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 811-21869
Highland Credit Strategies Fund |
(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: December 31
Date of reporting period: September 30, 2007
Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 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. § 3507.
Item 1. Schedule of Investments.
The Schedule(s) of Investments is attached herewith.
INVESTMENT PORTFOLIO (unaudited)
|
|
As of September 30, 2007 |
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
|
|
|
|
|
|
|
|
|
||||||
|
Senior Loans (a) - 85.4% |
|
|
|
||
|
||||||
|
AEROSPACE - AEROSPACE/DEFENSE - 1.2% |
|
|
|
||
|
2,066,894 |
|
AWAS Capital, Inc. |
|
|
2,035,891 |
|
IAP Worldwide Services, Inc. |
|
|
|
||
|
2,977,273 |
|
First Lien Term Loan, 9.69%, |
|
|
2,597,670 |
|
2,000,000 |
|
Second
Lien Term Loan, |
|
|
1,425,000 |
|
Travelport LLC |
|
|
|
||
|
356,888 |
|
Synthetic Letter of Credit, |
|
|
348,637 |
|
1,778,654 |
|
Tranche
B Dollar Term Loan, |
|
|
1,739,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,146,935 |
|
|
|
|
|
|
|
|
AEROSPACE - AIRLINES - 2.3% |
|
|
|
||
|
8,954,382 |
|
Delta Airlines, Inc. |
|
|
8,640,978 |
|
6,930,000 |
|
Northwest Airlines, Inc. |
|
|
6,652,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15,293,778 |
|
|
|
|
|
|
|
|
AUTOMOBILE - 2.2% |
|
|
|
||
|
14,887,500 |
|
Ford Motor Co. |
|
|
14,478,094 |
|
|
|
|
|
|
|
|
BROADCASTING - 4.1% |
|
|
|
||
|
ComCorp Broadcasting, Inc. |
|
|
|
||
|
215,990 |
|
PIK Revolver, 07/11/08 (b) (c) |
|
|
233,434 |
|
973,304 |
|
PIK Term Loan, 07/11/08 (b) (c) |
|
|
1,051,911 |
|
1,734,487 |
|
Revolver, 07/11/08 (b) (c) |
|
|
1,874,569 |
|
8,334,953 |
|
Term Loan, 07/11/08 (b) (c) |
|
|
9,008,108 |
|
390,764 |
|
WK PIK Term Loan, 07/11/08 (b) (c) |
|
|
422,324 |
|
3,350,502 |
|
WK Term Loan, 07/11/08 (b) (c) |
|
|
3,621,099 |
|
Millennium Digital Media Systems, LLC |
|
|
|
||
|
247,664 |
|
Revolver, 8.86%, 06/30/11 (b) (d) |
|
|
244,400 |
|
9,102,981 |
|
Term Facility, 9.36%, 06/30/11 |
|
|
9,011,951 |
|
2,000,000 |
|
Persona Communications Corp. |
|
|
2,015,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
27,482,796 |
|
|
|
|
|
|
|
|
CABLE - US CABLE - 0.3% |
|
|
|
||
|
33,054 |
|
Century Cable Holdings LLC |
|
|
32,310 |
|
2,000,000 |
|
Charter Communications |
|
|
1,937,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,969,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
|
|
|
|
|
|
|
|
|
||||||
|
CHEMICALS - COMMODITY & FERTILIZER - 0.3% |
|
|
|
||
|
1,681,736 |
|
Ferro Corp. |
|
|
1,648,101 |
|
|
|
|
|
|
|
|
CONSUMER DURABLES - 0.4% |
|
|
|
||
|
2,611,474 |
|
Rexair LLC |
|
|
2,585,359 |
|
|
|
|
|
|
|
|
CONSUMER NON-DURABLES - 1.6% |
|
|
|
||
|
1,451,890 |
|
Camelbak Products LLC |
|
|
1,415,593 |
|
1,985,000 |
|
DS Waters of America, Inc. |
|
|
1,925,450 |
|
992,500 |
|
GTM Holding, Inc. |
|
|
967,687 |
|
Spectrum Brands, Inc. |
|
|
|
||
|
4,063,517 |
|
Dollar Term B Loan, 9.35%, |
|
|
4,011,016 |
|
201,369 |
|
Synthetic Letter of Credit, |
|
|
198,768 |
|
1,975,041 |
|
VNU Inc./Nielsen Finance LLC |
|
|
1,919,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,438,253 |
|
|
|
|
|
|
|
|
DIVERSIFIED MEDIA - 7.0% |
|
|
|
||
|
1,995,000 |
|
Clarke American Corp. |
|
|
1,864,487 |
|
3,000,000 |
|
Endurance Business Media, Inc. |
|
|
2,970,000 |
|
|
|
Metro-Goldwyn-Mayer Holdings II, |
|
|
|
|
10,359,781 |
|
Tranche
B Term Loan, 8.61%, |
|
|
9,974,604 |
|
2,985,000 |
|
Tranche
B-1 Term Loan, |
|
|
2,874,018 |
|
254,545 |
|
North American Membership |
|
|
237,677 |
|
5,000,000 |
|
Penton Media, Inc. |
|
|
4,731,250 |
|
Tribune Co. |
|
|
|
||
|
11,970,000 |
|
Initial Tranche B Advance, |
|
|
10,943,572 |
|
7,466,667 |
|
Tranche
X Advance, 7.82%, |
|
|
7,413,056 |
|
6,000,000 |
|
Univision Communications, Inc. |
|
|
5,960,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
46,968,704 |
|
|
|
|
|
|
|
|
ENERGY - EXPLORATION & PRODUCTION - 1.8% |
|
|
|
||
|
11,860,266 |
|
ATP Oil & Gas Corp. |
|
|
11,880,073 |
|
|
|
|
|
|
|
1
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
As of September 30, 2007 |
