ThZeal - The Zeal

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-21869

Highland Credit Strategies Fund

(Exact name of registrant as specified in charter)

NexBank Tower
13455 Noel Road, Suite 800
Dallas, Texas 75240

(Address of principal executive offices) (Zip code)

R. Joseph Dougherty
Highland Capital Management, L.P.
NexBank 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: June 30, 2010

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR 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 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.



		Highland Credit Strategies Fund

TABLE OF CONTENTS


Fund Profile			1
Financial Statements			2
Investment Portfolio			3
Statement of Assets and Liabilities			10
Statement of Operations			11
Statements of Changes in Net Assets			12
Statement of Cash Flows			13
Financial Highlights			14
Notes to Financial Statements			15
Additional Information			25
Important Information About This Report			27

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FUND PROFILE (unaudited)

Highland Credit Strategies Fund

Objective

The Highland Credit Strategies Fund (the “Fund”) seeks to provide both current income and capital appreciation.

Total Net Assets of Common Shares as of June 30, 2010

$464.9 million

Portfolio Data as of June 30, 2010

The information below provides a snapshot of the Fund at the end of the reporting period. The Fund is actively managed and the composition of its portfolio will change over time.

Quality Breakdown as of 06/30/10 (%)*


A			0.6
BBB			5.7
BB			7.3
B			33.7
CCC			15.9
CC			1.1
C			1.2
D			1.2
NR			33.3

Top 5 Sectors as of 06/30/10 (%)*


Healthcare			20.2
Financial			7.8
Broadcasting			7.4
Diversified Media			6.7
Gaming/Leisure			5.2

Top 10 Holdings as of 06/30/10 (%)*


Genesys Ventures IA, LP (Common Stocks)			6.8
ComCorp Broadcasting, Inc. (US Senior Loans)			4.9
Celtic Pharma Phinco B.V (Corporate Notes and Bonds)			4.8
SMG H5 Pty., Ltd. (Foreign Denominated Senior Loans)			2.2
TCD Pharma (Corporate Notes and Bonds)			2.2
Azithromycin Royalty Sub LLC (Corporate Notes and Bonds)			1.9
Broadstripe, LLC (US Senior Loans)			1.7
Lake at Las Vegas Joint Venture (US Senior Loans)			1.6
LifeCare Holdings (US Senior Loans)			1.5
CDW Corp. (US Senior Loans)			1.4


*		Quality is calculated as a percentage of total senior loans, asset-backed securities, notes and bonds. Sectors and holdings are calculated as a percentage of total assets.

Semi-Annual Report | 1

FINANCIAL STATEMENTS



June 30, 2010		Highland Credit Strategies Fund

A guide to understanding the Fund’s financial statements


Investment Portfolio		The Investment Portfolio details all of the Fund’s holdings and their value as of the last day of the reporting period. Portfolio holdings are organized by type of asset and industry to demonstrate areas of concentration and diversification.

Statement of Assets and Liabilities		This statement details the Fund’s assets, liabilities, net assets and common share price as of the last day of the reporting period. Net assets are calculated by subtracting all the Fund’s liabilities (including any unpaid expenses) from the total of the Fund’s investment and non-investment assets. The net asset value per common share is calculated by dividing net assets by the number of common shares outstanding as of the last day of the reporting period.

Statement of Operations		This statement reports income earned by the Fund and the expenses accrued by the Fund during the reporting period. The Statement of Operations also shows any net gain or loss the Fund realized on the sales of its holdings during the period as well as any unrealized gains or losses recognized over the period. The total of these results represents the Fund’s net increase or decrease in net assets from operations applicable to common shareholders.

Statements of Changes in Net Assets		These statements detail how the Fund’s net assets were affected by its operating results, distributions to common shareholders and shareholder transactions from common shares (e.g., subscriptions, redemptions and distribution reinvestments) during the reporting period. The Statements of Changes in Net Assets also detail changes in the number of common shares outstanding.

Statement of Cash Flows		This statement reports net cash and foreign currency provided or used by operating, investing and financing activities and the net effect of those flows on cash and foreign currency during the period.

Financial Highlights		The Financial Highlights demonstrate how the Fund’s net asset value per common share was affected by the Fund’s operating results. The Financial Highlights also disclose the performance and certain key ratios (e.g., net expenses and net investment income as a percentage of average net assets).

Notes to Financial Statements		These notes disclose the organizational background of the Fund, its significant accounting policies (including those surrounding security valuation, income recognition and distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies.

2 | Semi-Annual Report

INVESTMENT PORTFOLIO



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


Principal Amount ($)			Value ($)
US Senior Loans (a) — 74.6%
AEROSPACE — 4.1%
	1,483,176	AWAS Capital, Inc. Second Lien Priority Term Facility, 6.56%, 03/25/13		1,212,496
	1,989,744	Delta Air Lines, Inc. Second Lien Term Loan, 3.55%, 04/30/14		1,782,999
	1,985,000	Term Loan, 8.75%, 09/27/13		1,999,064
	5,227,544	Term Loan Equipment Notes, 4.03%, 09/29/12		4,757,065
	252,552	Hawker Beechcraft Acquisition Co. LLC Letter of Credit Facility Deposit, 2.53%, 03/26/14 (b)		204,918
	4,235,292	Term Loan, 2.40%, 03/26/14 (b)		3,436,472
	2,209,671	IAP Worldwide Services, Inc. Second Lien Term Loan, 12.50%, 06/28/13		1,938,987
	4,931,507	US Airways Group, Inc. Term Loan, 2.81%, 03/21/14		3,936,403

				19,268,404


BROADCASTING — 9.6%
	3,584,549	ComCorp Broadcasting, Inc. Revolving Loan, 9.00%, 10/03/12 (c) (d)		3,066,582
	35,860,392	Term Loan, 9.00%, 04/03/13 (c) (d)		30,678,565
	4,696,867	Cumulus Media, Inc. Replacement Term Loan, 4.35%, 06/11/14		4,274,149
	3,810,104	Entercom Radio LLC Term A Loan, 1.51%, 06/29/12		3,562,447
	2,981,074	Univision Communications, Inc. Initial Term Loan, 2.60%, 09/29/14		2,493,340
	490,186	Young Broadcasting, Inc., PIK Term Loan, 8.00%, 06/30/15 (d)		490,186

				44,565,269


CABLE/WIRELESS VIDEO — 3.2%
	1,107,409	Broadstripe, LLC DIP Revolver, 7.25%, 06/30/11 (d) (e)		1,106,855
	14,151,375	First Lien Term Loan, 06/30/11 (d) (f)		10,787,593
	1,428,203	Revolver, 06/30/11 (d) (f)		1,088,719
	1,777,584	WideOpenWest Finance, LLC. Series A New Term Loan, 6.88%, 06/30/14		1,762,768

				14,745,935


CHEMICALS — 3.2%
	2,322,139	TPC Group LLC Incremental Term Loan B, 2.88%, 06/27/13		2,188,616
	7,568,439	Term B Loan, 2.88%, 06/27/13		7,133,254


Principal Amount ($)			Value ($)
CHEMICALS (continued)
	1,597,107	W.R. Grace & Co. 5 Year Revolver (b)		2,762,995
	1,597,107	Revolving Credit Loan (b)		2,762,995

				14,847,860


CONSUMER NON-DURABLES — 0.9%
	574,347	KIK Custom Products, Inc. First Lien Canadian Term Loan, 2.57%, 06/02/14 (b)		477,665
	3,350,357	First Lien U.S. Term Loan, 2.57%, 06/02/14 (b)		2,786,374
	2,000,000	Second Lien Term Loan, 5.32%, 12/01/14		1,190,000

				4,454,039


DIVERSIFIED MEDIA — 4.7%
	5,459,248	Cengage Learning Acquisitions, Inc. Term Loan, 3.03%, 07/03/14		4,723,014
	5,572,473	Cydcor, Inc. First Lien Tranche B Term Loan, 9.00%, 02/05/13		5,196,331
	3,000,000	Second Lien Tranche B Term Loan, 12.00%, 02/05/14 (d)		2,924,100
	3,000,000	Endurance Business Media, Inc. Second Lien Term Loan, 01/26/14 (f)		195,000
	1,275,963	Harland Clarke Holdings Corp. Tranche B Term Loan, 2.87%, 06/30/14		1,100,518
	14,144,529	Metro-Goldwyn-Mayer, Inc. Tranche B Term Loan, 04/09/12 (f)		6,449,905
	2,917,500	Tranche B-1 Term Loan, 04/09/12 (f)		1,330,380

				21,919,248


ENERGY — 2.9%
	213,333	Alon USA Energy, Inc. Edington Facility, 2.60%, 08/05/13		168,533
	1,706,667	Paramount Facility, 2.69%, 08/05/13		1,348,267
	2,600,000	Big West Oil, LLC Term Loan, 01/30/15 (b)		2,621,125
	197,380	Calumet Lubricants Co., LP Credit-Linked Letter of Credit, 4.14%, 01/03/15		179,122
	1,457,888	Term Loan, 4.44%, 01/03/15		1,323,033
	8,734,949	Venoco, Inc. Second Lien Term Loan, 4.38%, 05/07/14		7,806,861

