SecProbe.io

Rupert, Kevin C.
From:  Gonzalez, Jennifer R. [Jenni fer.Gonzalez@klgates.com]
Sent:  Wednesday, April 16, 2008 5:45 PM
To: Rupert, Kevin C.
Cc: Gonzalez, Jennifer R.
Subject:  N-14 Excerpts
Attachments:  HCF N-14 Excerpts.pdf; HCF N-14 Excerpts Redline.pdfPage 1 of 1 N-14 Excer pts
4/18/2008Kevin,
Attached are clean a nd blackline versions of excerpts from  the N-14 registration statement for
Highland Credit St rategies Fund.  We  will file the registration statement after we get the
consents from the auditors.  Please note that the blackline also reflects changes due to
comments from Dominic.   Please let me know if you have any questions or would like to
discuss the comments.  Thanks.
Jennifer
<<HCF N-14 Excerpts.p df>> <<HCF N-14 Excerpts Redline.pdf>>
Jennifer Gonzalez
K&L Gates
1601 K Street, NW
Washington DC 20006
202-778-9286
202-778-9100 (fax)
jennifer.gonzalez@klgates.com
www.klgates.com
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contained in this communication (including any attachments) is not intended or written to be used, and cannot be
used, for the purpose of (i) avoiding penalties under the In ternal Revenue Code or (ii)  promoting, marketing or
recommending to another party any transac tion or matter addressed within.
This electronic message contains informa tion from the law firm of Kirkpatrick & Lockhart Preston Gates Ellis LLP.
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Shares of the Acquiring Fund have not been approved or disapproved by the Securities and Exchange
Commission (the SEC).  The SEC has not passed upon the accuracy or adequacy of this Proxy
Statement/Prospectus.  Any representation to the contrary is a criminal offense.    PROXY STATEMENT of
Prospect Street High Income Portfolio Inc. (High Income Portfolio)
Prospect Street I ncome Shares Inc. (Income Shares)
(each, an Acquired Fund)
And
PROSPECTUS for
Common Shares of
Highland Credit Strategies Fund
(Credit Strategies Fund or the Acquiring Fund)
The address of the Acquired Funds and the Acquiring Fund (each, a Fund) is Two Galleria Tower, 13455 Noel
Road, Suite 800, Dallas, Texas 75240 and the telephone number of each Fund is 1 -877-665-1287.
* * * * * *
This Proxy Statement and Prospectus (Proxy Statement/Prospectus) contains the information stockholders of each
Acquired Fund should know before voting on the proposed reorganizations (each a Reorganization and, together,
the Reorganizations) and election of the nominees for director for each Acquired Fund (Directors).  Please read
it carefully and retain it for future reference.  For ease of reading, shares and shareholders has been used in
certain places in the Proxy Statement/Prospectus to describe, respectively, the stock of each Acquired Fund and
holders of stock of each Acquired Fund.
How the Reor ganizations Will Work
Each Acquired Fund will redeem its preferred shares prior to its Reorganization.  A Reorganization will not
be completed unless, before the final shareholder vote thereon, the participating Acquired Fund
commences, and irrevocably commits to complete as expeditiously as possible, the process for redeeming
its preferred shares.  Pursuant to each Reorganization, an Acquired Fund will transfer all of its assets to the
Acquiring Fund, which will assume each Acquired Funds liabilities.
If each Reorganization is approved by its respective shareholders, the Acquiring Fund will issue newly
issued common shares of beneficial interest, with $0.001 par value (Acquiring Fund Common Shares),
and cash (in lieu of certain fractional shares) in an aggregate amount equal to the value of each Acquired
Funds net assets attributable to its common shares.  These shares will be distributed to each Acquired
Funds common shareholders in proportion to their holdings immediately prior to the Reorganization.
Each Acquired Fund will be dissolved and its shareholders will become shareholders of the Acquiring
Fund.
The Reorganization of an Acquired Fund is conditioned upon the approval of its shareholders.  However,
the Reorganizations are not contingent upon each other and the Reorganization of one Acquired Fund will
proceed, if approved by its shareholders, even if the Reorganization for the other Acquired Fund is not
approved.  If a Reorganization  is not approved by an Acquired Fund, that Fund will continue to exist and its
Board of Directors will consider what additional action, if any, to take.
Each Reorganization is intended to result in no income or recognized gain or loss for federal income tax
purposes to the Acquiring Fund, the Acquired Fund or the shareholders of the Funds, except for
distributions of net realized capital gains, if any, resulting from the sale of an Acquired Funds assets in
connection with its Reorganization. In addition, shareholders of the Acquired Funds may recognize gain or
loss with respect to cash such holders receive pursuant to the Reorganization in lieu of fractional shares.

