/31/14 1,007,500 4,000,000 Toys "R" Us Tranche B Term Loan, 9.61%, 07/19/12 4,093,920 1,000,000 TRU 2005 Holding Co. I, Ltd Term Loan, 8.32%, 12/09/08 1,008,250 ------------- 108,412,128 ------------- SERVICE - ENVIRONMENTAL SERVICES - 0.5% 3,057,561 Alliance Laundry Systems LLC Term Loan, 7.57%, 01/27/12 3,084,345 1,000,000 Brickman Group Holdings, Inc. Tranche B Term Loan, 7.40%, 01/23/14 1,003,750 596,848 Duratek, Inc. Term Loan B, 7.63%, 06/07/13 604,308 EnergySolutions, LLC Synthetic Letter of Credit, 62,893 7.57%, 06/07/13 63,679 1,245,083 Term Loan, 7.63%, 09/30/11 1,260,646 Safety-Kleen Systems, Inc. Synthetic Letter of Credit, 1,220,339 7.88%, 08/02/13 1,223,390 4,654,576 Term Loan B, 7.88%, 08/02/13 4,666,213 ------------- 11,906,331 ------------- SERVICE - OTHER SERVICES - 2.0% 2,000,000 Audio Visual Services Group, Inc. Second Lien Loan, 10.85%, 08/28/14 2,010,000 1,950,000 Cydcor, Inc. First Lien Tranche B Term Loan, 8.57%, 02/05/13 1,940,250 3,491,206 Education Management LLC Term Loan C, 7.38%, 06/01/13 3,507,091 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SERVICE - OTHER SERVICES (CONTINUED) Koosharem Corp. First Lien Term Loan, 9.86%, 2,887,500 06/30/12 2,919,984 Second Lien Term Loan, 1,000,000 13.84%, 06/30/13 1,005,000 3,451,424 NES Rentals Holdings, Inc. Second Lien Permanent Term Loan, 12.13%, 07/20/13 3,503,196 1,000,000 Rental Service Corp. Second Lien Initial Term Loan, 11/30/13 (b) 1,019,580 26,000,000 Sabre, Inc. Initial Term Loan, 7.61%, 09/30/14 (b) 26,051,480 781,594 Survey Sampling International LLC Term Loan, 7.85%, 05/06/11 785,502 1,656,574 United Rentals, Inc. Initial Term Loan, 7.32%, 02/14/11 1,667,176 ------------- 44,409,259 ------------- TELECOMMUNICATIONS - 5.4% 1,753,425 American Messaging Services, Inc. Senior Secured Note, 11.57%, 09/03/08 1,766,575 Global Tel Link Corp. Synthetic Deposit, 5.22%, 65,217 02/13/08 (d) 65,870 Term Facility, 8.82%, 776,739 02/13/08 (d) 786,448 39,250,000 Gray Television, Inc. Term Loan B, 6.85%, 12/31/14 39,213,105 3,980,000 Intelsat Corp. Tranche B-2 Term Loan, 7.35%, 01/03/14 4,013,432 18,500,000 Level 3 Financing, Inc. Term Loan, 7.61%, 03/13/14 (b) 18,612,850 2,455,882 Revolution Studios Tranche B Term Loan, 9.07%, 12/21/14 2,474,301 8,944,624 Sorenson Communications, Inc. Tranche C Term Loan, 7.82%, 08/16/13 (b) 8,964,213 742,500 Stratos Global Corp./Stratos Funding LP Term B Facility, 8.10%, 02/13/12 746,829 5,484,847 Time Warner Telecom Holdings Inc. Term Loan B, 7.32%, 01/07/13 5,524,832 Univision Communications, Inc. Initial Term Loan, 7.57%, 36,644,295 09/29/14 36,654,189 Second-Lien Loan, 7.82%, 3,000,000 03/29/09 3,001,410 ------------- 121,824,054 ------------- 9 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) TELECOMMUNICATIONS - CLEC - 0.2% 4,937,500 Consolidated Communications, Inc. Term Loan D, 7.11%, 10/14/11 4,971,470 ------------- TELECOMMUNICATIONS - DATA/INTERNET - 0.0% 1,000,000 Pine Tree Holdings/Country Road Communications, Inc. Second Lien Tranche B Term Loan, 13.15%, 07/15/13 1,010,000 ------------- TELECOMMUNICATIONS - FIBER/LONG DISTANCE - 0.3% 5,000,000 FairPoint Communications, Inc. Replacement B Term Loan, 7.13%, 02/08/12 5,010,900 991,111 Hawaiian Telcom Communications, Inc. Tranche B Term Loan, 7.62%, 10/31/12 994,828 ------------- 6,005,728 ------------- TRANSPORTATION - AUTO - 6.0% 18,500,000 Dana Corp. Term Loan, 7.88%, 04/13/08 (b) 18,567,340 Delphi Corp. First Lien DIP Term Loan Tranche B, 7.63%, 5,000,000 10/08/07 (b) 5,043,605 Second Lien DIP Term Loan, 34,000,000 8.13%, 12/31/07 34,153,000 3,107,500 Tranche C Loan, 12/31/07 (b) 3,121,484 40,897,500 Ford Motor Co. Term Loan, 8.36%, 12/15/13 41,276,620 10,972,500 General Motors Corp. Secured Term Loan, 7.73%, 11/29/13 11,080,469 2,000,000 Gleason Works (The) Second Lien Term Loan, 10.88%, 12/30/13 2,022,500 5,500,000 Goodyear Tire & Rubber Co. Third Lien Term Loan, 8.82%, 03/01/11 5,544,660 Key Safety Systems, Inc. First Lien Term Loan, 7.57%, 5,500,000 03/08/14 (e) 5,505,170 Second Lien Term Loan, 2,000,000 10.32%, 09/08/14 (b) (e) 2,020,000 4,987,500 Pep Boys, The - Manny, Moe & Jack Term Loan, 7.36%, 10/27/13 5,024,906 1,304,615 Stanadyne Corp. Term Loan, 8.82%, 08/02/10 1,311,138 1,410,000 Vanguard Car Rental USA Holding, Inc. Term Loan, 8.35%, 06/14/13 1,423,395 ------------- 136,094,287 ------------- PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- TRANSPORTATION - LAND - 0.4% Quality Distribution, Inc. Synthetic Letters of Credit, 1,427,481 5.26%, 11/13/09 1,427,481 6,941,969 Term Loan, 8.32%, 11/13/09 (f) 6,941,969 ------------- 8,369,450 ------------- UTILITIES - 3.2% Boston Generating, LLC First Lien Revolving Credit 48,276 Loan, 7.60%, 12/20/13 48,638 First Lien Synthetic Letter of Credit Loan, 5.23%, 338,255 12/20/13 (b) 340,791 First Lien Term Loan, 7.60%, 1,361,522 12/20/13 (b) 1,371,733 Calpine Corp. Second Lien Term Loan, 233,749 10.35%, 07/16/07 (c) 256,656 Second Lien Term Loan B, 809,818 10.35%, 07/16/07 889,181 Coleto Creek Power, LP First Lien Synthetic Letter of 188,611 Credit, 06/28/13 (b) 189,790 First Lien Term Loan, 8.10%, 5,457,806 06/28/13 (b) 5,498,739 Second Lien Term Loan, 4,962,500 9.37%, 06/28/13 4,974,906 Synthetic Facility, 5.25%, 318,471 06/28/13 320,462 Covanta Energy Corp. Delayed Draw Term Loan, 3,750 9.50%, 06/30/12 3,764 Funded Letter of Credit, 659,794 5.24%, 02/09/14 660,619 1,340,206 Term Loan, 6.88%, 02/09/14 1,345,232 5,000,000 Entegra TC LLC Third Lien Term Loan, 04/02/14 (b) 5,217,200 3,960,000 GBGH LLC First Lien Term Loan, 10.86%, 08/07/13 3,969,900 1,496,250 Kelson Canada, Inc. First Lien Term Loan, 7.57%, 02/13/14 1,507,472 Mach Gen, LLC First Lien Term B Loan, 4,519,922 7.36%, 02/22/14 4,523,854 Synthetic Letter of Credit, 468,750 7.35%, 02/22/13 469,158 Magnolia Energy LP Additional PCLC Facility, 15,022 12/14/11 (b) 15,022 2,252,457 Facility A, 12/14/11 (b) 2,252,457 232,522 Facility B, 12/14/11 (b) 232,522 4,808,157 Mirant North America, LLC Term Loan, 7.07%, 01/03/13 (b) 4,823,784 NATG Holdings LLC Credit-Linked Certificate of 65,796 Deposit, 4.00%, 01/23/09 (c) 57,242 Term Loan A, 11.50%, 1,001,749 01/23/09 (c) 177,810 Term Loan B-1, 12.25%, 733,455 01/23/10 (c) 128,355 10 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SENIOR LOANS (CONTINUED) UTILITIES (CONTINUED) NRG Energy, Inc. Credit Linked Certificate of 2,413,620 Deposit, 7.35%, 02/01/13 2,419,196 4,084,695 Term Loan, 7.35%, 02/01/13 4,097,684 2,000,000 Primary Energy Operations LLC Term Loan, 8.11%, 08/24/09 1,995,000 Reliant Energy, Inc. Pre-Funded Letter of Credit, 2,142,857 