				13,446,941


FINANCIAL — 2.4%
	4,000,000	AGFS Funding Co. Term Loan, 7.25%, 04/21/15		3,904,000
	5,500,000	Nuveen Investments, Inc. First Lien Term Loan, 3.45%, 11/13/14		4,594,233
	2,750,000	Second Lien Term Loan, 12.50%, 07/31/15 (b) (g)		2,893,000

				11,391,233

See accompanying Notes to Financial Statements. | 3

INVESTMENT PORTFOLIO (continued)



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


Principal Amount ($)			Value ($)
US Senior Loans (continued)
FOOD/TOBACCO — 3.4%
	1,818,889	DS Waters of America, Inc. Term Loan, 2.60%, 10/29/12		1,750,681
	7,000,000	DSW Holdings, Inc. Term Loan, 4.35%, 03/02/12		6,632,500
	331,476	OSI Restaurant Partners, LLC Pre-Funded RC Loan, 2.88%, 06/14/13 (b)		285,128
	3,657,668	Term Loan, 2.88%, 06/14/14 (b)		3,146,254
	1,036,875	Pierre Foods, Inc. Term Loan, 7.00%, 03/03/16		1,038,596
		WM. Bolthouse Farms, Inc. Second Lien Term Loan, 9.50%, 08/11/16		2,991,555

				15,844,714


FOREST PRODUCTS/CONTAINERS — 1.6%
	4,000,000	Consolidated Container Co., LLC Second Lien Term Loan, 5.88%, 09/28/14		3,430,000
	3,500,000	Smurfit Stone Container Enterprises, Inc. Exit Term Loan, 6.75%, 02/22/16		3,496,343
	1,000,000	Tegrant Corp. Second Lien Term Loan, 6.04%, 03/08/15		695,000

				7,621,343


GAMING/LEISURE — 6.6%
	18,500,000	Fontainebleau Florida Hotel, LLC Tranche C Term Loan, 06/06/12 (f)		6,475,000
	3,937,249	Ginn LA Conduit Lender, Inc. First Lien Tranche A Credit-Linked Deposit, 06/08/11 (f)		329,745
	8,438,203	First Lien Tranche B Term Loan, 06/08/11 (f)		717,247
	1,000,000	Green Valley Ranch Gaming, LLC Second Lien Term Loan, 08/16/14 (f)		41,000
	159,286	Lake at Las Vegas Joint Venture Mezzanine (f)		5,575
	8,162,813	Revolving Loan Credit-Linked Deposit Account, 06/20/12 (f)		51,018
	95,965,339	Term Loan, 06/20/12 (f)		401,408
	34,125,359	Term Loan, DIP, 4.10%, 07/15/10		10,237,608
	1,387,380	Las Vegas Sands, LLC Delayed Draw I Term Loan, 2.10%, 05/23/14		1,231,647
	6,866,118	Tranche B Term Loan, 2.10%, 05/23/14		6,095,396
	65,600	MGM Mirage, Inc. Class A-2 Loan, 7.00%, 02/21/14 (e)		52,644
	108,445	Class C Loan, 7.00%, 02/21/14		90,010


Principal Amount ($)			Value ($)
GAMING/LEISURE (continued)
	2,000,000	Class D Loan, 6.00%, 10/03/11		1,911,500
	1,108,452	VML US Finance, LLC Term B Delayed Draw Project Loan, 5.04%, 05/25/12		1,080,586
	1,919,020	Term B Funded Project Loan, 5.04%, 05/27/13		1,870,776
	7,000,000	WAICCS Las Vegas 3 LLC Second Lien Term Loan (f)		35,000

				30,626,160


HEALTHCARE — 2.2%
	10,311,597	LifeCare Holdings Term Loan, 4.59%, 08/10/12		9,486,669
	673,016	MultiPlan, Inc. Incremental Term D Loan, 6.00%, 04/12/13		670,492

				10,157,161


HOUSING — 2.2%
	3,190,581	LBREP/L-Suncal Master I, LLC First Lien Term Loan (f)		47,859
	24,752,866	Pacific Clarion, LLC Term Loan (d) (f)		3,804,515
	2,930,202	Roofing Supply Group, LLC Term Loan, 7.25%, 08/24/13		2,853,284
	8,404,121	Westgate Investments, LLC Senior Secured Loan, 09/25/10 (f)		2,493,576
	2,336,387	Senior Unsecured Loan, 09/25/12 (f)		561,578
	3,743,195	Third Lien Term Loan, 06/30/15 (f)		540,304

				10,301,116


INFORMATION TECHNOLOGY — 3.6%
	10,362,745	CDW Corp. Term Loan, 4.34%, 10/10/14 (b)		9,084,966
	2,000,000	Freescale Semiconductor, Inc. Extended Maturity Term Loan, 4.60%, 12/01/16		1,765,000
	4,000,000	Kronos, Inc. Second Lien Term Loan, 6.28%, 06/11/15		3,740,020
	2,000,000	SSI Investments II Ltd. Term Loan, 6.50%, 05/30/17		1,989,690

				16,579,676


MANUFACTURING — 2.9%
	6,522,587	Acument Global Technologies, Inc. Term Loan, PIK, 14.00%, 08/11/13		6,245,377
	4,000,000	Brand Energy & Infrastructure Services, Inc. Second Lien Term Loan, 6.45%, 02/07/15		3,580,000
	2,525,345	Dana Holding Corp. Term Advance, 4.62%, 01/30/15		2,438,221
	1,220,202	United Central Industrial Supply Co., LLC Term Loan, 2.60%, 03/31/12		1,177,495

				13,441,093

4 | See accompanying Notes to Financial Statements.

INVESTMENT PORTFOLIO (continued)



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


Principal Amount ($)			Value ($)
US Senior Loans (continued)
METALS/MINERALS — 0.6%
	1,454,449	Euramax International, Inc. Domestic Term Loan (Cash Pay), 10.00%, 06/29/13		1,378,090
	1,531,333	Domestic Term Loan, PIK, 14.00%, 06/29/13		1,450,938

				2,829,028


RETAIL — 3.0%
	4,334,043	Guitar Center, Inc. Term Loan, 3.85%, 10/09/14		3,846,463
	3,926,400	Michaels Stores, Inc. B-1 Term Loan, 2.76%, 10/31/13		3,648,745
	2,074,063	B-2 Term Loan, 5.01%, 07/31/16		1,975,223
	1,125,000	Neiman Marcus Group, Inc. Term Loan, 04/06/13 (b)		1,057,078
	4,300,000	Spirit Finance Corp. Term Loan, 3.34%, 08/01/13		3,614,301

				14,141,810


SERVICE — 5.1%
	4,464,031	CCS, Inc. Term Loan, 3.35%, 11/14/14		3,688,406
	7,465,580	First Data Corp. Initial Tranche B-1 Term Loan, 3.10%, 09/24/14 (b)		6,300,277
	1,193,183	NES Rentals Holdings, Inc. Second Lien Permanent Term Loan, 10.00%, 07/20/13		1,082,814
	10,477,778	Penhall Holding Co. Term Loan, 9.44%, 04/01/12		1,204,944
	4,927,144	Sabre, Inc. Initial Term Loan, 2.34%, 09/30/14		4,390,307
	1,301,695	Safety-Kleen Systems, Inc. Synthetic Letter of Credit, 3.38%, 08/02/13		1,230,102
	6,018,983	Term B Loan, 3.38%, 08/02/13		5,687,939

				23,584,789


TELECOMMUNICATIONS — 4.1%
	6,938,449	Avaya, Inc. Term B-1 Loan, 3.26%, 10/24/14		5,952,877
	2,800,084	Digicel International Finance, Ltd. Tranche A — T&T, 3.06%, 09/30/12		2,754,583
	3,000,150	U.S. Term Loan, 3.06%, 03/30/12		2,951,398
	3,947,368	Fairpoint Communications, Inc. Term Loan B, 03/31/15 (b) (f)		2,661,513
	4,000,000	Level 3 Financing, Inc. Tranche A Term Loan, 2.55%, 03/13/14		3,563,140
	997,500	U.S. Telepacific Corp. Term Loan Advance, 9.25%, 08/17/15		995,256

				18,878,767


Principal Amount ($)			Value ($)
TRANSPORTATION — AUTOMOTIVE - 3.6%
	1,971,322	Federal-Mogul Corp. Tranche B Term Loan, 2.29%, 12/29/14		1,730,249
	1,005,777	Tranche C Term Loan, 2.29%, 12/28/15		882,780
	4,950,039	Ford Motor Co. Tranche B-1 Term Loan, 3.33%, 12/15/13		4,692,662
	4,030,343	Key Safety Systems, Inc. First Lien Term Loan, 2.60%, 03/08/14		3,458,558
	5,974,397	Motor Coach Industries International, Inc. Second Lien Tranche A, 06/30/12 (f)		3,584,638
	3,680,847	Second Lien Tranche B, 06/30/12 (f)		2,208,508

				16,557,395


TRANSPORTATION — LAND TRANSPORTATION — 0.9%
	1,787,498	New Century Transportation, Inc. Term Loan, 7.35%, 08/14/12		1,662,373
	599,752	SIRVA Worldwide, Inc. Revolving Credit Loan Exit Finance, 5.48%, 05/12/12 (e)		410,830
	3,556,076	Second Lien Term Loan, 12.00%, 05/12/15		977,921
	1,636,593	Term Loan (Exit Finance), PIK, 12.81%, 05/12/12		1,186,530

