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    ROPES & GRAY LLP

ONE EMBARCADERO CENTER, SUITE 2200

SAN FRANCISCO, CA 94111-3711

WWW.ROPESGRAY.COM

    Alexandra Oprescu

415-315-2334

415-315-4870 fax

alexandra.oprescu@ropesgray.com

January 30, 2009

U.S. Securities and Exchange Commission

Division of Investment Management

901 E Street, N.W.

Washington, D.C. 20549-0504

Attention: Mr. Kevin Rupert

 Mr. Dominic Minore

VIA EDGAR

    Re:

    Registrant:
File Nos.:
Filing Type:

    Highland Credit Strategies Fund
333-156464
N-14

Dear Mr. Rupert and Mr. Minore:

     Per your request, please find below our responses on behalf of Highland Credit Strategies Fund
(the “Acquiring Fund”) to the Securities and Exchange Commission (the “SEC”) staff’s (the “Staff”)
comments on the Fund’s Registration Statement on Form N-14 filed on December 24, 2008. The
Registration Statement was filed in connection with the merger of Highland Distressed
Opportunities, Inc. (the “Acquired Fund”) into Acquiring Fund. Mr. Rupert provided his comments in
phone conversations on Thursday, January 22, 2009 and Wednesday, January 28, 2009. Mr. Minore
provided his comments in phone conversations on Friday, January 23, 2009 and Wednesday, January 28,
2009. Each one of your comments is repeated below, followed by the Acquiring Fund’s response.
References to page numbers are to the N-14, unless otherwise indicated.

General

    1.

    Comment. Explain in your response letter why the merger sub is not included as
a co-registrant, why it will not be registered as an investment company and how the
triangular merger structure is consistent with Section 12(d)(1) of the Investment
Company Act of 1940, as amended (the “1940 Act”).

    Response. The merger sub is not a co-registrant because it will be formed only to
effectuate the merger shortly before the merger and will be liquidated shortly after
the merger. The merger sub will hold no other securities nor engage in any other
activities. In addition, no securities of the merger sub, which will be a shell
until the time of the reorganization, are being offered in the reorganization.

    We note that although the merger sub will not be registered as an investment
company, subject to further discussions with the Staff on this topic, merger sub
proposes to file an election to be regulated as a business development company
(“BDC”), which is discussed in more detail below in response to Comment 5. We also
note that a registration statement on Form N-14 for a recent similarly structured
merger was declared effective by the SEC and in that reorganization the merger sub
did not register as an investment company or register its shares as a co-registrant.
See Seligman Municipal Fund Series, Inc.; SEC Accession No.
0001193125-08-217602.1

    Lastly, we believe that the triangular merger structure is consistent to Section
12(d)(1) of the 1940 Act. First, the Acquiring Fund and the merger sub should be
permitted to rely on Section 12(d)(1)(D)’s exemption from Section 12(d)(1)(A)’s
percentage investment limitations because the Acquiring Fund would acquire its
interest in the merger sub pursuant to a plan of reorganization that is not intended
to evade the restrictions of Section 12(d)(1). As discussed above, the only purpose
of the merger sub’s short existence is to effectuate the merger. Second, Section
12(d)(1)(A)(i) by its terms prohibits the acquisition of certain securities,
not the holding of the securities. In this case the Acquiring Fund would
acquire the shares of the merger sub before it elected to be regulated as a BDC and
before it would acquire the holdings of the Acquired Fund. By analogy, if a
registered investment company’s interest in another investment company increased
from less than 3% to above 3% because of redemptions by other shareholders, Section
12(d)(1)(A)(i) would not be violated in the absence of further
acquisitions.2 We note also that two of the main concerns underlying the
prohibitions of Section 12(d)(1)(A)(i) — the possibility of pooled investment
vehicles unduly influencing investment companies through the threat of large
redemptions and the layering and duplication of costs to investors — are not
present in the Acquired Fund’s case. Because the merger sub will be liquidated
within a short time after the merger, neither the threat of large redemptions nor
concerns about layering and duplication of fees would be present.

    1

    Although it is currently contemplated that merger sub
will elect to be regulated as a BDC, it is not clear to us that given the
transitory nature of merger sub and the economic realities of the transaction
that merger sub should be required to register as an investment company or
elect to be regulated as a BDC. For example, in the Seligman transaction
described above, the transitory merger sub did not register as an investment
company. We would appreciate the opportunity to further discuss this issue with
the Staff.