5.19%, 12/01/10 2,155,800 2,850,000 Term Loan, 7.70%, 12/01/10 2,867,214 4,487,632 Riverside Energy Center LLC Term Loan, 9.59%, 06/24/11 4,588,604 Rocky Mountain Energy Center LLC Credit-Linked Certificate of 361,073 Deposit, 5.26%, 06/24/11 369,197 2,857,277 Term Loan, 9.59%, 06/24/11 2,921,566 TECO Panda - Union Power Partners, L.P. Tranche A Term Loan, 9.00%, 1,297,170 06/01/12 (b) (f) 2,353,287 Tranche B Term Loan, 9.00%, 1,245,283 06/01/20 (b) (f) 2,259,155 TECO Panda Generating Co. - Gila River Power L.P. Tranche A Term Loan, 9.00%, 2,205,189 06/01/12 (b) (f) 4,000,587 Tranche B Term Loan, 9.00%, 2,125,358 06/01/20 (b) (f) 3,855,760 ------------- 73,158,337 ------------- WIRELESS - CELLULAR/PCS - 4.1% American Cellular Corp. Delayed Draw Term Loan, 76,923 03/15/14 (b) 76,923 Tranche B Term Loan, 7.32%, 6,673,077 03/15/14 (b) 6,713,983 1,822,500 Centennial Cellular Operating Co. Term Loan, 3.57%, 02/09/11 1,837,536 38,211,250 Cricket Communications, Inc. Term B Loan, 7.60%, 06/16/13 38,605,590 10,178,302 Insight Midwest Holdings, LLC Term Loan B, 7.35%, 04/07/14 10,257,681 1,468,534 Maritime Telecommunications Network, Inc. First Lien Term Loan, 8.10%, 05/11/12 1,470,370 MetroPCS Wireless, Inc. Tranche B Term Loan, 7.88%, 28,362,456 11/04/13 (b) 28,654,022 Tranche B Term Loan, 7.63%, 4,500,000 11/04/13 4,546,260 ------------- 92,162,365 ------------- Total Senior Loans (Cost $1,952,996,582) 1,958,937,492 ------------- PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- FOREIGN DENOMINATED SENIOR LOANS (a) - 15.8% AUSTRALIA - 2.2% EUR PBL Media Finance Pty, Ltd. 11,000,000 Term Loan A, 02/07/13 (b) 9,035,687 30,000,000 Term Loan B, 02/07/13 (b) 24,643,279 20,000,000 Seven Media Group Facility A Term Loan, 02/22/13 (b) 16,428,853 ------------- 50,107,819 ------------- AUSTRIA - 1.8% EUR 30,000,000 Sacher Funding Ltd. Euro Term Loan, 9.96%, 05/14/14 (b) 42,185,860 ------------- DENMARK - 0.1% EUR 2,000,000 Nyco Holdings 3 ApS Facility D (Second Lien), 8.91%, 12/29/16 2,722,825 ------------- FRANCE - 2.1% EUR 2,790,162 Autocam France, S.a.r.L. Revolver, 6.96%, 06/21/09 3,717,013 Ypso Holding SA Capex Term Loan, 133,622 12/15/12 (d) 179,286 Eur B (Acq) 1 Facility, 5.87%, 3,452,754 06/15/14 4,683,245 Eur B (Acq) 2 Facility, 5.87%, 5,633,441 06/06/14 7,641,085 Eur B (Recap) 1 Facility, 8,946,874 5.87%, 06/15/14 12,112,242 Eur B (Recap) 2 Facility, 73,323 6.11%, 06/15/14 99,264 4,690,407 Eur C (Acq), 6.61%, 12/31/15 6,424,080 Eur C (Recap), 6.61%, 8,809,593 12/31/15 11,999,060 ------------- 46,855,275 ------------- GERMANY - 1.1% EUR 9,500,000 Cognis GMBH Term Loan C, 7.32%, 09/15/13 (b) 11,168,679 2,500,000 Iesy Hessen/GMBH & Co. KG Euro Senior Secured Term Loan, 7.10%, 10/15/11 3,422,975 Kabel Baden Wurttemburg GMBH & CO. KG Second Lien Facility, 8.95%, 2,500,000 12/09/15 3,416,651 Term B Facility, 6.45%, 1,826,284 06/09/14 2,492,469 Term C Facility, 6.95%, 1,826,284 06/09/15 2,491,314 11 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- FOREIGN DENOMINATED SENIOR LOANS (CONTINUED) GERMANY (CONTINUED) EUR 879,378 Schieder Mobel Holding, GMBH Delayed Draw Term Loan, 9.00%, 07/20/07 (d) (e) 1,186,285 ------------- 24,178,373 ------------- ITALY - 0.5% EUR Pirelli Cables Euro Term Loan B, 6.00%, 875,000 08/04/12 1,185,537 Euro Term Loan C2, 