				4,237,654


UTILITY — 3.8%
	11,289	Coleto Creek Power, LP First Lien Synthetic Letter of Credit, 3.28%, 06/28/13		10,189
	147,072	First Lien Term Loan, 3.24%, 06/28/13		132,475
	4,800,000	Second Lien Term Loan, 4.35%, 06/28/13		3,873,600
	5,140,469	Entegra TC LLC Third Lien Term Loan, PIK, 6.53%, 10/19/15		2,585,656
	2,202,643	GBGH, LLC First Lien Term Loan, 4.00%, 06/09/13 (d)		1,795,374
	748,863	Second Lien Term Loan, PIK, 12.00%, 06/09/14 (d) (g)		—
	2,625,000	New Development Holdings, LLC Term Loan, 07/03/17 (b)		2,603,672
	8,826,471	Texas Competitive Electric Holdings Co., LLC Initial Tranche B-2 Term Loan, 3.98%, 10/10/14		6,556,965

				17,557,931

		Total US Senior Loans (Cost $531,216,996)		346,997,566

See accompanying Notes to Financial Statements. | 5

INVESTMENT PORTFOLIO (continued)



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


Principal Amount			Value ($)

Foreign Denominated Senior Loans (a) — 3.1%

AUSTRALIA — 3.0%
AUD
	17,870,278	SMG H5 Pty., Ltd. Facility A Term Loan, 7.12%, 12/24/12		13,848,898


GERMANY — 0.1%
EUR
	625,000	CBR Fashion Gmbh Second Lien Facility, 10/19/16 (b)		492,188

		Total Foreign Denominated Senior Loans (Cost $15,008,402)		14,341,086


Principal Amount ($)

US Asset-Backed Securities (h) — 7.5%
	2,000,000	AB CLO, Ltd. Series 2007-1A, Class C, 2.15%, 04/15/21 (d) (i)		991,194
	4,000,000	ACA CLO, Ltd. Series 2006-2A, Class B, 1.03%, 01/20/21 (i)		2,360,000
	2,000,000	Series 2007-1A, Class D, 2.65%, 06/15/22 (i)		910,000
	1,000,000	Babson CLO, Ltd. Series 2007-2A, Class D, 2.00%, 04/15/21 (i)		525,000
	1,000,000	Bluemountain CLO, Ltd. Series 2007-3A, Class D, 1.94%, 03/17/21 (d) (i)		489,926
	2,000,000	Cent CDO, Ltd. Series 2007-15A, Class C, 2.79%, 03/11/21 (i)		993,140
	2,000,000	Columbus Nova CLO, Ltd. Series 2007- 1A, Class D, 1.79%, 05/16/19 (i)		1,030,000
	1,000,000	Commercial Industrial Finance Corp. Series 2006-1BA, Class B2L, 4.54%, 12/22/20		450,000
	962,970	Series 2006-2A, Class B2L, 4.54%, 03/01/21 (i)		377,484
	2,500,000	Cornerstone CLO, Ltd. Series 2007-1A, Class C, 2.70%, 07/15/21 (i)		1,381,250
	4,000,000	Goldman Sachs Asset Management CLO PLC Series 2007-1A, Class D, 3.09%, 08/01/22 (i)		2,060,000
	847,661	Series 2007-1A, Class E, 5.34%, 08/02/22 (i)		415,354
	1,000,000	Greywolf CLO, Ltd Series 2007-1A, Class D, 1.95%, 02/18/21 (i)		482,500
	814,466	Series 2007-1A, Class E, 4.40%, 02/18/21 (i)		415,378
	3,000,000	GSC Partners CDO Fund, Ltd. Series 2007-8A, Class C, 1.78%, 04/17/21 (i)		1,049,670
	1,000,000	Gulf Stream Sextant CLO, Ltd. Series 2007-1A, Class D, 2.94%, 06/17/21 (i)		480,000
		Hillmark Funding


Principal Amount ($)			Value ($)

US Asset-Backed Securities (continued)
	2,000,000	Series 2006-1A, Class C, 2.18%, 05/21/21 (i)		1,050,000
	612,103	Series 2006-1A, Class D, 4.08%, 05/21/21 (i)		250,962
	1,000,000	Inwood Park CDO, Ltd. Series 2006-1A, Class C, 1.01%, 01/20/21 (i)		780,000
	1,000,000	Series 2006-1A, Class D, 1.71%, 01/20/21 (i)		697,500
	2,000,000	Limerock CLO Series 2007-1A, Class D, 3.67%, 04/24/23 (i)		600,000
	2,000,000	Madison Park Funding Ltd. Series 2007-5A, Class C, 1.96%, 02/26/21 (i)		917,820
	1,500,000	Series 2007-5A, Class D, 4.01%, 02/26/21 (i)		678,720
	1,000,000	Marquette US/European CLO, PLC Series 2006-1A, Class D1, 2.05%, 07/15/20 (i)		437,500
	835,038	Navigator CDO, Ltd. Series 2006-2A, Class D, 4.04%, 09/20/20 (i)		313,636
	1,000,000	Ocean Trails CLO Series 2006-1A, Class D, 4.04%, 10/12/20 (i)		430,000
	2,500,000	Series 2007-2A, Class C, 2.65%, 06/27/22 (i)		1,250,000
	1,000,000	PPM Grayhawk CLO, Ltd. Series 2007-1A, Class C, 1.70%, 04/18/21 (i)		477,030
	826,734	Series 2007-1A, Class D, 3.90%, 04/18/21 (i)		379,000
	5,000,000	Primus CLO, Ltd. Series 2007-2A, Class D, 2.70%, 07/15/21 (i)		2,750,000
	1,889,756	Series 2007-2A, Class E, 5.05%, 07/15/21 (i)		793,697
	4,000,000	Rampart CLO, Ltd. Series 2006-1A, Class C, 1.75%, 04/18/21 (i)		2,038,860
	2,287,217	St. James River CLO, Ltd. Series 2007-1A, Class E, 4.84%, 06/11/21 (i)		1,029,248
	1,200,000	Stanfield Daytona CLO, Ltd. Series 2007-1A, Class B1L, 1.67%, 04/27/21 (i)		600,000
	4,000,000	Stanfield McLaren CLO, Ltd. Series 2007-1A, Class B1L, 2.94%, 02/27/21 (i)		2,160,000
	2,000,000	Stone Tower CLO, Ltd. Series 2007-6A, Class C, 1.65%, 04/17/21 (i)		1,010,000
	2,000,000	Venture CDO, Ltd. Series 2007-9A, Class D, 4.44%, 10/12/21 (i)		1,182,500
	1,000,000	Westbrook CLO, Ltd. Series 2006-1A, Class D, 2.24%, 12/20/20 (i)		550,000

		Total US Asset-Backed Securities (Cost $49,007,593)		34,787,369

6 | See accompanying Notes to Financial Statements.

INVESTMENT PORTFOLIO (continued)



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


Principal Amount			Value ($)
Foreign Asset-Backed Securities (h) — 0.5%

IRELAND — 0.5%
EUR
	2,000,000	Static Loan Funding Series 2007-1X, Class D, 5.47%, 07/31/17 (i)		1,298,399
	2,000,000	Series 2007-1X, Class E, 7.97%, 07/31/17 (i)		1,151,411

		Total Foreign Asset-Backed Securities (Cost $5,680,959)		2,449,810


Principal Amount ($)

Corporate Notes and Bonds — 23.0%

AEROSPACE — 0.6%
		Delta Air Lines, Inc.
	5,000,000	06/30/23 (f)		108,750
	7,000,000	12/15/29 (f)		166,250
	1,000,000	9.50%, 09/15/14 (i)		1,055,000
		Northwest Airlines Corp.
	2,500,000	12/30/27 (f)		9,500
		Northwest Airlines, Inc.
	1,468,977	9.06%, 05/20/12		1,461,632

				2,801,132


CHEMICALS — 2.2%
		Berry Plastics Holding Corp.
	3,000,000	8.88%, 09/15/14		2,902,500
		Lyondell Chemical Co.
	6,856,412	11.00%, 05/01/18		7,387,784

				10,290,284


DIVERSIFIED MEDIA — 1.3%
		Baker & Taylor, Inc.
	8,300,000	11.50%, 07/01/13 (i)		6,121,250


FOOD AND DRUG — 0.9%
		Rite Aid Corp.
	4,000,000	10.38%, 07/15/16		4,055,000


FOREST PRODUCTS/CONTAINERS — 0.0%
		NewPage Holding Corp., PIK
	354,466	7.53%, 11/01/13 (h)		78,426


GAMING/LEISURE — 0.4%
		MGM Mirage, Inc.
	2,000,000	6.75%, 04/01/13		1,795,000


HEALTHCARE — 15.0%
		Argatroban Royalty Sub LLC
	5,192,520	18.50%, 09/21/14 (i)		4,777,118
		Azithromycin Royalty Sub LLC
	15,000,000	16.00%, 05/15/19 (i)		12,000,000
		Celtic Pharma Phinco B.V., PIK
	57,089,600	17.00%, 06/15/12 (i)		30,257,488
		Cinacalcet Royalty Sub LLC
	131,949	8.00%, 03/30/17 (i)		142,327
		Dfine, Inc.
	2,238,810	6.00%, 06/30/10 (d)		2,238,810


Principal Amount ($)			Value ($)