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
|
|
|
|
|
|
|
|
|
||||||
|
Senior Loans (continued) |
|
|
|
||
|
||||||
|
ENERGY - OTHER ENERGY - 1.2% |
|
|
|
||
|
Alon USA Energy, Inc. |
|
|
|
||
|
219,444 |
|
Edington Facility, 7.38%, |
|
|
213,684 |
|
1,755,556 |
|
Paramount
Facility, 7.61%, |
|
|
1,709,472 |
|
3,000,000 |
|
Endeavour International Holding |
|
|
2,970,000 |
|
3,000,000 |
|
Willbros USA, Inc. |
|
|
3,015,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,908,156 |
|
|
|
|
|
|
|
|
FINANCIAL - 0.7% |
|
|
|
||
|
5,000,000 |
|
Concord Re Ltd. |
|
|
4,900,000 |
|
|
|
|
|
|
|
|
FOOD/TOBACCO - BEVERAGES & BOTTLING - 0.3% |
|
|
|
||
|
1,980,000 |
|
PBM Holdings, Inc. |
|
|
1,940,400 |
|
|
|
|
|
|
|
|
FOOD/TOBACCO - RESTAURANTS - 0.3% |
|
|
|
||
|
1,975,000 |
|
Restaurant Co., The |
|
|
1,955,250 |
|
|
|
|
|
|
|
|
FOREST PRODUCTS - CONTAINERS - 0.9% |
|
|
|
||
|
7,000,000 |
|
Berry Plastics Group, Inc. |
|
|
6,300,000 |
|
|
|
|
|
|
|
|
FOREST PRODUCTS - PAPER - 1.5% |
|
|
|
||
|
11,000,000 |
|
Verso Paper Financial Holding LLC |
|
|
10,175,000 |
|
|
|
|
|
||
|
GAMING/LEISURE - GAMING - 2.3% |
|
|
|
||
|
6,041,285 |
|
Drake Hotel Acquisition |
|
|
6,041,285 |
|
10,000,000 |
|
Fontainebleu Florida Hotel LLC |
|
|
9,575,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15,616,285 |
|
|
|
|
|
|
|
|
GAMING/LEISURE - OTHER LEISURE - 4.4% |
|
|
|
||
|
3,950,000 |
|
Cedar Fair L.P. |
|
|
3,879,374 |
|
5,954,660 |
|
Kuilima Resort Co. |
|
|
5,533,070 |
|
Lake at Las Vegas Joint Venture |
|
|
|
||
|
2,407,407 |
|
Synthetic Revolver, 15.42%, |
|
|
2,124,537 |
|
17,851,840 |
|
Term Loan, 15.46%, 06/20/12 |
|
|
15,754,249 |
|
2,000,000 |
|
Orbitz Worldwide, Inc. |
|
|
1,957,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
29,248,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
||
|
|
|
|
|
|
||
|
|||||||
|
HEALTHCARE - ACUTE CARE - 5.0% |
|
|
|
|||
|
12,506,406 |
|
Alliance Imaging, Inc. |
|
|
12,334,443 |
|
|
12,902,500 |
|
HCA, Inc. |
|
|
12,666,384 |
|
|
|
|
National Mentor Holdings, Inc. |
|
|
||
|
230,000 |
|
Institutional Line of Credit |
|
|
217,350 |
|
|
3,722,875 |
|
Tranche
B Term Loan, 7.43%, |
|
|
3,518,117 |
|
|
4,500,000 |
|
Triumph Healthcare Second |
|
|
4,494,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,230,669 |
|
|
|
|
|
|
|
|
|
|
HEALTHCARE - ALTERNATE SITE SERVICES - 0.4% |
|
|
|
|||
|
2,992,366 |
|
LifeCare Holdings |
|
|
2,782,901 |
|
|
|
|
|
|
|
|
|
|
HEALTHCARE - MEDICAL PRODUCTS - 4.3% |
|
|
|
|||
|
9,876,863 |
|
CCS Medical, Inc. |
|
|
9,823,331 |
|
|
|
|
Danish Holdco A/S |
|
|
||
|
3,026,243 |
|
Mezzanine Facility, 12.86%, |
|
|
2,950,587 |
|
|
2,500,000 |
|
Second
Lien Term Facility, |
|
|
2,325,000 |
|
|
4,000,000 |
|
Golden Gate National Senior |
|
|
3,960,000 |
|
|
3,933,633 |
|
HealthSouth Corp. |
|
|
3,851,656 |
|
|
3,500,000 |
|
Nyco Holdings 3 ApS |
|
|
3,097,500 |
|
|
1,938,762 |
|
Warner Chilcott Co., Inc. |
|
|
1,904,833 |
|
|
580,241 |
|
Warner Chilcott Corp. |
|
|
570,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,482,994 |
|
|
|
|
|
|
|
|
|
|
HOUSING - BUILDING MATERIALS - 3.9% |
|
|
|
|||
|
|
|
Custom Building Products, Inc. |
|
|
||
|
5,604,128 |
|
First Lien Term Loan, 7.38%, |
|
|
5,295,901 |
|
|
1,625,000 |
|
Second
Lien Term Loan, |
|
|
1,543,750 |
|
|
3,960,000 |
|
Roofing Supply Group LLC |
|
|
3,603,600 |
|
|
3,000,000 |
|
Spirit Finance Corp. |
|
|
2,793,750 |
2
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
As of September 30, 2007 |
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
Principal |
|
|
|
|
Value ($) |
|
|
|
|
|
|
||
|
||||||
Senior Loans (continued) |
|
|
|
|||
|
|
|
|
|
||
HOUSING - BUILDING MATERIALS (continued) |
|
|
|
|||
|
|
|
|
|||
|
WAICCS Las Vegas 3 LLC |
|
|
|
||
|
6,000,000 |
|
First Lien Term Loan, 8.83%, |
|
|
5,970,000 |
|
7,000,000 |
|
Second Lien Term Loan, |
|
|
6,965,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
26,172,001 |
|
|
|
|
|
|
|
HOUSING - REAL ESTATE DEVELOPMENT - 7.5% |
|
|
|
|||
|
421,262 |
|
DESA LLC |
|
|
399,672 |
|
1,484,962 |
|
Flag Luxury Properties
Holdings,
LLC |
|
|
1,358,741 |
|
Ginn LA Conduit Lender, Inc. |
|
