SCHEDULE: Saba Capital Discloses 5.05% Stake in Highland Fund

Saba Capital Management, L.P. and affiliates have acquired a 5.05% beneficial ownership stake in Highland Opportunities and Income Fund, citing undervaluation and potential for strategic changes.

Summary

• Saba Capital Management, L.P., Saba Capital Management GP, LLC, and Boaz R. Weinstein (collectively, the "Reporting Persons") have jointly filed a Schedule 13D.
• The Reporting Persons beneficially own 2,792,709 Common Shares of Highland Opportunities and Income Fund.
• This ownership represents 5.05% of the Issuer's outstanding common stock, calculated based on 55,326,802 shares outstanding as of April 30, 2025, as disclosed in the company's DEF 14A filed May 7, 2025.
• The total approximate amount paid to acquire these Common Shares was $13,934,206.
• Funds for the acquisition were derived from investor subscription proceeds, capital appreciation, and margin account borrowings.
• The Reporting Persons acquired the shares for investment purposes, believing them to be undervalued and an attractive investment opportunity.
• They may engage in discussions with the Issuer's management, Board of Trustees, and other shareholders regarding the Issuer's business, operations, board appointments, governance, performance, management, capitalization, the trading of Common Shares at a discount to Net Asset Value (NAV), and strategic plans, including potential liquidation.

Sentiment

Score: 7

Explanation: The filing indicates a positive sentiment from the Reporting Persons' perspective, as they view the investment as an attractive opportunity due to perceived undervaluation. Their intent to engage for value creation suggests a proactive and optimistic stance on their investment.

Positives

• The Reporting Persons believe the Common Shares are undervalued, indicating potential for price appreciation.
• The investment is viewed as an attractive opportunity by the Reporting Persons.
• Potential for strategic changes, including addressing the discount to Net Asset Value (NAV) and considering liquidation, could unlock shareholder value.

Negatives

• The Issuer's Common Shares are currently trading at a discount to its Net Asset Value (NAV), which is a concern for the Reporting Persons.

Risks

• The Issuer's Common Shares trading at a discount to its net asset value.
• Uncertainty regarding the outcome of potential discussions with the Issuer's management or Board of Trustees.
• The Reporting Persons may in the future sell some or all of their Common Shares, engage in short selling, or hedging transactions, which could impact the share price.

Future Outlook

The Reporting Persons intend to continuously review their investment in the Issuer. Depending on various factors, they may purchase additional Common Shares, sell some or all of their Common Shares, engage in short selling or hedging transactions. They may also propose or take actions related to the Issuer's business, operations, board appointments, governance, management, capitalization, strategic plans, or matters concerning the open or closed-end nature of the Issuer and timing of any potential liquidation.

Industry Context

This filing represents an activist stake in a closed-end fund, a common target for activist investors like Saba Capital Management. Activists often seek to unlock value in such funds when their shares trade at a significant discount to their Net Asset Value (NAV), by advocating for strategic changes, share buybacks, or liquidation. Saba Capital is known for its focus on such strategies within the closed-end fund sector.

Comparison to Industry Standards

• The core issue of the fund trading at a discount to NAV is a common characteristic that attracts activist investors in the closed-end fund industry.
• Saba Capital's stated intentions, including engaging with management, proposing governance changes, and considering liquidation, align with typical activist strategies employed to address persistent NAV discounts in comparable closed-end funds.

Corporate Governance

Stakeholder Impact

• Shareholders: Potential for increased shareholder value if activist strategies (e.g., addressing NAV discount, liquidation) are successfully implemented. However, activist engagement can also introduce short-term volatility.
• Management/Board: Likely to face increased scrutiny and pressure to address the discount to NAV and potentially implement strategic changes proposed by the activist investor.

Next Steps

• Engage in discussions with Highland Opportunities and Income Fund management, the Board of Trustees, other shareholders, and relevant parties.
• Potentially propose changes in the Issuer's business, operations, board appointments, governance, management, capitalization, strategic plans, or matters relating to the open or closed-end nature of the Issuer or timing of any potential liquidation.
• Potentially make binding or non-binding shareholder proposals.
• Potentially nominate one or more individuals as nominees for election to the Board.
• Continuously review their investment in the Issuer.
• Future actions may include purchasing additional Common Shares or selling some or all of their Common Shares, engaging in short selling of or any hedging or similar transactions with respect to the Common Shares.

Key Dates

Recommendation

The filing indicates an activist investor, Saba Capital, has taken a significant stake in Highland Opportunities and Income Fund, believing the shares are undervalued and trading at a discount to NAV. This suggests potential for value creation through activist engagement, such as pushing for governance changes or liquidation. However, the outcome of such activism is uncertain and depends on the company's response and the success of the activist's efforts. A 'hold' recommendation is prudent to observe how management responds and whether the activist's initiatives gain traction, as the investment thesis relies on future actions and their success rather than immediate, confirmed results.

Keywords

Saba Capital, Highland Opportunities and Income Fund, Schedule 13D, activist investor, beneficial ownership, undervalued, closed-end fund, corporate governance, shareholder activism, investment fund, common shares, Boaz R. Weinstein, net asset value