    2

    In connection with the initial public,
offering of another registrant we discussed with a member of the Staff our view
that by its terms Section 12(d)(1)(A) prohibits the “acquisition,” but not the
“holding,” of securities of other investment companies, and in that context the
Staff agreed with our position.

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    2.

    Comment. Explain in your response letter whether use of the merger sub affects
the tax-free nature of the reorganization, especially if the merger sub is not
registered as an investment company.

    Response. The reorganization, as currently described in the prospectus/proxy
statement, is expected to be tax-free for U.S. federal income tax purposes under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”).
The merger sub will be a single member unincorporated entity (in this case a
Delaware limited liability company) and will not “check the box” under Treasury
Regulation § 301.7701-3 to be classified as an association that is taxed as a
corporation for U.S. federal income tax purposes. Thus, by default under Treasury
Regulation § 301.7701-3(b)(1)(ii), the merger sub will be disregarded as an entity
separate from its sole owner (the Acquiring Fund) for U.S. federal income tax
purposes (a “disregarded entity”). The fact that the merger sub will not be
registered as an investment company under the 1940 Act does not impact this tax
classification.

    Because the merger sub is a disregarded entity, upon the closing of the merger with
the Acquired Fund, for U.S. federal income tax purposes, the Acquired Fund will
effectively be treated as having transferred its assets and liabilities directly to
the Acquiring Fund in exchange for shares of Acquiring Fund, and the Acquiring Fund
will be treated as the direct tax owner of the Acquired Fund’s transferred assets
and liabilities. Hence, the liquidation of the merger sub into its parent, the
Acquiring Fund, immediately following the statutory merger will be disregarded for
U.S. federal income tax purposes because it will not change the deemed tax owner of
the Acquired Fund’s former assets and liabilities (namely, the Acquiring Fund).
Based on the foregoing, we expect the Reorganization to qualify as a tax-free
reorganization as a statutory merger under Section 368(a)(1)(A) of the Code (and
related Treas. Reg. § 1.368-2(b)(1)(ii) (defining statutory merger)) and/or as an
asset acquisition under Section 368(a)(1)(C) of the Code.

    3.

    Comment. Explain in your response letter whether the findings required by Rule
17a-8 under the 1940 Act should be made with respect to the merger sub. If the
Acquiring Fund believes it should not, provide an explanation in your response letter.
If the Acquiring Fund believes it should, include the findings in the Registration
Statement.

    Response. The Acquiring Fund does not believe that the findings required by Rule
17a-8 under the 1940 Act should be made with respect to the merger sub. As
discussed above, the merger sub will have a short existence and no assets until the
effective time of the merger. Furthermore, the sole member of the merger sub, which
will be formed as a Delaware limited liability company, will be the Acquiring Fund,
and arguably, indirectly the Acquiring Fund’s shareholders. The 17a-8 findings have
already been made with respect to the Acquiring Fund’s shareholders and therefore no
separate findings are necessary for the merger sub.

3

    4.

    Comment. Provide more disclosure in the Registration Statement that merger sub
will elect to be regulated as a BDC. Explain in your response letter how merger sub
expects to meet the applicable BDC requirements, including the requirement that a BDC
register its shares under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Include a discussion of the forms necessary to accomplish this.

    Response. Disclosure has been added on the first page of the prospectus/proxy
statement and pages 6 and 23, although, as noted above, we would like to further
discuss the need for registration with the Staff. In order to elect to be treated
as a BDC, the merger sub would first register its limited liability company
interests with the SEC under the Exchange Act on Form 10-12G (Initial general form
for registration of a class of securities pursuant to section 12(g)). Subsequently,
the merger sub would file Form N-54A (Notification of election by business
development companies) to elect to be regulated as a BDC. In addition, we have been
informed by Highland Capital Management, L.P., the Acquired Fund’s investment
adviser, that the acquisition by the merger sub of Acquired Fund’s assets will
comply with the requirements of Section 55 of the 1940 Act.

    5.

    Comment. Explain in your response letter how the merger sub intends to withdraw
its election to be a BDC upon liquidation and obtain the requisite shareholder
approval, including the forms it will need to file.

    Response. The sole member of the merger sub will be the Acquiring Fund, which will,
by written consent, approve the withdrawal of the merger sub’s election to be
regulated as a BDC. After the merger sub’s liquidation pursuant to the Agreement
and Plan of Merger and Liquidation, the merger sub would file a Form N-54C
(Notification of withdrawal by business development companies) and a Form 15-12G
(Notice of termination of registration of a class of securities under Section
12(g)).

