A number of brokerage firms improperly sold the Highland Floating Rate Advantage Fund (the “Highland Fund” or the “Fund”) as an investment that would provide investors with high income and that would protect investors’ money. But such representations were misleading and failed to disclose the significant risks of the Highland Fund. Some of the brokerage firms that are believed to have misrepresented the Highland Floating Rate Advantage Fund are Merrill Lynch, E*Trade, and the now-defunct Brookstreet Securities. Misrepresenting the risks of an investment is one of the most common forms of stockbroker negligence.

Like other bank loan funds, the Highland Floating Rate Advantage Fund invests in below-investment-grade, speculative bank loans.  Those loans carry with them significant credit risk, i.e., high risk of default, and significant risk of loss. Below-investment-grade loans are commonly referred to as high-yield or “junk” loans. The Fund also uses leverage, which exacerbates the already significant risk associated with the junk loans. Notwithstanding the speculative nature of the Fund, it was marketed as “seeking a high level of current income, consistent with preservation of capital.” But the Highland Floating Rate Advantage Fund was not even close to a product that was invested for preservation of capital.

The term “preservation of capital” sends a very clear message – preserve an investor’s capital. “Preservation” is defined as “the activity of protecting something from loss or danger.” So, investors who bought the Fund based on the above sales pitch justifiably would have believed that their money was invested safely. That was hardly the case though. All bank loan funds of this nature were very risky. And the Highland Fund was even riskier than its peers.

The Highland Fund was among the very riskiest of all bank loan funds. The Fund’s peers held mostly bank loans that were just below investment grade, whereas the Highland Fund concentrated its holdings in even lower-rated loans. And widening the gap between itself and its peers, the Highland Fund used more leverage than its peers. The end result is that the Highland Floating Advantage Fund performed far worse than even its poorly performing peers.


The Highland Fund’s peers held mostly bank loans that were rated BB or B by Standard & Poor’s, which is just below investment grade. The Highland Fund, however, concentrated its holdings in even lower-rated, riskier loans than its peers. At one point in time, the Fund’s peers held an average of 52.8% of their holdings in BB rated loans (the first and highest-rated of below-investment-grade securities). But the Highland Fund invested only 26.1% of its assets in BB rated loans. The Fund’s peers had an average of only 28.2% of their holdings in lower-rated B rated loans (the second rating below investment grade) while the Fund had nearly twice that amount, or 44.5%. And while its peers invested an average of only 2.0% of their assets in very speculative CCC or lower rated bank loans, the Fund invested 13.8% of its assets (or nearly seven times the average of its peers) in such highly risky junk loans. The Highland Fund was risky and speculative – even when compared to its peers, and certainly inappropriate for investors seeking to preserve their money.


In addition to the risky junk loans in the Highland Fund, the risk of loss of the Highland Floating Rate Advantage Fund was exacerbated by the use of leverage. While the Highland Fund’s peers also used leverage, the Highland Fund used nearly 25% more leverage than its peers, again rendering the Highland Fund riskier than its already risky peers.


Investors who were told that they could earn income and preserve their money by investing in the Highland Floating Rate Advantage Fund may be able to recover their investment losses through a FINRA arbitration claim. Dimond Kaplan & Rothstein, P.A. already has recovered a significant amount of money for investors who lost money in the Highland Fund. If you lost money in the Highland Floating Rate Advantage Fund, please contact an attorney at our law firm to discuss how we may be able to help you.

Filing a FINRA Arbitration Claim

The Highland Fund Was More Leveraged than Its Peers

The Highland Fund Invested in Lower Quality Loans than its Peers

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