|
|
||
|
2,358,201 |
|
First Lien Tranche A Credit- |
|
|
1,996,618 |
|
5,080,851 |
|
First Lien Tranche B Term |
|
|
4,301,804 |
|
10,000,000 |
|
LNR Property Corp. |
|
|
9,675,000 |
|
MPH Mezzanine II, LLC |
|
|
|
||
|
6,000,000 |
|
Mezzanine 2B, 8.56%, |
|
|
5,985,000 |
|
4,000,000 |
|
Mezzanine 3, 9.56%, 02/09/08 |
|
|
3,990,000 |
|
10,000,000 |
|
MPH Mezzanine IV, LLC |
|
|
9,975,000 |
|
2,500,000 |
|
November 2005 Land
Investors, |
|
|
2,150,000 |
|
Westgate Investments LLC |
|
|
|
||
|
7,662,464 |
|
Senior Secured Loan, 13.00%, |
|
|
7,968,963 |
|
1,740,500 |
|
Senior Unsecured Loan, |
|
|
2,053,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
49,854,588 |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY - 4.8% |
|
|
|
|||
|
1,995,000 |
|
DTN, Inc. |
|
|
1,975,050 |
|
Infor Enterprise Solutions
Holdings, |
|
|
|
||
|
2,715,429 |
|
Delayed Draw Term Loan, |
|
|
2,600,023 |
|
3,000,000 |
|
Dollar Tranche B-1, Second |
|
|
2,835,000 |
|
5,204,571 |
|
Initial US Term Facility,
9.11%, |
|
|
5,048,434 |
|
2,566,667 |
|
Second Lien Delayed Draw |
|
|
2,438,334 |
|
4,433,333 |
|
Second Lien Term Loan, |
|
|
4,256,000 |
|
2,000,000 |
|
Metrologic Instruments,
Inc. |
|
|
1,935,000 |
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
||
|
|
|
|
|
||
|
||||||
INFORMATION TECHNOLOGY (continued) |
|
|
|
|||
|
8,000,000 |
|
NameMedia, Inc. |
|
|
7,800,000 |
|
1,555,556 |
|
Secure Computing Corp. |
|
|
1,540,000 |
|
|
|
|
|
|
|
|
1,840,000 |
|
Serena Software, Inc. |
|
|
1,775,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
32,203,441 |
|
|
|
|
|
|
|
MANUFACTURING - 3.6% |
|
|
|
|||
|
7,922,481 |
|
Acument Global
Technologies, |
|
|
7,843,256 |
|
2,977,500 |
|
CST Industries, Inc. |
|
|
2,908,422 |
|
1,666,667 |
|
Generac Acquisition Corp. |
|
|
1,237,500 |
|
5,917,550 |
|
Global Petroleum Inc. |
|
|
5,740,024 |
|
1,000,000 |
|
Hunter Defense
Technologies, |
|
|
960,000 |
|
Matinvest 2 SAS / Butterfly
Wendal |
|
|
|
||
|
2,250,000 |
|
B-2 Facility, 7.89%, 06/22/14 |
|
|
2,086,875 |
|
2,250,000 |
|
C-2 Facility, 8.14%, 06/22/15 |
|
|
2,098,125 |
|
1,011,458 |
|
Matinvest 2 SAS / Deutsche |
|
|
986,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
23,860,374 |
|
|
|
|
|
|
|
METALS/MINERALS - OTHER METALS/MINERALS - 1.7% |
|
|
|
|||
|
1,326,316 |
|
Euramax International
Holdings |
|
|
1,233,474 |
|
Euramax International, Inc. |
|
|
|
||
|
2,869,496 |
|
First Lien Domestic Term Loan, |
|
|
2,680,109 |
|
3,673,684 |
|
Second Lien Domestic Term |
|
|
3,287,947 |
|
1,522,779 |
|
Oglebay Norton Co. |
|
|
1,515,165 |
|
1,624,352 |
|
United Central Industrial
Supply |
|
|
1,571,560 |
|
1,458,981 |
|
Universal Buildings
Products, |
|
|
1,320,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11,608,633 |
|
|
|
|
|
|
|
RETAIL - 4.3% |
|
|
|
|||
|
2,370,614 |
|
Blockbuster Entertainment
Corp. |
|
|
2,354,826 |
|
11,680,028 |
|
Burlington Coat Factory |
|
|
11,233,267 |
3
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
As of September 30, 2007 |
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
Principal |
|
|
|
|
Value ($) |
|
|
|
|
|
|
|
|
|
||||||
Senior Loans (continued) |
|
|
|
|||
|
|
|
|
|||
RETAIL (continued) |
|
|
|
|||
|
|
|
|
|||
|
2,970,112 |
|
CSK Auto, Inc. |
|
|
2,932,986 |
|
7,223,706 |
|
Home Interiors & Gifts, Inc. |
|
|
4,334,224 |
|
1,975,000 |
|
Sports Authority, Inc., The |
|
|
1,876,862 |
|
6,000,000 |
|
Toys R Us |
|
|
5,992,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
28,724,665 |
|
|
|
|
|
|
|
SERVICE - ENVIRONMENTAL SERVICES - 1.2% |
|
|
|
|||
|
Safety-Kleen Systems, Inc. |
|
|
|
||
|
1,627,119 |
|
Synthetic Letter of Credit, |
|
|
1,594,576 |
|
6,190,508 |
|
Term Loan B, 8.19%, 08/02/13 |
|
|
6,066,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,661,275 |
|
|
|
|
|
|
|
SERVICE - OTHER SERVICES - 3.2% |
|
|
|
|||
|
3,000,000 |
|
Cydcor, Inc. |
|
|
2,985,000 |
|
2,984,925 |
|
Education Management LLC |
|
|
2,891,646 |
|
7,765,705 |
|
NES Rentals Holdings, Inc. |
|
|
7,610,390 |
|
4,859,038 |
|
Sabre, Inc. |
|
|
4,639,604 |
|
1,359,948 |
|
Survey Sampling International |
|
|
1,305,550 |
|
1,638,160 |