HEALTHCARE (continued)
		Fosamprenavir Pharma
	3,472,383	15.50%, 06/15/18 (i)		3,298,764
		Molecular Insight Pharmaceuticals, Inc.
	4,120,575	11/16/12 (f) (h) (i)		1,442,201
		Pharma IV (Eszopiclone)
	1,923,847	12.00%, 06/30/14 (i)		1,519,839
		Pharma V (Duloxetine)
	400,000	13.00%, 10/15/13 (i)		384,000
		TCD Pharma
	15,500,000	16.00%, 04/15/24 (i)		13,640,000

				69,700,547


INFORMATION TECHNOLOGY — 1.2%
		Freescale Semiconductor, Inc.
	5,000,000	10.13%, 03/15/18 (i) (j)		5,125,000
		New Holding, Inc.
	477,689	03/12/13 (d) (f)		173,401

				5,298,401


METALS/MINERALS — 0.6%
		Appleton Papers, Inc.
	3,000,000	10.50%, 06/15/15 (i)		2,850,000


RETAIL — 0.1%
		Burlington Coat Factory Warehouse Corp.
	500,000	11.13%, 04/15/14		520,000


TELECOMMUNICATIONS — 0.2%
		Insight Communications Co., Inc.
	1,000,000	9.38%, 07/15/18 (i)		1,000,000


TRANSPORTATION — AUTOMOTIVE — 0.1%
		DPH Holdings Corp.
	3,750,000	05/01/11 (f)		93,750
	3,933,000	06/15/11 (f)		98,325
	8,334,000	05/01/29 (f) (j)		208,350

				400,425


UTILITY — 0.4%
		Kiowa Power
	2,000,000	5.74%, 03/30/21 (i)		2,031,378

		Total Corporate Notes and Bonds (Cost $146,356,620)		106,941,843


Claims (k) — 0.1%

FINANCIAL — 0.1%
		Lehman Brothers Holdings, Inc.
	1,198,046	Trade Claims LBSF		507,169


RETAIL — 0.0%
		Home Interiors & Gifts, Inc.
	6,933,961	Proof of Claims (d)		11,788

		Total Claims (Cost $5,595,198)		518,957

See accompanying Notes to Financial Statements. | 7

INVESTMENT PORTFOLIO (continued)



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


Shares			Value ($)

Common Stocks (k) — 11.5%

AEROSPACE — 0.0%
	3,354	Delta Air Lines, Inc.		39,410


BROADCASTING — 0.4%
	2,010,616	Communications Corp. of America (c) (d)		—
	18,000	Gray Television, Inc., Class A		43,110
	790	Young Broadcasting, Inc. (d)		1,598,802

				1,641,912


CHEMICALS — 0.2%
	33,969	Lyondell Chemical Co., Class A		563,461
	31,131	Lyondell Chemical Co., Class B		516,385

				1,079,846


DIVERSIFIED MEDIA — 0.1%
	46,601	American Banknote Corp. (d)		410,555


HEALTHCARE — 9.1%
	24,000,000	Genesys Ventures IA, LP (c) (d)		42,480,000


INFORMATION TECHNOLOGY — 0.0%
	385,679	Magnachip Semiconductor (d) (j)		96,420
	9,342	New Holding, Inc. (d)		—

				96,420


METALS/MINERALS — 0.3%
	7,579	Euramax International, Inc. (d)		1,315,790


RETAIL — 0.2%
	105,092	Sally Beauty Holdings, Inc. (j)		861,754


SERVICE — 0.3%
	200,964	Safety-Kleen Systems, Inc. (d)		1,467,040


TRANSPORTATION — LAND TRANSPORTATION — 0.1%
	18,022	SIRVA Worldwide, Inc. (d)		337,372


UTILITY — 0.0%
	81,194	Entegra TC LLC		36,537
	4,365	GBGH LLC (d)		—

				36,537


WIRELESS COMMUNICATIONS — 0.8%
	2,260,529	ICO Global Communications Holding Ltd. (j)		3,639,452

		Total Common Stocks (Cost $73,583,547)		53,406,088


Preferred Stocks (k) — 0.9%
	1,000,000	Adelphia Recovery Trust		5,000
	2,150,537	Dfine, Inc., Series D (d)		4,322,579

		Total Preferred Stocks (Cost $10,934,997)		4,327,579


Units			Value ($)

Warrants (k) — 0.2%
	20,000	Clearwire Corp., expires 08/15/10 (d)		200
	1,271	GBGH LLC, expires 06/09/14 (d)		—
	49,317	IAP Worldwide Services, Inc., Series A, expires 06/12/15		—
	14,444	IAP Worldwide Services, Inc., Series B, expires 06/12/15		—
	7,312	IAP Worldwide Services, Inc., Series C, expires 06/12/15		—
	643,777	Microvision, Inc., expires 07/23/13		643,777
	28	Young Broadcasting, Inc., expires 12/24/24 (d)		56,666

		Total Warrants (Cost $56,118)		700,643

Total Investments — 121.4% (Cost of $837,440,430) (l)				564,470,941


Other Assets & Liabilities, Net — (21.4)%				(99,602,035	)


Net Assets applicable to Common Shareholders — 100.0%			$	464,868,906


(a)		Senior loans (also called bank loans, leveraged loans, or floating rate loans) in which the Fund invests, generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread. (Unless otherwise identified by footnote (g), 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 Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. Rate shown represents the weighted average rate at June 30, 2010. Senior loans, while exempt from registration under the Securities Act of 1933 (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 a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity shown.

(b)		All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.

(c)		Affiliated issuers. See Note 12.

(d)		Represents fair value as determined by the Fund’s Board of Trustees (the “Board”) or its designee in good faith, pursuant to the policies and procedures approved by the Board. Securities with a total aggregate market value of $111,733,032, or 24.0% of net assets, were fair valued under the Fund’s valuation procedures as of June 30, 2010.

(e)		Senior Loan assets have additional unfunded loan commitments. See Note 11.

(f)		The issuer is in default of its payment obligation. Income is not being accrued.

(g)		Fixed rate senior loan.

(h)		Floating rate asset. The interest rate shown reflects the rate in effect at June 30, 2010.

(i)		Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold, in transactions exempt from registration, to qualified institutional buyers. At June 30, 2010, these securities amounted to $122,431,544 or 26.3% of net assets.

(j)		Securities (or a portion of securities) on loan. See Note 10.

(k)		Non-income producing security.

(l)		Cost for U.S. federal income tax purposes is $837,440,430.

8 | See accompanying Notes to Financial Statements.

STATEMENT OF ASSETS AND LIABILITIES



As of June 30, 2010 (unaudited)		Highland Credit Strategies Fund


	($)


Assets:
Unaffiliated issuers, at value (cost $762,829,366)		488,245,794
Affiliated issuers, at value (cost $74,611,064) (Note 12)		76,225,147

Total investments, at value (cost $837,440,430)		564,470,941
Cash and foreign currency *		44,023,560
Cash held as collateral for securities loaned (Note 10)		6,704,422
Net unrealized appreciation on forward foreign currency contracts		165,524
Receivable for:
Investments sold		5,352,309
Dividends and interest receivable		6,436,843
Other assets		45,981

Total assets		627,199,580


Liabilities:
Notes payable (Note 8)		120,000,000
Net unrealized depreciation on forward foreign currency contracts		65,200
Net discount and unrealized depreciation on unfunded transactions (Note 11)		3,486,469
Payable upon receipt of securities loaned (Note 10)		6,704,422
Payables for:
Distributions		248,029
Investments purchased		29,969,871
Investment advisory fee payable (Note 4)		419,848
Administration fee (Note 4)		64,395
Trustees’ fees (Note 4)		37,710
Interest expense (Note 8)		684,000
Accrued expenses and other liabilities		650,730

Total liabilities		162,330,674

Net Assets Applicable To Common Shares		464,868,906


Composition of Net Assets:
Par value of common shares (Note 1)		63,767
Paid-in capital in excess of par value of common shares		1,156,648,729
Undistributed net investment income		7,089,375
Accumulated net realized gain/(loss) from investments, short positions and foreign currency transactions		(424,535,672	)
Net unrealized appreciation/(depreciation) on investments, unfunded transactions, forward foreign currency contracts and translation of assets and liabilities denominated in foreign currency		(274,397,293	)

Net Assets Applicable to Common Shares		464,868,906


Common Shares
Net assets		464,868,906
Shares outstanding (unlimited authorization)		63,766,599
Net asset value per share (Net assets/shares outstanding)		729


*		Includes foreign currency held at value of $(83,056), with a cost of $(123,249).

10 | See accompanying Notes to Financial Statements.