5.57%, 875,000 07/28/14 1,191,424 Wind Telecommunicatione S.p.A. A1 Term Loan Facility, 5.33%, 2,817,754 05/26/12 3,801,697 B1 Term Loan Facility, 5.63%, 1,750,000 05/26/13 2,368,107 C1 Term Loan Facility, 6.13%, 1,750,000 05/26/14 2,377,150 ------------- 10,923,915 ------------- NETHERLANDS - 1.7% EUR Amsterdamse Beheer- En Consultingmaatschappij B.V. Casema B1 Term Loan, 4,388,443 6.49%, 09/12/14 5,992,786 Casema B2 Term Loan, 2,279,577 6.49%, 09/12/14 3,115,408 Casema C Term Loan, 6.99%, 6,668,019 09/12/15 9,139,657 Casema D Term Loan Second 1,500,000 Lien, 8.24%, 03/12/16 2,070,579 Kabelcom B Term Loan, 5,150,162 6.11%, 09/12/14 7,038,523 Kabelcom C Term Loan, 5,150,162 6.99%, 09/12/15 7,047,255 Kabelcom D Term Loan 1,000,000 Second Lien, 6.11%, 03/12/16 1,380,386 YBR Acquisition B.V. Facility B2 Term Loan, 5.82%, 806,733 06/30/13 1,102,726 Facility C2 Term Loan, 5.64%, 1,250,000 06/30/14 1,712,665 ------------- 38,599,985 ------------- SPAIN - 0.4% EUR Gasmedi 2000 S.A. / Nattai, S.L.U. Tranche B Term Loan, 6.65%, 1,666,667 08/11/14 2,248,343 Tranche C Term Loan, 7.15%, 1,666,667 08/11/15 2,248,343 Tranche E Second Lien Term 1,666,667 Loan, 8.90%, 02/11/16 2,270,770 PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- SPAIN (CONTINUED) EUR 2,000,000 Maxi PIX SARL PIK Loan, 11.85%, 05/31/16 PIK 2,790,860 ------------- 9,558,316 ------------- SWEDEN - 0.4% EUR 3,500,000 B-FLY 2 AB Euro Term Loan B2, 6.11%, 12/30/15 4,790,470 Nordic Cable Acquisition (ComHem) Facility B2 Com Hem Comm, 15,333,333 5.88%, 01/31/14 2,248,720 Facility C2 Com Hem, 6.00%, 14,666,667 01/31/15 2,158,907 Facility D Com Hem, 7.75%, 5,000,000 07/31/15 737,799 ------------- 9,935,896 ------------- UNITED KINGDOM - 5.3% GBP 3,000,000 AA Acquistions Co., Ltd. Additional Term Loan B, 7.90%, 03/12/15 6,029,434 4,000,000 Airport Development & Investment Ltd. (BAA) Facility B, 9.49%, 04/07/11 7,968,668 All3Media Intermediate Ltd. 714,753 Facility B, 7.91%, 08/31/14 1,417,376 2,585,073 Facility C, 8.41%, 08/31/15 5,151,841 3,000,000 Facility D, 10.29%, 02/29/16 6,075,187 Mezzanine Loan, 14.15%, 3,523,711 08/31/16 7,161,873 994,975 Ansco UK Finance CO. Ltd. Tranche B Term Loan, 8.02%, 03/08/12 1,973,063 1,246,875 Aramark Corp. U.K. Term Loan, 7.71%, 01/26/14 2,478,754 1,361,250 Champion Home Builders Co. Term Loan, 8.16%, 10/31/12 2,652,276 2,748,583 Dollar Financial UK Limited UK Borrower Euro Term Loan, 6.73%, 10/31/12 3,717,100 Forgings International Ltd. (Firth Rixon) Term B1 (GBP), 7.56%, 500,000 09/22/14 1,002,018 Term C1 (GBP), 9.64%, 500,000 09/22/15 1,003,877 Highland Acquisitions Ltd. 1,000,000 Facility B, 8.52%, 01/31/14 1,983,028 1,000,000 Facility C, 9.02%, 01/31/15 1,992,919 Mezzanine Facility, 15.77%, 2,000,000 01/31/16 (b) 4,009,336 2,250,000 IPC Systems, Inc. Tranche B-2 Term Loan, 05/31/14 (b) 4,472,940 12 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) - -------------------- ------------- FOREIGN DENOMINATED SENIOR LOANS (CONTINUED) UNITED KINGDOM (CONTINUED) GBP 1,689,475 Knowledgepoint360 Group, LLC U.K. Term Loan, 8.92%, 04/26/14 3,308,502 3,125,000 Osprey Acquisitions Ltd. Term Tranche 2, 7.79%, 02/18/12 6,258,778 Peacock Group (The) 2,250,000 Facility B, 9.09%, 10/30/13 4,478,504 2,250,000 Facility C, 7.94%, 10/30/14 4,478,504 4,895,408 