|
United Rentals, Inc. |
|
|
1,633,720 |
|
336,842 |
|
Tranche B Credit-Linked |
|
|
335,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21,401,806 |
|
|
|
|
|
|
|
TELECOMMUNICATIONS - 1.7% |
|
|
|
|||
|
3,070,032 |
|
American Messaging Services, |
|
|
3,054,682 |
|
4,187,905 |
|
PaeTec Communications, Inc. |
|
|
4,146,026 |
|
1,918,904 |
|
Sorenson Communications, Inc. |
|
|
1,899,715 |
|
1,237,500 |
|
Stratos Global Corp./Stratos |
|
|
1,215,844 |
|
992,500 |
|
Time Warner Telecom Holdings |
|
|
980,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11,296,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
||
|
|
|
|
|
||
|
||||||
TRANSPORTATION - AUTO - 3.1% |
|
|
|
|||
|
2,662,000 |
|
BST Safety Textiles Acquisition |
|
|
2,369,180 |
|
3,000,000 |
|
Dana Corp. |
|
|
2,989,680 |
|
5,000,000 |
|
Delphi Corp. |
|
|
4,987,500 |
|
4,955,045 |
|
Lear Corp. |
|
|
4,868,926 |
|
5,712,852 |
|
Motor Coach Industries |
|
|
5,712,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20,928,138 |
|
|
|
|
|
|
|
TRANSPORTATION - LAND - 1.0% |
|
|
|
|||
|
1,978,834 |
|
New Century Transportation, Inc. |
|
|
1,830,421 |
|
SIRVA Worldwide, Inc. |
|
|
|
||
|
702,857 |
|
Revolver, 12.92%, 12/01/07 (d) |
|
|
460,371 |
|
6,008,774 |
|
Tranche B Term Loan, |
|
|
4,093,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,384,270 |
|
|
|
|
|
|
|
UTILITIES - 5.0% |
|
|
|
|||
|
5,000,000 |
|
ANP Funding I, LLC |
|
|
5,023,450 |
|
Coleto Creek Power, LP |
|
|
|
||
|
5,547,611 |
|
First Lien Term Loan, 8.10%, |
|
|
5,297,969 |
|
4,937,500 |
|
Second Lien Term Loan, |
|
|
4,653,594 |
|
382,166 |
|
Synthetic Facility, 5.25%, |
|
|
364,968 |
|
7,934,309 |
|
Entegra TC LLC |
|
|
7,643,438 |
|
GBGH LLC (U S Energy) |
|
|
|
||
|
4,950,000 |
|
First Lien Term Loan, 10.76%, |
|
|
4,962,375 |
|
5,367,923 |
|
Second Lien Term Loan, |
|
|
5,381,343 |
|
181,132 |
|
TECO Panda Generating Co.- |
|
|
328,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
33,655,741 |
|
|
|
|
|
|
|
WIRELESS - CELLULAR/PCS - 1.9% |
|
|
|
|||
|
1,975,000 |
|
Cricket Communications, Inc. |
|
|
1,955,665 |
|
8,000,000 |
|
Insight Midwest Holdings, LLC |
|
|
7,850,880 |
4
|
|
|
INVESTMENT PORTFOLIO (unaudited) (continued) |
|
|
|
|
|
As of September 30, 2007 |
|
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
Principal |
|
|
|
|
Value ($) |
|
|
|
|
|
|
||
|
||||||
Senior Loans (continued) |
|
|
|
|||
|
|
|
|
|||
WIRELESS - CELLULAR/PCS (continued) |
|
|
|
|||
|
|
|
|
|
|
|
|
3,000,000 |
|
Level 3 Financing, Inc. |
|
|
2,940,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12,747,175 |
|
|
|
|
|
|
|
|
|
|
Total Senior Loans |
|
|
569,930,756 |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign Denominated Senior Loans - 12.2% |
|
|
|
|||
|
|
|
|
|||
AUSTRALIA - 2.9% |
|
|
|
|||
AUD |
|
|
|
|
||
|
|
|
|
|
|
|
|
23,500,000 |
|
Seven Media Group |
|
|
19,756,464 |
|
|
|
|
|
|
|
CANADA - 1.0% |
|
|
|
|||
CAD |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Persona Communications Corp. |
|
|
|
|
2,880,000 |
|
First Lien CDN Delayed-Draw |
|
|
2,898,259 |
|
3,695,455 |
|
First Lien CDN Tranche B |
|
|
3,718,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,617,143 |
|
|
|
|
|
|
|
FRANCE - 3.0% |
|
|
|
|||
EUR |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Ypso Holding SA |
|
|
|
|
2,012,048 |
|
Eur B Acq 1 Facility, 6.93%, |
|
|
2,746,865 |
|
3,282,814 |
|
Eur B Acq 2 Facility, 6.93%, |
|
|
4,481,726 |
|
5,213,674 |
|
Eur B Recap 1 Facility, 6.93%, |
|
|
7,085,127 |
|
1,389,750 |
|
Eur C Acq, 7.18%, 12/31/15 |
|
|
1,906,035 |
|
2,610,250 |
|
Eur C Recap, 7.18%, 12/31/15 |
|
|
3,579,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,799,696 |
|
|
|
|
|
|
|
NETHERLANDS - 1.4% |
|
|
|
|||
EUR |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Amsterdamse Beheer- En |
|
|
|
|
|
|
Consultingmaatschappij B.V. |
|
|
|
|
2,500,000 |
|
Kabelcom B Term Loan, |
|
|
3,519,825 |
|
2,500,000 |
|
Kabelcom C Term Loan, |
|
|
3,466,494 |
|
1,500,000 |
|
Kabelcom D Term Loan |
|
|
2,108,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,094,886 |
|
|
|
|
|
|
|
|
||||||
|