STATEMENT OF OPERATIONS



For the Six Months Ended June 30, 2010 (unaudited)		Highland Credit Strategies Fund


	($)


Investment Income:
Interest from unaffiliated issuers		23,190,706
Interest from affiliated issuers (Note 12)		4,055,552
Securities lending income (Note 10)		11,910

Total investment income		27,258,168


Expenses:
Investment advisory fees (Note 4)		2,941,404
Administration fees (Note 4)		588,281
Accounting service fees		173,427
Transfer agent fee		35,268
Trustees’ fees (Note 4)		75,149
Custodian fees		41,819
Registration fees		26,104
Reports to shareholders		86,236
Audit fees		59,761
Legal fees		744,580
Insurance expense		72,101
Interest expense (Notes 7 and 8)		1,939,749
Commitment fee expense (Note 7)		1,231,645
Other expenses		253,673

Total operating expenses		8,269,197

Fees and expenses waived or reimbursed by Investment Adviser (Note 4)		(610,949	)

Net operating expenses		7,658,248

Dividends paid on securities sold short		7,147

Net expenses		7,665,395

Net investment income		19,592,773


Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on investments from unaffiliated issuers		(13,015,402	)
Net realized gain/(loss) on short positions		(454,901	)
Net realized gain/(loss) on forward foreign currency contracts ⁽¹⁾		307,304
Net realized gain/(loss) on foreign currency transactions		700,620
Net change in unrealized appreciation/(depreciation) on investments		16,501,003
Net change in unrealized appreciation/(depreciation) on unfunded transactions (Note 11)		2,373,054
Net change in unrealized appreciation/(depreciation) on short positions		(6,358	)
Net change in unrealized appreciation/(depreciation) on forward foreign currency contracts ⁽¹⁾		(181,571	)
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities denominated in foreign currency		(151,040	)

Net realized and unrealized gain/(loss) on investments		6,072,709

Net increase in net assets from operations		25,665,482


(1)		The primary risk exposure is foreign exchange contracts (See Notes 2 and 14).

See accompanying Notes to Financial Statements. | 11

STATEMENTS OF CHANGES IN NET ASSETS

Highland Credit Strategies Fund


	Six Months
	Ended
	June 30, 2010			Year Ended
	(unaudited)			December 31, 2009
	($)			($)
From Operations
Net investment income		19,592,773			43,692,790
Net realized gain/(loss) on investments, short positions and foreign currency transactions		(12,462,379	)		(154,308,748	)
Net change in unrealized appreciation/(depreciation) on investments, unfunded transactions, short positions, forward foreign currency contracts, senior loan based derivatives and translation of assets and liabilities denominated in foreign currency		18,535,088			202,978,979	^(a)

Net change in net assets from operations		25,665,482			92,363,021


Distributions Declared to Common Shareholders
From net investment income		(20,074,172	)		(46,162,639	)

Total distributions declared to common shareholders		(20,074,172	)		(46,162,639	)


Share Transactions from Common Shares
Subscriptions from reorganization (Notes 1 and 15)		—			51,353,210
Distributions reinvested		513,751			—
Redemptions from reorganization (Notes 1 and 15)		—			(252	)^(b)

Net increase from share transactions from common shares		513,751			51,352,958

Total increase in net assets from common shares		6,105,061			97,553,340


Net Assets Applicable to Common Shares
Beginning of period		458,763,845			361,210,505

End of period (including undistributed net investment income of $7,089,375 and $7,570,774, respectively)		464,868,906			458,763,845


Change in Common Shares
Subscriptions from reorganization		—			8,173,278
Issued for distributions reinvested		67,170			—
Redemptions from reorganization		—			(39	)^(b)

Net increase in common shares		67,170			8,173,239


(a)		Does not include unrealized depreciation of $86,923,196 in connection with the reorganization of Highland Distressed Opportunities, Inc. into the Fund on June 12, 2009 (the “Reorganization”). (See Notes 1 and 15).

(b)		Fractional shares in the Reorganization were redeemed. Only whole shares were issued.

12 | See accompanying Notes to Financial Statements.

STATEMENT OF CASH FLOWS



For the Six Months Ended June 30, 2010 (unaudited)		Highland Credit Strategies Fund


	($)


Cash Flows Provided by Operating Activities
Net investment income		19,592,773

Adjustments to Reconcile Net Investment Income to Net Cash and Foreign Currency Provided by Operating Activities
Purchase of investment securities		(221,680,249	)
Proceeds from disposition of investment securities		241,215,778
Proceeds from disposition of securities sold short		(1,632,973	)
Increase in receivable for investments sold		(786,229	)
Decrease in interest and fees receivable		1,439,701
Decrease in restricted cash		1,250,615
Increase in receivable for securities lending		(5,950,659	)
Decrease in other assets		1,282,114
Net amortization/(accretion) of premium/(discount)		(3,101,632	)
Effect of exchange rate changes on cash		856,884
Increase in payable for investments purchased		6,744,794
Increase in payables to related parties		9,120
Increase in interest payable		553,990
Increase in payable upon receipt of securities loaned		5,950,659
Increase in other expenses and liabilities		94,181

Net cash and foreign currency provided by operating activities		45,838,867


Cash Flows Used by Financing Activities
Decrease in notes payable (Note 7)		(112,000,000	)
Increase in notes payable (Note 8)		120,000,000
Distributions paid in cash		(19,312,392	)

Net cash flow used by financing activities		(11,312,392	)

Net increase in cash and foreign currency		34,526,475


Cash and Foreign Currency
Beginning of the period		9,497,085

End of the period		44,023,560


Supplemental disclosure of cash flow information:
Cash paid during the period for interest		1,385,759

See accompanying Notes to Financial Statements. | 13

FINANCIAL HIGHLIGHTS



		Highland Credit Strategies Fund

Selected data for a share outstanding throughout each period is as follows:


	For the Six			For the			For the			For the			For the
	Months Ended			Year Ended			Year Ended			Year Ended			Period Ended
	6/30/2010			December 31,			December 31,			December 31,			December 31,
Common Shares Per Share Operating Performance:	(unaudited)			2009			2008			2007			2006^(a)
Net Asset Value, Beginning of Year	$	7.20		$	6.51		$	17.99		$	20.08		$	19.06


Income from Investment Operations:
Net investment income		0.31			0.74			1.35			1.71			0.71
Net realized and unrealized gain/(loss) on investments		0.10			0.74			(9.79	)		(1.85	)		0.91


Total from investment operations		0.41			1.48			(8.44	)		(0.14	)		1.62
Less Distributions Declared to Common Shareholders:
From net investment income		(0.32	)		(0.79	)		(1.46	)		(1.65	)		(0.60	)
From net realized gains		—			—			(0.26	)		(0.30	)		—


Total distributions declared to common shareholders		(0.32	)		(0.79	)		(1.72	)		(1.95	)		(0.60	)


Dilutive impact of rights offering		—			—			(1.32	)		—			—


Net Asset Value, End of Period	$	7.29		$	7.20		$	6.51		$	17.99		$	20.08
Market Value, End of Period	$	7.13		$	6.31		$	5.70		$	15.82		$	21.16
Market Value Total Return ^(c)		17.97	% ^(b)		27.69	%		(57.84	)%		(17.05	)%		9.06	%^(b)


Ratios and Supplemental Data:
Net assets, end of period (in 000’s)	$	464,869		$	458,764		$	361,211		$	621,078		$	692,964

Common Share Information at End of Period:
Ratios based on average net assets of common shares:
Gross operating expenses (including interest and commitment fee expense)		3.51	%		3.90	%		3.78	%		4.03	%		2.56	%
Interest and commitment fee expense		1.35	%		1.49	%		1.63	%		2.16	%		1.03	%
Dividend expense from short positions		—	_(d)		—	_(d)		0.17	%		0.03	%		N/A
Fees and expenses waived		(0.26	)%		(0.31	)%		(0.09	)%		—			—
Net expenses		3.25	%		3.59	%		3.86	%		4.06	%		2.56	%
Net investment income		8.31	%		11.09	%		11.36	%		8.64	%		7.37	%
Ratios based on managed net assets of common shares:
Gross operating expenses (including interest and commitment fee expense)		2.81	%		3.12	%		2.69	%		2.94	%		2.20	%
Interest and commitment fee expense		1.08	%		1.19	%		1.16	%		1.58	%		0.89	%
Dividend expense from short positions		—	_(d)		—	_(d)		0.12	%		0.02	%		N/A
Fees and expenses waived		(0.21	)%		(0.25	)%		(0.06	)%		—			—
Net expenses		2.60	%		2.87	%		2.75	%		2.96	%		2.20	%
Net investment income		6.66	%		8.88	%		8.12	%		6.31	%		6.33	%

Portfolio turnover rate		38	%_(b)		88	%		78	%		66	%		46	%^(b)


(a)		Highland Credit Strategies Fund commenced investment operations on June 29, 2006.

(b)		Not annualized.

(c)		Based on market value per share. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan.

(d)		Less than 0.005%.

14 | See accompanying Notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS (unaudited)



June 30, 2010		Highland Credit Strategies Fund

Note 1. Organization and Operations

Highland Credit Strategies Fund (the “Fund”) is a Delaware statutory trust and is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company. The Fund trades on the New York Stock Exchange under the ticker symbol HCF. The Fund may issue an unlimited number of common shares, par value $0.001 per share (“Common Shares”). The Fund commenced operations on June 29, 2006.

On July 18, 2008, the Fund issued 5,805,987 shares, in exchange for 30,874,699 shares of Prospect Street High Income Portfolio Inc. (“PHY”) and 3,665,707 shares in exchange for 9,947,104 shares of Prospect Street Income Shares Inc. (“CNN”) to acquire PHY and CNN in a tax-free exchange approved by the Board of Directors and stockholders of each acquired fund. The net assets on such date of the Fund, PHY, and CNN were $641,375,543, $80,852,458, and $51,047,990, respectively.

On June 12, 2009, the Fund issued 8,173,238 shares, in exchange for 17,716,771 shares of Highland Distressed Opportunities, Inc. (“HCD”). The net assets on such date of the Fund and HCD were $348,872,330 and $51,353,210, respectively (See Note 15).