Shareholder Letter to Prospectus/Proxy Statement

    6.

    Comment. In the second paragraph of the Shareholder Letter, revise the language
to indicate that merger sub will not survive for more than a day or state if it will so
survive.

    Response. The requested change has been made.

Questions & Answers — Approval of Registration of the Acquired Fund

    7.

    Comment. In response to the first question, include a brief explanation that
the Acquiring Fund is not a BDC and highlight the differences between a closed-end
investment company and a BDC, such as that operations will be more limited in scope.

    Response. The requested change has been made.

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    8.

    Comment. In response to the third question, update the portfolio composition
information as of 12/31/2008.

    Response. The requested change has been made.

    9.

    Comment. In response to the sixth question, include a statement that there is
no assurance that the yield for the Acquiring Fund will continue to be higher in future
periods.

    Response. The comment has been addressed by stating that there is no guarantee that
the Acquiring Fund’s yield will continue at its current levels, and may decline.

    10.

    Comment. In response to the seventh question, provide more definitive language
that the transaction will be a tax-free reorganization and that it is a condition to
the merger that it be so qualified. Also add a statement that receiving a tax opinion
is a non-waivable condition of the merger.

    Response. We do not believe that a more definitive
statement can be made at this time. In addition, we note that this is standard disclosure regarding the tax-free nature of
the reorganization and disclosure like this has been reviewed by the Staff for other
fund reorganizations without objection. In addition, we did not add a statement that
receiving a tax opinion is a non-waivable condition to the merger, because the form
of Agreement and Plan of Merger and Liquidation, attached as Appendix A to the
prospectus/proxy statement, no longer contains this requirement. However, we note
that the Acquiring Fund does not intend to consummate the merger without such an
opinion and should the Board determine to consummate the reorganization even if the
reorganization would not be a tax free reorganization, the Acquired
Fund will inform stockholders
and re-solicit proxies. Disclosure regarding possible re-solicitation has been
added to the relevant response and on page 8.

    11.

    Comment. In response to the eighth question, disclose that it is a condition to
the merger that there have been no stockholder demands for appraisal. Explain in your
response why this is a condition to the closing of the merger and how this is
consistent with the Acquired Fund’s Board of Directors’ fiduciary obligations. In
addition, explain what criteria the Board will use to determine whether it will waive
the condition.

    Response. We note that the third, fourth and fifth sentences in the response to the
eighth question disclose the existence of the merger condition. We have made
non-substantive changes to these sentences. Although stockholders of the Acquired
Fund have appraisal rights under Delaware law, the Board intends to exercise its
fiduciary obligations in the best interests of all stockholders, not just those
making demands for appraisal. The number of stockholders that may elect to make
demands for appraisal is uncertain; however, should a sufficiently large number of
stockholders make such demands, the value of the merger to the non-demanding
stockholders or to shareholders of the Acquiring Fund may decrease.

5

    Furthermore, because it is uncertain what value a court would place on the
requesting shareholders’ shares or the timing of any such court proceeding, or
market conditions at such time, the exercise of appraisal rights could require the
Acquired Fund to sell its portfolio holdings at times or prices that are
disadvantageous to stockholders or to shareholders of the Acquiring Fund.
Therefore, the Board believes it is acting pursuant to its fiduciary obligations to
each Fund’s stockholders/shareholders by adding this condition to the merger. The
factors to be considered by the Board would likely include, but would not be limited
to, the number of shares subject to demands for appraisals, the estimated range of
value within which those stockholders’ shares could be appraised, when such court
appraisal would occur, any court-related expenses the Acquired Fund may have to
incur and the current economic and market conditions.

Notice of Special Meeting of Stockholders

    12.

    Comment. In the Notice of Special Meeting of Stockholders, revise the
description of Proposal 1 to indicate that a vote for the merger is also a vote to
allow the Acquired Fund to withdraw its election to be a BDC.

    Response. The requested change has been made.

Prospectus/Proxy Statement

    13.

    Comment. Include in the prospectus/proxy statement an explanation as to why the
funds are using the triangular merger structure.

    Response. The requested disclosure has been added in the response to the first
question under “Questions & Answers — Approval of Registration of the Acquired
Fund.” The proposed reorganization is structured as a triangular merger to address
the requirements of provisions in the Acquired Fund’s organizational
documents which are intended to deter “hostile” takeovers or other transactions
which the Board may determine would disadvantage stockholders. Furthermore,
structuring t