Principal |
|
|
|
Value ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SWEDEN - 0.7% |
|
|
|
|||
SEK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nordic Cable Acquisition Co., Sub- |
|
|
|
|
15,333,333 |
|
Facility B2, 5.88%, 01/31/14 |
|
|
2,257,673 |
|
14,666,667 |
|
Facility C2, 6.24%, 01/31/15 |
|
|
2,165,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,422,854 |
|
|
|
|
|
|
|
UNITED KINGDOM - 3.2% |
|
|
|
|||
GBP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobileserv Ltd. (Phones 4U) |
|
|
|
|
3,250,000 |
|
Facility B, 7.65%, 09/22/14 |
|
|
6,106,222 |
|
3,250,000 |
|
Facility C, 8.15%, 09/22/15 |
|
|
6,154,493 |
|
5,000,000 |
|
Revolving Facility, 09/22/13 (e) |
|
|
9,206,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21,467,058 |
|
|
|
|
|
|
|
|
|
|
Total Foreign Denominated |
|
|
81,158,101 |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities (g) 0.7% |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
Commercial Industrial Finance |
|
|
|
|
1,000,000 |
|
Series 2006-1BA, Class B2L, |
|
|
697,500 |
|
|
|
Marquette US/European CLO, |
|
|
|
|
1,000,000 |
|
Series 2006-1A, Class D1, |
|
|
817,500 |
|
|
|
Ocean Trails CLO |
|
|
|
|
1,000,000 |
|
Series 2006-1A, Class D, |
|
|
750,000 |
|
|
|
Venture CDO, Ltd. |
|
|
|
|
2,000,000 |
|
Series 2007-9A, Class D, |
|
|
1,821,996 |
|
|
|
Westbrook CLO, Ltd. |
|
|
|
|
1,000,000 |
|
Series 2006-1A, Class D, |
|
|
800,000 |
|
|
|
|
|
|
|
|
|
|
Total Asset-Backed Securities |
|
|
4,886,996 |
|
|
|
|
|
|
|
Corporate Notes and Bonds - 26.9% |
|
|
|
|||
|
|
|
|
|||
AEROSPACE - AIRLINES - 0.0% |
|
|
|
|||
|
|
|
|
|
|
|
|
5,000,000 |
|
Delta Airlines, Inc. |
|
|
262,500 |
|
|
|
|
|
|
|
BROADCASTING - 0.9% |
|
|
|
|||
|
|
|
|
|
|
|
|
6,000,000 |
|
Univision Communications, Inc. |
|
|
5,880,000 |
|
|
|
|
|
|
|
CABLE - US CABLE - 2.2% |
|
|
|
|||
|
3,375,000 |
|
CCH I Holdings LLC |
|
|
2,936,250 |
|
|
|
CCH I LLC |
|
|
|
|
5,500,000 |
|
11.00%, 10/01/15 |
|
|
5,596,250 |
|
2,500,000 |
|
11.75%, 05/15/14 |
|
|
2,325,000 |
5
|
|
|
INVESTMENT PORTFOLIO (unaudited) (continued) |
|
|
|
|
|
As of September 30, 2007 |
|
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
||
|
|
|
|
|
||
|
||||||
Corporate Notes and Bonds (continued) |
|
|
|
|||
|
|
|
|
|||
CABLE - US CABLE (continued) |
|
|
|
|||
|
1,000,000 |
|
CCO Holdings,
LLC |
|
|
1,010,000 |
|
2,000,000 |
|
Charter
Communications Inc. |
|
|
2,595,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,462,500 |
|
|
|
|
|
|
|
CONSUMER NON-DURABLES - 2.2% |
|
|
|
|||
|
|
|
Ames True Temper, Inc. |
|
|
|
|
3,000,000 |
|
9.36%, 01/15/12 (g) |
|
|
2,970,000 |
|
1,500,000 |
|
10.00%, 07/15/12 |
|
|
1,162,500 |
|
11,875,000 |
|
Solo Cup Co. |
|
|
10,568,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,701,250 |
|
|
|
|
|
|
|
DIVERSIFIED MEDIA - 0.7% |
|
|
|
|||
|
4,500,000 |
|
Network
Communications, Inc. |
|
|
4,539,375 |
|
|
|
|
|
|
|
ENERGY - EXPLORATION & PRODUCTION - 0.1% |
|
|
|
|||
|
375,000 |
|
Opti Canada,
Inc. |
|
|
379,688 |
|
|
|
|
|
|
|
ENERGY - OTHER ENERGY - 0.8% |
|
|
|
|||
|
6,000,000 |
|
Energy XXI Gulf
Coast, Inc. |
|
|
5,700,000 |
|
|
|
|
|
|
|
FINANCIAL - 2.3% |
|
|
|
|||
|
14,200,000 |
|
HUB
International Holdings, Inc. |
|
|
13,277,000 |
|
2,000,000 |
|
Penhall
International, Corp. |
|
|
2,030,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15,307,000 |
|
|
|
|
|
|
|
FOOD AND DRUG - 0.1% |
|
|
|
|||
|
441,291 |
|
Cinacalcet
Royalty Sub LLC |
|
|
525,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOOD/TOBACCO - 1.1% |
|
|
|
|||
|
|
|
Chiquita Brands International, Inc. |
|
|
|
|
3,000,000 |
|
7.50%, 11/01/14 |
|
|
2,595,000 |
|
5,000,000 |
|
8.88%, 12/01/15 |
|
|
4,525,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREST PRODUCTS - PAPER - 0.1% |
|
|
|
|||
|
500,000 |
|
Newpage Corp. |
|
|
538,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAMING/LEISURE - OTHER LEISURE - 1.2% |
|
|
|
|||
|
|
|
Six Flags, Inc. |
|
|
|
|
4,500,000 |
|
4.50%, 05/15/15 |
|
|
3,825,000 |
|
4,500,000 |
|
8.88%, 02/01/10 |
|
|
4,083,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,908,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEALTHCARE - ACUTE CARE - 3.4% |