Investment Objective

The Fund seeks to provide both current income and capital appreciation.

Note 2. Significant Accounting Policies

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.

Use of Estimates

The Fund’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Fund Valuation

The net asset value (“NAV”) of the Fund’s common shares is calculated each week, in connection with each issuance of common shares by the Fund, as of each distribution date (after giving effect to the relevant declaration) and on such other dates as determined by the Fund’s Board of Trustees (the “Board” or “Trustees”), or its designee, in accordance with procedures approved by the Board. The NAV is calculated by dividing the value of the Fund’s net assets attributable to common shares by the numbers of common shares outstanding.

Valuation of Investments

In computing the Fund’s net assets attributable to common shares, securities with readily available market quotations use those quotations for valuation. Securities where there are no readily available market quotations will be valued at the mean between the most recently quoted bid and ask 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 may be priced by an independent pricing service. Generally, the Fund’s loan and bond positions are not traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that Highland Capital Management, L.P. (the “Investment Adviser”) has determined generally has the capability to provide appropriate pricing services and has been approved by the Trustees.

Securities for which market quotations are not readily available, for which the Fund has determined the price received from a pricing service or broker-dealer is “stale” or otherwise do not represent fair value (including when events materially affect the value of securities that occur between the time when market price is determined and calculation of the Fund’s net asset value), will be valued by the Fund at fair value, as determined by the Board or its designee in good faith in accordance with procedures approved by the Board, taking into account factors reasonably determined to be relevant, including: (i) the fundamental analytical data relating to the investment; (ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces that influence the market in which these securities are purchased and sold. In these cases, the Fund’s NAV will reflect the affected portfolio securities’ fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a security’s most recent sale price and from the prices used by other investment companies to calculate their NAV. Determination of fair value is uncertain because it involves subjective judgments and estimates not easily substantiated by auditing procedures.

There can be no assurance that the Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security. Short-term debt investments, that is, those with a remaining maturity of 60 days or less, are valued at cost adjusted for amortization of premiums and accretion of discounts. Repurchase agreements are valued at cost plus accrued interest. Foreign price quotations are converted to U.S. dollar equivalents using the 4:00 PM London Time Spot Rate.

Semi-Annual Report | 15

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2010		Highland Credit Strategies Fund

Fair Value Measurements:

The Fund has performed an analysis of all existing investments and derivative instruments to determine the significance and character of all inputs to their fair value determination. The levels of fair value inputs used to measure the Fund’s investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:

Level 1 —		Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement;

Level 2 —		Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active, but are valued based on executed trades; broker quotations that constitute an executable price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are either directly or indirectly observable for the asset in connection with market data at the measurement date; and

Level 3 —		Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Fund has obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.

At the end of each calendar quarter, management evaluates the Level 2 and 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Fund’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers in and out of the levels are recognized at the value at the end of the period. A summary of the inputs used to value the Fund’s assets as of June 30, 2010 as follows:


					Level 2		Level 3
			Level 1		Significant		Significant
	Total Value at		Quoted		Observable		Unobservable
Investment in Securities	June 30, 2010		Price		Input		Input
Common Stocks
Aerospace	$	39,410	$	39,410	$	—	$	—
Broadcasting		1,641,912		43,110		—		1,598,802
Chemicals		1,079,846		—		1,079,846		—
Diversified Media		410,555		—		—		410,555
Healthcare		42,480,000		—		—		42,480,000
Information Technology		96,420		—		—		96,420
Metals/Minerals		1,315,790		—		—		1,315,790
Retail		861,754		861,754		—		—
Service		1,467,040		—		—		1,467,040
Transportation—Land Transportation		337,372		—		—		337,372
Utility		36,537		—		—		36,537
Wireless Communication		3,639,452		3,639,452		—		—
Preferred Stocks		4,327,579		—		5,000		4,322,579
Warrants		700,643		643,777		—		56,866
Debt
Senior Loans		361,338,652		—		266,387,539		94,951,113
Asset-Backed Securities		37,237,179		—		—		37,237,179
Corporate Debt		106,941,843		—		36,809,796		70,132,047
Claims		518,957		—		507,169		11,788

Total Investments	$	564,470,941	$	5,227,503	$	304,789,350	$	254,454,088

16 | Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2010		Highland Credit Strategies Fund


						Level 2			Level 3
				Level 1		Significant			Significant
	Total Value at			Quoted		Observable			Unobservable
Other Financial Instruments*	June 30, 2010			Price		Input			Input
Assets
Foreign exchange contracts	$	165,524		$	—	$	165,524		$	—
Liabilities
Foreign exchange contracts		(65,200	)		—		(65,200	)		—

Total Other Financial Instruments	$	100,324		$	—	$	100,324		$	—


*		Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the investment.

The Fund did not have any liabilities that were measured at fair value or Level 3 at June 30, 2010.

The table below sets forth a summary of changes in the Fund’s Level 3 assets (assets measured at fair value using significant unobservable inputs) for the six months ended June 30, 2010.


						Net
						amortization/
	Balance as of		Transfers			(accretion) of								Net
Assets at Fair Value using	December 31		in/(out)			premium/		Net realized			Net unrealized			purchase/			Balance as of
unobservable inputs (Level 3)	2009		of Level 3			(discount)		gains/(losses)			gains/(losses)			(sales)*			June 30, 2010
Common Stocks
Broadcasting	$	—	$	—		$	—	$	—		$	15,468		$	1,583,334		$	1,598,802
Diversified Media		765,188		—			—		(304,444	)		(50,189	)		—			410,555
Healthcare		38,555,838		—			—		—			4,320,000			(395,838	)		42,480,000
Information Technology		—		—			—		—			(12,279,018	)		12,375,438			96,420
Metals/Minerals		454,361		—			—		—			357,762			503,667			1,315,790
Service		1,406,750		—			—		—			60,290			—			1,467,040
Transportation — Land Transportation		937,144		—			—		—			(599,772	)		—			337,372
Utility		182,687		—			—		—			(146,150	)		—			36,537
Preferred Stocks		12,774,190		—			—		—			(8,451,611	)		—			4,322,579
Warrants		700		—			—		—			58			56,108			56,866
Debt
Senior Loans		155,755,247		(45,256,981	)		311,355		(9,061,615	)		10,759,700			(17,556,593	)		94,951,113
Asset-Backed Securities		33,822,437		—			26,336		275,352			3,944,710			(831,656	)		37,237,179
Corporate Debt		73,601,522		258,098			26,992		2,272			6,858,248			(10,615,085	)		70,132,047
Claims		441,698		(507,169	)		—		—			77,259			—			11,788

Total	$	318,697,762	$	(45,506,052	)	$	364,683	$	(9,088,435	)	$	4,866,755		$	(14,880,625	)	$	254,454,088


*		Includes any applicable borrowings and/or pay downs made on revolving credit facilities held in the Fund’s Investment Portfolio.

The net unrealized losses presented in the tables above relate to investments that are still held at June 30, 2010. The Fund presents these unrealized losses on the Statement of Operations as net change in unrealized appreciation/(depreciation) on investments.

For the six months ended June 30, 2010, a net amount of $5,519 of the Fund’s portfolio investments was transferred from Level 2 to Level 1.

Investments designated as Level 3 may include assets valued using quotes or indications furnished by brokers which are based on models or estimates and may not be executable prices. In light of the developing market conditions, the Investment Adviser continues to search for observable data points and evaluate broker quotes and indications received for portfolio investments. As a result, for the six months ended June 30, 2010, a net amount of $45,506,052 of the Fund’s portfolio investments was transferred to Level 2 from Level 3. Determination of fair values is uncertain because it involves subjective judgments and estimates not easily substantiated by auditing procedures.

Security Transactions

Security transactions are accounted for on the trade date. Cost is determined and gains/(losses) are based upon the specific identification method for both financial statement and federal income tax purposes.

Foreign Currency

Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates using the current 4:00 PM London Time Spot Rate. Fluctuations in the value of the foreign currencies and other assets and liabilities resulting from changes in exchange rates between trade and settlement dates on security transactions and between the accrual and payment dates on dividends, interest income and foreign withholding taxes are recorded as unrealized foreign cur-

Semi-Annual Report | 17

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2010		Highland Credit Strategies Fund

rency gains/(losses). Realized gains/(losses) and unrealized appreciation/(depreciation) on investment securities and income and expenses are translated on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.

Forward Foreign Currency Contracts

In order to minimize the movement in NAV resulting from a decline or appreciation in the value of a particular foreign currency against the U.S. dollar or another foreign currency or for other reasons, the Fund is authorized to enter into forward currency exchange contracts. These contracts involve an obligation to purchase or sell a specified currency at a future date at a price set at the time of the contract. Forward currency contracts do not eliminate fluctuations in the values of portfolio securities but rather allow the Fund to establish a rate of exchange for a future point in time. Forwards involve counterparty credit risk to the Fund because the forwards are not exchange traded, and there is no clearinghouse to guarantee forwards against default. During the six months ended June 30, 2010, the open value of forward foreign currency contracts was EUR 2,750,000 and GBP 2,784,800 and the close value was EUR 1,700,000 and GBP 2,967,500.

Short Equity and Bond Sales

A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. When the Fund makes a short sale, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon settlement of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.