PlayPower, Inc. Add-On Term Loan, 8.34%, 06/30/12 (b) 9,780,359 Ristretto Investissements SAS (Algeco) 437,500 Tranche E-B2, 09/30/13 (b) 874,065 437,500 Tranche E-C2, 09/30/14 (b) 878,392 1,381,832 SunGard UK Holdings, Ltd. U.K. Term Loan B, 02/12/14 2,750,461 Towergate Partnership Ltd. 3,125,000 Facility A, 8.08%, 10/31/12 6,250,990 3,125,000 Facility B, 8.08%, 10/31/13 6,282,021 Trinitybrook PLC Term Loan B1, 7.66%, 2,500,000 07/31/13 4,961,972 Term Loan C1, 8.16%, 2,500,000 07/31/14 4,970,379 Virgin Media Investment Holdings Ltd. 771,045 A Facility, 6.62%, 03/03/11 1,520,890 1,750,000 C Facility, 8.48%, 03/03/13 3,581,730 ------------- 119,465,237 ------------- UNITED STATES - 0.2% EUR Hayes Lemmerz International., Inc. Synthetic Letter of Credit, 218,182 05/30/14 (b) 293,595 Term Loan Facility, 3,781,818 05/30/14 (b) 5,088,971 ------------- 5,382,566 ------------- Total Foreign Denominated Senior Loans (Cost $345,006,607) 359,916,067 ------------- SHARES VALUE ($) ------ ------------- CORPORATE NOTES AND BONDS (g) (h) - 0.1% INFORMATION TECHNOLOGY - 0.1% 2,000,000 Spansion LLC Senior Secured Notes, 8.49%, 06/01/13 2,035,000 ------------- Total Corporate Notes and Bonds (Cost $2,000,000) 2,035,000 ------------- COMMON STOCKS (i) - 1.6% UTILITIES - 1.3% 12,470 CenterPoint Energy, Inc. 319,481 643,517 Mirant Corp. 29,859,189 ------------- 30,178,670 ------------- WIRELESS - CELLULAR/PCS - 0.3% 76,137 Leap Wireless International, Inc. 6,506,668 ------------- Total Common Stocks (Cost $19,016,105) 36,685,338 ------------- PREFERRED STOCK - 0.0% MANUFACTURING - 0.0% 14,382 Superior Telecom, Inc., Series A 12,944 ------------- Total Preferred Stock (Cost $14,382) 12,944 ------------- WARRANT - 0.0% ENERGY - 0.0% 141,093 Monitor Oil 0 ------------- Total Warrant (Cost $0) 0 ------------- CLAIMS (j) - 0.1% UTILITIES - 0.1% 17,500,000 Mirant Corp. 1,334,375 ------------- Total Claims (Cost $2) 1,334,375 ------------- TOTAL INVESTMENTS - 103.8% (cost of $2,319,033,678) (k) 2,358,921,216 ------------- OTHER ASSETS & LIABILITIES, NET - (3.8)% (86,957,180) ------------- NET ASSETS - 100.0% 2,271,964,036 ============= - ---------- 13 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY Forward foreign currency contracts outstanding as of May 31, 2007 were as follows: Principal Contracts Amount Net to Buy or Covered by Unrealized to Sell Currency Contracts Expiration Depreciation - -------------------------------------------------------------- Sell EUR 50,000,000 06/06/07 $ (140,986) Sell EUR 40,000,000 07/10/07 (1,536,628) Sell EUR 34,000,000 08/01/07 (1,470,248) Sell EUR 21,000,000 08/02/07 (1,032,288) Sell GBP 25,000,000 06/07/07 (58,758) Sell GBP 15,000,000 07/10/07 (714,835) ------------ $ (4,953,743) ============ (a) Senior loans in which the Fund invests generally pay interest at rates which are periodically predetermined by reference to a base lending rate plus a premium. (Unless otherwise identified by footnote (e), all senior loans carry a variable rate interest.) These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate ("LIBOR") or (iii) the certificate of deposit rate. Rate shown represents the weighted average rate at May 31, 2007. Senior loans, while exempt from registration under the Security Act of 1933, as amended (the "1933 