- ii - Rationale for the Reorganizations
The Board of Directors of each Acquired Fund and the Board of Trustees of the Acquiring Fund (each a Board)
believes that reorganizing each Acquired Fund into the Acquiring Fund, a fund with a similar investment objective
and having a combined portfolio with greater assets, offers you potential benefits.  These potential benefits and
Board considerations include:
Exchange of Common Shares at Net Asset Value (NAV).  On its closing date, a Reorganization will
result in the Acquired Fund shareholders receiving shares of the Acquiring Fund and cash (in lieu of certain
fractional shares) based on the Acquired Funds NAV (i.e., the Acquired Fund will get its NAVs worth of
common shares of the Acquiring Fund and cash (in lieu of certain fractional shares)).  It should be noted,
however, that shares of the Acquiring Fund received in a Reorganization will likely trade at a market
discount from NAV following the Reorganization , so that an Acquired Fund common shareholder may not
be able to sell these shares for their NAV.  It should also be noted that since inception shares of the
Acquiring Fund generally have traded at a smaller discount or wider premium from NAV than shares of
either Acquired Fund.  However, since late December until the Board approved the Reorganization in
February 2008, Acquiring Fund shares have frequently traded at a larger discount from NAV than shares of
either Acquired Fund.  The Acquiring Fund commenced a rights offering in late December and completed
the rights offering on January 28, 2008.  Historically, rights offerings have increased the discount from
NAV for a fund.
Increased Use of Capital Losses.  Each Acquired Fund has sustained substantial capital losses in recent
years, which are available as capital loss carryovers (CLCs) in the current and future taxable years
(through their respective taxable years ending in 2013), but is not expected to be able to generate enough
capital gains to be offset by those CLCs before they expire.  See Further Information on the
Reorganizations - Federal Income Tax Consequences of the Reorganizations.

Because of its larger size
and investment policies and strategies, the Acquiring Fund is expected to be better able to use those CLCs
to offset post-Reorganization gains of the combined Fund, although there can be no assurance that this will
be the case.  The Acquiring Funds use of such CLCs, however, will be significantly limited due to the
application of loss limitation rules under the federal tax law.
Enhanced Common Share Liquidity.  Following the Reorganization s, the substantially larger trading
market in the common shares of the Acquiring Fund, as compared to that of each Acquired Fund prior to
the Reorganization s, may provide Acquired Fund shareholders with enhanced market liquidity.  Trading
discounts can result from many different factors, however, and there is no assurance that a larger trading
market for Acquiring Funds common shares will have the effect of reducing or maintaining trading
discounts.
Increased Asset Size.  The Acquiring Fund will obtain additional assets without incurring the commission
expenses and generally greater other expenses associated with offering new shares. In addition, the
Acquiring Fund is obtaining the additional portfolio securities of the Acquired Funds without the
commensurate brokerage costs, dealer spreads or other trading expenses.  It is also obtaining these
securities in a manner that is likely to minimize the market impact of such acquisition on the short-term
prices of these securities.  However, the increase in Acquiring Fund shares as a result of the
Reorganization(s) may also cause Acquiring Fund shares to trade at a larger discount from NAV.
Economies of Scale in Certain Expenses.  A combined Fund offers economies of scale that may lead to a
reduction in certain expenses.  With these reduced expenses and the contractual fee waivers offered by the
Funds adviser, as described below, the annual operating expenses of the combined Fund may be lower
than the current annual operating expenses of Income Shares, although they are expected to be higher than
High Income Portfolios current annual operating expenses. In addition, after the waivers expire, the annual
operating expenses of the combined Fund are expected to be higher than either Acquired Funds current
annual operating expenses.  Each Fund incurs New York Stock Exchange (NYSE) listing fees, costs for
legal, auditing, and custodial services, and miscellaneous fees.  Many of these expenses overlap and there