|
|
|
|||
|
11,167,000 |
|
Argatroban
Royalty Sub LLC |
|
|
11,167,000 |
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEALTHCARE - ACUTE CARE (continued) |
|
|
|
|||
|
|
|
HCA, Inc. |
|
|
|
|
10,000,000 |
|
6.30%, 10/01/12 |
|
|
9,012,500 |
|
3,000,000 |
|
8.36%, 04/15/24 |
|
|
2,623,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
22,802,925 |
|
|
|
|
|
|
|
HEALTHCARE - ALTERNATE SITE SERVICES - 0.5% |
|
|
|
|||
|
5,000,000 |
|
LifeCare
Holdings |
|
|
3,425,000 |
|
|
|
|
|
|
|
HOUSING - BUILDING MATERIALS - 2.8% |
|
|
|
|||
|
1,000,000 |
|
Builders
FirstSource, Inc. |
|
|
967,500 |
|
4,000,000 |
|
Masonite Corp. |
|
|
3,400,000 |
|
|
|
Realogy Corp. |
|
|
|
|
8,000,000 |
|
10.50%, 04/15/14 (h) |
|
|
6,840,000 |
|
5,500,000 |
|
11.00%, 04/15/14 PIK (h) |
|
|
4,544,375 |
|
4,000,000 |
|
12.38%, 04/15/15 (h) |
|
|
3,030,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,781,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY - 2.6% |
|
|
|
|||
|
3,800,000 |
|
Freescale
Semiconductor, Inc. |
|
|
3,553,000 |
|
8,000,000 |
|
MagnaChip
Semiconductor |
|
|
6,840,000 |
|
2,000,000 |
|
NXP BV/NXP
Funding LLC |
|
|
1,865,000 |
|
5,000,000 |
|
Spansion LLC |
|
|
4,925,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
17,183,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAIL - 2.3% |
|
|
|
|||
|
|
|
|
|
|
|
|
11,500,000 |
|
Blockbuster,
Inc. |
|
|
10,407,500 |
|
5,500,000 |
|
Dollar General
Corp. |
|
|
5,197,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15,605,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TELECOMMUNICATIONS - 1.7% |
|
|
|
|||
|
12,454,260 |
|
Digicel Group,
Ltd. |
|
|
11,613,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRANSPORTATION - 1.1% |
|
|
|
|||
|
5,000,000 |
|
American Tire
Distributors |
|
|
4,987,500 |
|
|
|
Federal-Mogul Corp. |
|
|
|
|
2,000,000 |
|
7.50%, 01/15/09 (c) |
|
|
1,650,000 |
|
1,000,000 |
|
7.75%, 07/01/06 (c) |
|
|
825,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,462,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UTILITIES - 0.0% |
|
|
|
|||
|
1,000,000 |
|
Enron Corp. |
|
|
252,500 |
|
|
|
|
|
|
|
6
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
As of September 30, 2007 |
Highland Credit Strategies Fund |
|
|
|
|
|
|
|
Principal |
|
|
|
Value ($) |
||
|
|
|
|
|
||
|
||||||
Corporate Notes and Bonds (continued) |
|
|
|
|||
|
||||||
WIRELESS COMMUNICATIONS - 0.8% |
|
|
|
|||
|
5,000,000 |
|
SunCom Wireless Holdings, Inc. |
|
|
5,256,250 |
|
|
|
|
|
|
|
|
|
|
Total
Corporate Notes and
Bonds |
|
|
179,707,597 |
|
|
|
|
|
|
|
Claims (j) - 0.1% |
|
|
|
|
||
|
||||||
AEROSPACE - AIRLINES - 0.1% |
|
|
|
|||
|
581,794 |
|
Delta Airlines, Inc. |
|
|
29,090 |
|
2,000,000 |
|
Northwest Airlines, Inc. |
|
|
170,000 |
|
3,551,000 |
|
Flight Attendant Claim, |
|
|
301,835 |
|
2,107,500 |
|
IAM Trade Claim, 08/21/13 |
|
|
179,138 |
|
2,341,500 |
|
Retiree Claim, 08/21/13 |
|
|
199,027 |
|
|
|
|
|
|
|
|
|
|
Total Claims |
|
|
879,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common Stocks - 9.8% |
|
|
|
|||
|
||||||
AEROSPACE - AIRLINES - 1.1% |
|
|
|
|||
|
199,342 |
|
Delta Air Lines, Inc. (k) |
|
|
3,578,184 |
|
221,361 |
|
Northwest Airlines Corp. (k) |
|
|
3,940,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518,410 |
|
|
|
|
|
|
|
BROADCASTING - 0.6% |
|
|
|
|||
|
357,343 |
|
GrayTelevision, Inc. |
|
|
3,033,842 |
|
121,072 |
|
Gray Television, Inc., Class A |
|
|
1,040,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,073,850 |
|
|
|
|
|
|
|
ENERGY - EXPLORATION & PRODUCTION - 0.9% |
|
|
|
|||
|
60,000 |
|
GlobalSantaFe Corp. |
|
|
4,561,200 |
|
47,150 |
|
Williams Cos., Inc. |
|
|
1,605,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,167,129 |
|
|
|
|
|
|
|
FOREST PRODUCTS - CONTAINERS - 0.7% |
|
|
|
|||
|
563,258 |
|
Graphic Packaging Corp. (k) |
|
|
2,545,926 |
|
100,067 |
|
Louisiana-Pacific Corp. |
|
|
1,698,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,244,063 |
|
|
|
|
|
|
|
HOUSING - BUILDING MATERIALS - 0.6% |
|
|
|
|||
|
150,285 |
|
Owens Corning, Inc. (k) |