When short sales are employed, the Fund intends to attempt to limit exposure to a possible market decline in the value of its portfolio securities through short sales of securities that the Investment Adviser believes possess volatility characteristics similar to those being hedged. In addition, the Fund may use short sales for non-hedging purposes to pursue its investment objective. Subject to the requirements of the 1940 Act and the Internal Revenue Code of 1986, as amended (the “Code”), the Fund will not make a short sale if, after giving effect to such sale, the market value of all securities sold short by the Fund exceeds 25% of the value of its total assets. As of June 30, 2010, the Fund did not have any short sale transactions.

Credit Default Swaps

To the extent consistent with the Fund’s prospectus, the Fund may enter into credit default swap agreements. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller typically pays the buyer the “par value” (full notional value) of the reference obligation in exchange for the reference obligation. The Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no event of default occurs, the Fund loses its investment and recovers nothing. However, if an event of default occurs, the buyer receives full notional value for a reference obligation that may have little or no value. As a seller, the Fund receives income throughout the term of the contract, which typically is between six months and five years, provided that there is no default event.

Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risks. If an event of default were to occur, the value of the reference obligation received by the seller, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. When the Fund acts as a seller of a credit default swap agreement it is exposed to many of the same risks of leverage as certain other leveraged transactions, since if an event of default occurs the seller must pay the buyer the full notional value of the reference obligation. As of June 30, 2010, there were no credit default swap trades outstanding.

Income Recognition

Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date.

U.S. Federal Income Tax Status

The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended, and will distribute substantially all of its taxable income and gains, if any, for its tax year, and as such will not be subject to U.S. federal income taxes.

Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

18 | Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2010		Highland Credit Strategies Fund

Distributions to Shareholders

The Fund plans to pay distributions monthly and capital gain distributions annually to common shareholders. To permit the Fund to maintain more stable monthly distributions and annual distributions, the Fund may from time to time distribute less than the entire amount of income and gains earned in the relevant month or year, respectively. The undistributed income and gains would be available to supplement future distributions. Shareholders of the Fund will automatically have all distributions reinvested in Common Shares of the Fund issued by the Fund or purchased in the open market in accordance with the Fund’s Dividend Reinvestment Plan (the “Plan”) unless an election is made to receive cash. Each participant in the Plan will pay a pro rata share of brokerage commissions incurred in connection with open market purchases, and participants requesting a sale of securities through the plan agent of the Plan are subject to a sales fee and a brokerage commission.

Cash and Cash Equivalents

The Fund considers liquid assets deposited with a bank, money market funds, and certain short term debt instruments with maturities of 3 months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. The value of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of the statement of assets and liabilities. At June 30, 2010, the Fund had ($83,056) of cash and cash equivalents denominated in foreign currencies, with a cost of ($123,249).

Statement of Cash Flows

Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash and foreign currency amount shown in the Statement of Cash Flows is the amount included within the Fund’s Statement of Assets and Liabilities and includes cash and foreign currency on hand at its custodian bank.

Note 3. U.S. Federal Tax Information

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. As a result, net investment income/(loss) and net realized gain/(loss) on investment transactions for a reporting period may differ significantly from distributions during such period.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.

The tax character of distributions paid during the years ended December 31, 2009 and December 31, 2008, the past two tax years ends, were as follows:


Distributions paid from:	2009		2008
Ordinary income*	$	46,162,639	$	84,472,625
Long-term capital gains		—		1,024,735


*		For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.

As of December 31, 2009, the most recent tax year end, the components of distributable earnings on a tax basis were as follows:


Undistributed		Undistributed					Accumulated
Ordinary		Long-Term		Net Unrealized			Capital and
Income		Capital Gains		(Depreciation)*			Other Losses
$	7,982,245		$ —	$	(300,238,865	)	$	(404,896,385	)


*		Any differences between book-basis and tax-basis net unrealized appreciation/(depreciation) are primarily due to deferral of losses from wash sales.

As of December 31, 2009, the most recent year end, for federal income tax purposes, the Fund had capital loss carry-forwards, which will expire in the indicated years:


Capital Loss			Expiration
Carryforwards			Date
$	3,196,740	*	2010
	11,115,101	*	2011
	3,279,930	*	2012
	8,679,337	*	2014
	6,437,279	*	2015
	72,286,251	*	2016
	17,875,363	**	2016
	282,026,384		2017

$	404,896,385		Total


*		These capital loss carryforward amounts were acquired in the reorganizations of PHY and CNN into the Fund on July 18, 2008 and are available to offset future capital gains of the Fund. The Fund’s ability to utilize the capital loss carryforwards is limited under Internal Revenue Service regulations.

**		This capital loss carryforward amount was acquired in the reorganization of HCD into the Fund on June 12, 2009, and is available to offset future capital gains of the Fund. The Fund’s ability to utilize the capital loss carryforwards is limited under Internal Revenue Service regulations.

Semi-Annual Report | 19

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



June 30, 2010		Highland Credit Strategies Fund

Unrealized appreciation and depreciation at June 30, 2010, based on cost of investments for U.S. federal income tax purposes was:


Unrealized appreciation	$	24,713,743
Unrealized depreciation		(297,683,232	)


Net unrealized depreciation	$	(272,969,489	)

Note 4. Investment Advisory, Administration, and Trustee Fees

Investment Advisory Fee

The Investment Adviser to the Fund receives an annual fee, paid monthly, in an amount equal to 1.00% of the average weekly value of the Fund’s Managed Assets. The Fund’s “Managed Assets” is an amount equal to the total assets of the Fund, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund’s investment objectives and policies, and/or (iv) any other means.

In connection with the reorganizations of PHY and CNN into the Fund on July 18, 2008, the Investment Adviser agreed to waive certain advisory fees for a period of two years until July 17, 2010. Over the period of two years, the Investment Adviser agreed to waive advisory fees of $1,656,448. For the six months ended June 30, 2010, the Investment Adviser waived advisory fees of $410,709.

Administration Fee

The Investment Adviser provides administrative services to the Fund. For its services, the Investment Adviser receives an annual fee, payable monthly, in an amount equal to 0.20% of the average weekly value of the Fund’s Managed Assets. Under a separate sub-administration agreement, the Investment Adviser has delegated certain administrative functions to PNC Global Investment Servicing (U.S.) Inc. (“PNC”). The Investment Adviser pays PNC directly for these sub-administration services.

In connection with the reorganizations of PHY and CNN into the Fund on July 18, 2008, the Investment Adviser agreed to waive certain administration fees for a period of two years until July 17, 2010. Over the period of two years, the Investment Adviser agreed to waive administration fees of $807,602. For the six months ended June 30, 2010, the Investment Adviser waived administration fees of $200,240.

Fees Paid to Officers and Trustees

Each Trustee who is not an “interested person” of the Fund as defined in the 1940 Act (the “Independent Trustees”) receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the Highland Fund Complex based on relative net assets. The “Highland Fund Complex” consists of all of the registered investment companies advised by the Investment Adviser as of the date of this semi-annual report.

The Fund pays no compensation to its one interested Trustee or any of its officers, all of whom are employees of the Investment Adviser.

Note 5. Fund Information

For the six months ended June 30, 2010, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $221,680,249 and $241,215,778, respectively.

Note 6. Senior Loan Participation Commitments

The Fund may invest its assets (plus any borrowings for investment purposes) in adjustable rate senior loans (“Senior Loans”), the interest rates of which float or vary periodically based upon a benchmark indicator of prevailing interest rates to domestic or foreign corporations, partnerships and other entities that operate in a variety of industries or geographic regions (“Borrowers”). If the lead lender in a typical lending syndicate becomes insolvent, enters Federal Deposit Insurance Corporation (“FDIC”) receivership or, if not FDIC insured enters into bankruptcy, the Fund may incur certain costs and delays in receiving payment or may suffer a loss of principal and/or interest.

When the Fund purchases a participation of a Senior Loan interest, the Fund typically enters into a contractual agreement with the lender or other third party selling the participation, not with the Borrower directly. As such, the Fund assumes the credit risk of the Borrowers, as well as of the selling participants or other persons interpositioned between the Fund and the Borrowers. The ability of Borrowers, selling participants or other persons interpositioned between the Fund and the Borrowers to meet their obligations may be affected by a number of factors, including economic developments in a specific industry.

At June 30, 2010, the Fund held no loans on participation.

Note 7. Credit Agreement

Effective September 16, 2009, the Fund entered into a $170,000,000 Credit Agreement (the “Credit Agreement”) with The Bank of Nova Scotia. The Credit Agreement replaced a prior credit agreement and had a maturity date of September 15, 2010. Concurrent with entering into the Credit Agreement, the Fund agreed to pay a $1,700,000 upfront fee. This fee was amortized over the remaining term of the Credit Agreement and $1,231,645 of upfront fee expense is included in commitment fee expense on the Statement of Operations. Effective April 16, 2010, the Credit Agreement was fully repaid and terminated.

20 | Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2010

Highland Credit Strategies Fund

For the period January 1, 2010 through April 15, 2010, the average daily loan balance was $116,752,381 at a weighted average interest rate of 2.73%, excluding any commitment fee. With respect to these borrowings, interest and commitment fee of $2,487,394 is included in the Statement of Operations.