- iii - may be an opportunity to reduce them over time if the Funds are combined.  However, it is not expected
that these economies of scale will be substantial.
Portfolio Management Efficiencies.  Each Reorganization would permit Acquired Fund shareholders to
pursue similar investment goals in a larger Fund.  The greater asset size of the combined Fund may allow it,
relative to each Acquired Fund, to obtain better net prices on securities trades and achieve greater
diversification of portfolio holdings.
Shareholders Ability to Margin.  Currently, stocks that trade below $5.00 are not marginable.  The
Reorganization would permit shareholders of High Income Portfolio and Income Shares (if their shares
continue to trade below $5.00) to receive shares that they could margin.  Additionally, marginable
securities may be more liquid that those that are not marginable as many institutional/large investors are
believed to avoid stoc ks that are not marginable.
Each Board also considered that if shareholders approve a Reorganization, Highland Capital Management, L.P.
(Adviser or Highland) would contractually agree to waive a portion of Credit Strategies Funds advisory fee and
administration fee for two years so that Highland would receive no additional benefit from the Reorganization for
two years.  The waivers are intended to offset the additional revenue Highland would receive on each Acquired
Funds assets (calculated as of the date of its Reorganization and including the value of its preferred shares that
historically have been outstanding) due to the difference between the advisory fee rates of each Acquired Fund and
Credit Strategies Fund and the fact that the Acquired Funds d o not pay an administration fee to Highland.  However,
even with the contractual fee waivers, the annual operating expenses of the combined Fund are expected to be higher
than High Income Portfolios current annual operating expenses and, after the waivers expire, the annual operating
expenses of the combined Fund are expected to be higher than either Acquired Funds current annual operating
expenses.  As of each Funds last fiscal year, the total annual operating expenses, as a percentage of average net
assets, of High Income Portfolio, Income Shares and Credit Strategies Fund were 3.34%, 3.99% and 4.06%,
respectively.  Assuming each Reorganization is approved, the estimated total annual operating expenses of the
combined Fund would be 4.03% of average net assets and, with the contractual fee waivers described above, the
estimated net annual operating expenses of the combined Fund would be 3.88% of average net assets.
The Board of each Acquired Fund unanimously recommends that you vote FOR the Reorganization of your Fund
into Credit Strategies Fund.  For further information, please see the individual description of the proposal affecting
your Fund contained in the Proxy Statement/Prospectus.
Who Bears the Expenses Associated with the Proxy Statement/Prospectu s
The costs associated with the Reorganizations will be borne by each of the Acquired Funds and the Acquiring Fund
in proportion to their respective net assets determined at the close of regular trading on the NYSE on the date of the
Reorganization s closing, provided that if they close at different times, that determination will be made as of the date
that the first Reorganization closes.  The costs associated with the election of Directors will be borne by each of the
Acquired Funds.
Who is Eligible to Vo te
Shareholders of record on April 14, 2008 are entitled to attend and vote at the meeting or any adjourned meeting.
Each share is entitled to one vote.  Shares represented by properly executed proxy cards, unless revoked before or at
the meeting, will be voted according to shareholders instructions.  If you sign a proxy card but do not fill in a vote,
your shares will be voted for the Reorganization and for the election of the nominees for Director.  If any other
business comes before the meeting, your s hares will be voted at the discretion of the persons named as proxies.
The common shares of the Acquiring Fund are listed on the NYSE under the ticker symbol HCF and will continue
to be so listed subsequent to the Reorganizations.  The common shares of H igh Income Portfolio and Income Shares
are listed on the NYSE under the ticker symbols PHY and CNN, respectively.

- iv - Shares of the Acquiring Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank or other
depository institution.  These shares are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency.
Where to Get More Information
Credit Strategies Funds annual report to shareholders
dated December 31, 2007
High Income Portfolios annual report to shareholders
dated October 31, 2007
Income Shares annual report to shareholders dated
December 31, 2007 Previously sent to the shareholders of each respective
Fund and on file with the SEC or available at no charge
by calling our toll free number: 877 -665-1287.
A Statement of Additional Information dated April
[__], 2008, which relates to this Proxy
Statement/Prospectus and the Reorganizations, has
been filed with the SEC and contains additional
information about the Acquired Funds and the
Acquiring Fund   On file with the SEC or available at no charge by calling
our toll free number: 877-665-1287.  The statement of
additional information is incorporated by reference into
(and therefore legally part of) this Proxy
Statement/Prospectus.
To ask questions about this Proxy
Statement/Prospectus Call our toll -free telephone number: 877 -665-1287.
The date of this Proxy Statement/Prospectus is April [__], 2008.

- 44 - FEE, EXPENSE AND DIS TRIBUTIONS ON PRE FERRED SHARES TABLE FOR COMMON
SHAREHOLDERS OF THE FUNDS
Summary of Expense Comparison
As the tables below indicate, with the contractual fee waivers offered by Highland and the proceeds of a rights
offering completed by Credit Strategies Fund on January 28, 2008, the pro forma annual operating expenses of
Credit Strategies