|
|
3,764,629 |
|
|
|
|
|
|
|
HOUSING - REAL ESTATE DEVELOPMENT - 0.0% |
|
|
|
|||
|
8 |
|
Westgate Investments LLC (b) |
|
|
0 |
|
|
|
|
|
|
|
SERVICE - ENVIRONMENTAL SERVICES - 0.5% |
|
|
|
|||
|
136,990 |
|
Safety-Kleen Systems, Inc. (k) |
|
|
3,219,265 |
|
|
|
|
|
|
|
TRANSPORTATION - AUTO - 0.1% |
|
|
|
|||
|
1,759,496 |
|
Delphi Corp. (k) |
|
|
800,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
Value ($) |
||
|
|
|
|
|
||
|
||||||
Common Stocks (continued) |
|
|
|
|||
|
||||||
UTILITIES - 1.2% |
|
|
|
|||
|
162,388 |
|
Entegra TC LLC |
|
|
5,196,416 |
|
59,600 |
|
NRG Energy, Inc. (k) |
|
|
2,520,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,716,900 |
|
|
|
|
|
|
|
WIRELESS COMMUNICATIONS - 4.1% |
|
|
|
|||
|
225,000 |
|
ICO Global Communications |
|
|
783,000 |
|
|
|
|
|
|
|
|
1,037,196 |
|
SunCom Wireless Holdings, Inc., |
|
|
26,738,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
27,521,913 |
|
|
|
|
|
|
|
|
|
|
Total Common Stocks |
|
|
65,026,730 |
|
|
|
|
|
|
|
Preferred Stock - 0.3% |
|
|
|
|||
|
||||||
TRANSPORTATION - AUTO - 0.3% |
|
|
|
|||
|
79,615 |
|
General Motors Corp., Series D, |
|
|
2,249,920 |
|
|
|
|
|
|
|
|
|
|
Total Preferred Stock |
|
|
2,249,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|||||||
Warrants - 0.0% |
|
|
|
|
|
||
|
20,000 |
|
Clearwire Corp., expires |
|
|
8,906 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants |
|
|
8,906 |
|
|
|
|
|
|
|
|
|
Total Investments 135.4% |
|
|
903,848,096 |
||||
|
|
|
|
|
|
|
|
(cost of $912,082,453) (l) |
|
|
|
|
|||
Other Assets & Liabilities, Net - (35.4)% |
|
|
(236,275,949 |
) |
|||
|
|
|
|
|
|
|
|
Net Assets applicable to Common |
|
|
667,572,147 |
|
|||
|
|
|
|
Investments sold short outstanding as of September 30, 2007:
|
|
|
|
|
|
|
Equity Security |
|
Shares |
|
Value |
|
|
|
|
|||||
IndyMac Bancorp, Inc. |
|
75,554 |
|
$ |
1,783,830 |
|
Superior Industries International, |
|
51,587 |
|
|
1,118,922 |
|
|
|
|
|
|
|
|
Total Investments sold short |
|
|
|
$ |
2,902,752 |
|
|
|
|
|
|
|
|
7
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
|
As of September 30, 2007 |
|
Highland Credit Strategies Fund |
Forward foreign currency contracts outstanding as of September 30, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Contracts |
|
Currency |
|
Principal |
|
Expiration |
|
Net |
|
||||||
|
|||||||||||||||
Sell |
|
AUD |
|
|
4,000,000 |
|
|
02/28/2008 |
|
|
$ |
(264,592 |
) |
|
|
Sell |
|
AUD |
|
|
5,400,000 |
|
|
02/29/2008 |
|
|
|
(390,409 |
) |
|
|
Sell |
|
AUD |
|
|
2,700,000 |
|
|
03/11/2008 |
|
|
|
0 |
|
|
|
Sell |
|
EUR |
|
|
11,000,000 |
|
|
02/04/2008 |
|
|
|
(563,122 |
) |
|
|
Sell |
|
GBP |
|
|
4,000,000 |
|
|
02/07/2008 |
|
|
|
(34,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,252,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Senior loans in which Highland Credit Strategies Fund, (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 Note (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 September 30, 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 remaining maturity may be substantially less than the stated maturities shown. |
|
|
(b) |
Represents fair value as determined in good faith under the direction of the Board of Trustees. |
|
|
(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 September 30, 2007, the Portfolio had unfunded loan commitments of $7,037,425, which could be extended at the option of the Borrower, pursuant to the following loan agreements: |
|
|
|
|
|
Borrower |
|
Unfunded |
|
|
|
||||
Drake Hotel Acquisition |
|
$ |
958,715 |
|
Millennium Digital Media Systems, LLC |
|
|
990,658 |
|
North American Membership Group, Inc. |
|
|
2,290,909 |
|
Sirva Worldwide, Inc. |
|
|
797,143 |
|
Sorenson Communications, Inc. |
|
|
2,000,000 |
|
|
|
|
|
|
|
||||
|
|
$ |
7,037,425 |
|
|
|
|
|
|
|
|
(e) |
All or a portion of this position has not settled. Contract rates do not take effect until settlement date. |
|
|
(f) |
Fixed Rate Senior Loan. |
|
|
(g) |
Floating rate security. The interest rate shown reflects the rate in effect at September 30, 2007. |
|
|
(h) |