Act"), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturities shown. (b) All or a portion of this position has not settled. Contract rates do not take effect until settlement date. (c) The issuer is in default of certain debt covenants. Income is not being accrued. (d) Senior Loan Notes have additional unfunded loan commitments. As of May 31, 2007, the fund had unfunded loan commitments of $31,539,114 which could be extended at the option of the borrower, pursuant to the following loan agreements: UNFUNDED LOAN BORROWER COMMITMENT - -------- ------------- American Building Co. $ 239,463 Autocam Corp. 38,773 Atrium Cos., Inc. 164,118 Buffets Holdings, Inc. 56,250 Centennial Cellular Operating Co. 2,250,000 Cornerstone Healthcare Group Holding, Inc. 562,525 Covanta Energy Corp. 1,000,000 Cricket Communications, Inc. 6,500,000 DeCrane Aircraft Holdings, Inc. 1,000,000 Federal-Mogul Corp. 102,746 Fenwal, Inc. 1,500,000 FleetCor Technologies Operating Co., LLC 416,667 Global Tel Link Corp. 260,869 Global Tel Link Corp. 391,304 III Exploration II LP 750,000 Interstate Bakeries Corp. 7,500,000 Millennium Digital Media Systems, LLC 3,822,390 Oglebay Norton Co. 200,000 Readers Digest Association, Inc. (The) 1,199,500 Reliant Pharmaceuticals, Inc. 627,907 Schieder Mobel Holding, GMBH 24,742 Standard Steel, LLC 41,667 Univision Communications, Inc. 2,355,705 Ypso Holding SA 534,488 ------------- $ 31,539,114 ============= (e) Fixed rate senior loan. (f) Loan or a portion of the loan is held on participation. (g) Variable rate security. The interest rate shown reflects the rate in effect at May 31, 2007. (h) Security exempt from registration pursuant to Rule 144A under the 1933 Act. This security may only be resold, in transactions exempt from registration, to qualified institutional buyers. At May 31, 2007, the value of this security amounted to $2,035,000 or 0.1% of net assets. This security has been determined by the Adviser to be a liquid security. (i) Non-income producing security. (j) Security is the result of company restructuring that will be converted into equity upon the completion of court proceedings. (k) Cost for Federal income tax purposes is $2,318,403,769. Unrealized appreciation (depreciation) is as follows: Gross appreciation $ 48,683,434 Gross depreciation (8,165,987) ------------ Net appreciation $ 40,517,447 ------------ CLEC Competitive Local Exchange Carrier EUR Euro Currency GBP Great Britain Pound PIK Payment in Kind FOREIGN DENOMINATED SENIOR LOANS INDUSTRY CONCENTRATION TABLE: (% of Total Net Assets) Cable - International Cable 4.2% Other 3.0% Financial 2.6% Diversified Media 1.6% Telecommunications 1.3% Retail 1.2% Broadcasting 1.0% Chemicals - Commodity & Fertilizer 0.5% Aerospace - Aerospace/Defense 0.4% ----- 15.8% ===== SECURITY VALUATION: The value of the Fund's assets is based on the current market value of its investments. For securities with readily available market quotations, the Fund uses those quotations for pricing. Securities without a sale price or bid and ask quotations on the valuation day will be priced by an independent pricing service. When portfolio securities are traded on the relevant day of valuation, the valuation will be the last reported sale price on that day. If there are no such sales on that day, the security