Securities exempt from registration pursuant to Rule 144A under the 1933 Act. These securities may only be resold, in transactions exempt from registration, to qualified institutional buyers. At September 30, 2007, these securities amounted to $69,471,656 or 10.4% of net assets applicable to common shareholders. These securities have been determined by the Adviser to be liquid securities. |
|
|
(i) |
This issuer is under the protection of the U.S. federal bankruptcy court. |
|
|
(j) |
Security represents unsecured, unfunded claim generated against the issuers that will be converted into equity upon the completion of court proceedings. |
|
|
(k) |
Non-income producing security. |
|
|
(l) |
Cost for U.S. Federal income tax purposes is $912,082,453. |
|
|
|
|
|
Gross unrealized appreciation |
|
$ |
30,138,114 |
|
Gross unrealized depreciation |
|
|
(38,372,471 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized depreciation |
|
$ |
(8,234,357 |
) |
|
|
|
|
|
|
|
AUD |
Australia Dollar |
DIP |
Debtor in Possession |
EUR |
Euro Currency |
GBP |
Great Britian Pound |
PIK |
Payment in Kind |
SEK |
Swedish Krona |
|
|
Foreign Denominated Senior Loan Notes
Industry Concentration Table:
(% of Total Net Assets)
|
|
|
|
|
Retail |
|
|
3.2 |
% |
Cable International Cable |
|
|
3.0 |
% |
Diversified Media |
|
|
3.0 |
% |
Telecommunications |
|
|
2.0 |
% |
Broadcasting |
|
|
1.0 |
% |
|
|
|
|
|
Total |
|
|
12.2 |
% |
|
|
|
|
|
8
Security Valuation:
In computing the Funds net assets attributable to Common Shares, securities with readily available market quotations use those quotations for valuation. 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 provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day will be valued by an independent pricing service. 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 Funds net asset value), such securities are valued at their fair value, as determined by Highland Capital Management, L.P. (Highland or the Investment Adviser) in good faith in accordance with procedures approved by the Funds Board of Trustees. In these cases, the Funds 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 deter-mined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a securitys 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 Funds valuation of a security will not differ from the amount that it realizes upon the sale of such security. Short-term investments, that is, those with a remaining maturity of 60 days or less, are valued at amortized cost. Repurchase agreements are valued at cost plus accrued interest. Foreign price quotations are converted to U.S. dollar equivalents using the 4 PM London Time Spot Rate.
For more information with regard to significant accounting policies, see the most recent semi-annual report filed with the Securities and Exchange Commission.
Item 2. Controls and Procedures.
|
(a) |
The registrants principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrants 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 registrants 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 registrants last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrants 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 Credit Strategies Fund |
||
By (Signature and Title)* | /s/ James D. Dondero | ||
James D. Dondero, Chief Executive Officer | |||
(principal executive officer) | |||
Date | November 26, 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 | November 26, 2007 |
By (Signature and Title)* | /s/ M. Jason Blackburn | ||
M. Jason Blackburn, Chief Financial Officer | |||
(principal financial officer) | |||
Date | November 26, 2007 |
* Print the name and title of each signing officer under his or her signature.
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 Credit Strategies Fund; |
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: |
November 26, 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 Credit Strategies Fund; |
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: |
November 26, 2007 |
/s/ M. Jason Blackburn |
|
M. Jason Blackburn, Chief Financial Officer | |||
(principal financial officer) |