will be valued at the mean between the most recently quoted bid and asked prices from principal market makers. If securities do not have readily available market quotations or pricing service prices, including circumstances under which such are determined not to be accurate or current (including when events materially affect the value of securities occurring between the time when market price is determined and calculation of the Fund's net asset value), such securities are valued at their fair value, as 14 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) MAY 31, 2007 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY determined in good faith by the Fund's investment adviser, Highland Capital Management, L.P. ("Highland" or the "Investment Adviser") in accordance with procedures established by the Fund's Board of Trustees. In these cases, the Fund's net asset value will reflect the affected portfolio securities' value as determined in the judgment of the Board of Trustees or its designee instead of being determined by the market. Using a fair value pricing methodology to price securities may result in a value that is different from a security's most recent sale price and from the prices used by other investment companies to calculate their net asset values. There can be no assurance that the Fund's valuation of a security will not differ from the amount that it realizes upon the sale of such security. For more information with regard to significant accounting policies, see the most recent semi-annual report filed with the Securities and Exchange Commission. 15 ITEM 2. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 3. EXHIBITS. Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY By (Signature and Title)* /S/ JAMES D. DONDERO ------------------------------------------------------- James D. Dondero, Chief Executive Officer (principal executive officer) Date JULY 11, 2007 ---------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /S/ JAMES D. DONDERO ------------------------------------------------------- James D. Dondero, Chief Executive Officer (principal executive officer) Date JULY 11, 2007 ---------------------------------------------------------------------------- By (Signature and Title)* /S/ M. JASON BLACKBURN ------------------------------------------------------- M. Jason Blackburn, Chief Financial Officer (principal financial officer) Date JULY 11, 2007 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 cert302.txt 302 CERT CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, James D. Dondero, certify that: 1. I have reviewed this report on Form N-Q of Highland Floating Rate Limited Liability Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: JULY 11, 2007 /S/ JAMES D. DONDERO --------------------- ----------------------------------------- James D. Dondero, Chief Executive Officer (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, M. Jason Blackburn, certify that: 1. I have reviewed this report on Form N-Q of Highland Floating Rate Limited Liability Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: JULY 11, 2007 /S/ M. JASON BLACKBURN --------------------- ------------------------------------------- M. Jason Blackburn, Chief Financial Officer (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----