Note 8. Floating Rate Series A Senior Unsecured Notes

On April 16, 2010, the Fund issued $120,000,000 principal amount of floating rate Series A senior unsecured notes (“Notes”). The Notes are generally unsecured obligations of the Fund and rank senior to the Fund common shares and all existing or future unsecured indebtedness of the Fund. The Notes bear interest, payable quarterly, at the rate of 3 month LIBOR, subject to a LIBOR floor of 1.00%, plus 1.70%, to maturity on April 16, 2015. The Fund is required to maintain on a monthly basis a specified discounted asset value for its portfolio in compliance with guidelines established in the Notes agreement, and is required under the 1940 Act to maintain asset coverage for the Notes at 300%. The Fund may prepay the Notes at any time, and is subject to the following prepayment penalty on any amounts prepaid: 2.00% in the first two years, 1% in year three, and 0% thereafter.

The interest rate charged at June 30, 2010, was 2.70%. The average daily note balance was $120,000,000 at a weighted average interest rate of 2.70%. With respect to the Notes, interest expense of $684,000 is included in the Statement of Operations.

Note 9. Asset Coverage

The Fund was required to maintain 400% asset coverage with respect to amounts outstanding under the Credit Agreement. With respect to the Notes, the Fund is required to maintain 300% asset coverage.

Asset coverage is calculated by subtracting the Fund’s total liabilities, not including any amount representing bank loans and senior securities, from the Fund’s total assets and dividing the result by the principal amount of the borrowings outstanding. As of the dates indicated below, the Fund’s debt outstanding and asset coverage was as follows:


			% of
			Asset Coverage
	Total Amount		of
Date	Outstanding		Indebtedness
06/30/2010	$	120,000,000		487.3	%
12/31/2009		112,000,000		509.6
12/31/2008		141,000,000		356.2
12/31/2007		248,000,000		350.4
12/31/2006		285,000,000		342.9

Note 10. Securities Loans

The Fund may make secured loans of its portfolio securities amounting to not more than one-third of the value of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delays in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially and possible investment losses in the investment of collateral. As a matter of policy, securities loans are made to unaffiliated broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the bid value of the securities subject to the loan. The borrower pays to the Fund an amount equal to any interest or dividends received on securities subject to the loan. The Fund retains all or a portion of the interest received on investment of the cash collateral and receives a fee from the borrower. As of June 30, 2010, the market value of securities loaned by the Fund was $6,174,617. The loaned securities were secured with cash collateral of $6,704,422, which was invested in the BlackRock Institutional Money Market Trust.

Note 11. Unfunded Loan Commitments

As of June 30, 2010, the Fund had unfunded loan commitments of $5,306,901 and GBP 3,436,588, which could be extended at the option of the borrower, as detailed below:


	Unfunded
	Loan
Borrower	Commitment
Mobileserv Ltd.	GBP	3,436,588
Broadstripe, LLC	$	1,211,229
MGM Mirage, Inc.		225,955
Sirva Worldwide, Inc.		1,869,717
Sorenson Communications, Inc.		2,000,000

Unfunded loan commitments are marked to market on the relevant day of valuation in accordance with the Fund’s valuation policies. Any applicable unrealized gain/(loss) and unrealized appreciation/(depreciation) on unfunded loan commitments are recorded on the Statement of Assets and Liabilities and the Statement of Operations, respectively. As of June 30, 2010, the Fund recognized net discount and unrealized depreciation on unfunded transactions of $3,486,469. The net change in unrealized appreciation on unfunded transactions of $2,373,054 is recorded in the Statement of Operations.

Note 12. Affiliated Issuers

Under Section 2(a)(3) of the 1940 Act, a portfolio company is defined as “affiliated” if a Fund owns five percent or more of its outstanding voting securities. The Fund held at least five percent of the outstanding voting securities of the following companies as of June 30, 2010:

Semi-Annual Report | 21

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2010

Highland Credit Strategies Fund


	Par Value at		Shares at		Market Value
	June 30,		June 30,		December 31,		June 30,,
	2010		2010		2009		2010
ComCorp Broadcasting, Inc.* (Senior Loans)	$	39,444,941			$	29,524,538	$	33,745,147
Communication Corp of America (Common Stock)		—		2,010,616		—		—
Genesys Ltd. (Common Stock)		—		24,000,000		38,160,000		42,480,000

	$	39,444,941		26,010,616	$	67,684,538	$	76,225,147


*		Company is a wholly owned subsidiary of Communications Corporation of America.

Note 13. Indemnification

The Fund has a variety of indemnification obligations under contracts with its service providers and certain counterparties. The Fund’s maximum exposure under these arrangements is unknown. The Board has approved the advancement of certain expenses to a service provider in connection with pending litigation subject to various undertakings and reporting requirements.

Note 14. Disclosure of Significant Risks and Contingencies

Concentration Risk

The Fund may focus its investments in instruments of only a few companies. The concentration of the Fund’s portfolio in any one obligor would subject the Fund to a greater degree of risk with respect to defaults by such obligor, and the concentration of the portfolio in any one industry would subject the Fund to a greater degree of risk with respect to economic downturns relating to such industry.

Non-Payment Risk

Corporate debt obligations, including Senior Loans, are subject to the risk of non-payment of scheduled interest and/or principal. Non-payment would result in a reduction of income to the Fund, a reduction in the value of the Senior Loan experiencing non-payment, and a potential decrease in the net asset value of the Fund.

Credit Risk

Investments rated below investment grade are commonly referred to as high-yield, high risk or “junk debt.” They are regarded as predominantly speculative with respect to the issuing company’s continuing ability to meet principal and/or interest payments. Investments in high yield Senior Loans may result in greater net asset value fluctuation than if the Fund did not make such investments.

Illiquidity of Investments Risk

The investments made by the Fund may be illiquid, and consequently the Fund may not be able to sell such investments at prices that reflect the Investment Adviser’s assessment of their value or the amount originally paid for such investments by the Fund. Illiquidity may result from the absence of an established market for the investments as well as legal, contractual or other restrictions on their resale and other factors. Furthermore, the nature of the Fund’s investments, especially those in financially distressed companies, may require a long holding period prior to profitability.

Troubled, Distressed or Bankrupt Companies Risk

The Fund invests in companies that are troubled, in distress or bankrupt. As such, they are subject to a multitude of legal, industry, market, environment and governmental forces that make analysis of these companies inherently difficult. Further, the Investment Adviser relies on company management, outside experts, market participants and personal experience to analyze potential investments for the Fund. There can be no assurance that any of these sources will prove credible, or that the resulting analysis will produce accurate conclusions.

Leverage Risk

The Fund currently uses leverage through borrowings from a credit facility, and may also use leverage through the issuances of preferred shares. The use of leverage, which can be described as exposure to changes in price at a ratio greater than the amount of equity invested, either through the issuance of preferred shares, borrowing or other forms of market exposure, magnifies both the favorable and unfavorable effects of price movements in the investments made by the Fund. Insofar as the Fund employs leverage in its investment operations, the Fund will be subject to substantial risks of loss.

Foreign Securities Risk

Investments in foreign securities involve certain factors not typically associated with investing in U.S. securities, such as risks relating to (i) currency exchange matters, including fluctuations in the rate of exchange between the U.S. dollar (the currency in which the books of the Fund are maintained) and the various foreign currencies in which the Fund’s portfolio securities will be denominated and costs associated with conversion of investment principal and income from one currency into another; (ii) differences between the U.S. and foreign securities markets, including the absence of uniform accounting, auditing and financial reporting standards and practices and disclosure requirements, and less government supervision and regulation; (iii) political, social or economic instability; and (iv) the extension of credit, especially in the case of sovereign debt.

22 | Semi-Annual Report

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2010

Highland Credit Strategies Fund

Forward Currency Contracts Risk

The Fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against changes in the value of foreign currencies. A forward contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Upon entering into such contracts daily fluctuations in the value of the contract are recorded for financial statement purposes as unrealized gains or losses by the Fund. At the expiration of the contracts the Fund realizes the gain or loss. Upon entering into such contracts, the Fund bears the risk of exchange rates moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the forward contracts and may realize a loss. With forwards, there is counterparty credit risk to the Fund because the forwards are not exchange traded, and there is no clearinghouse to guarantee the forwards against default.

Emerging Markets Risk

Investing in securities of issuers based in underdeveloped emerging markets entails all of the risks of investing in foreign securities to a heightened degree. These heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the markets for such securities and a lower volume of trading, resulting in lack of liquidity and in price volatility; and (iii) certain national policies which may restrict the Fund’s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interest.

Derivatives Risk

Derivative transactions in which the Fund may engage for hedging or speculative purposes to enhance total return, including engaging in transactions such as options, futures, swaps, foreign currency transactions (including forward foreign currency contracts, currency swaps or options on currency and currency futures) and other derivative transactions, involve certain risks and considerations. These risks include the imperfect correlation between the value of such instruments and the underlying assets, the possible default of the other party to the transaction or illiquidity of the derivative instruments. Furthermore, the ability to successfully use derivative transactions depends on the Investment Adviser’s ability to predict pertinent market movements, which can not be assured. Thus, the use of derivative transactions may result in losses greater than if they had not been used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market value, may limit the amount of appreciation the Fund can realize on an investment or may cause the Fund to hold a security that it might otherwise sell.

Investments in Swaps Risk

Investments in swaps involve the exchange with another party of commitment to pay a stream of payments. Use of swaps subjects the Fund to risk of default by the counterparty. If there is a default by the counterparty to such a transaction, there may be contractual remedies pursuant to the agreements related to the transaction although contractual remedies may not be sufficient in the event the counterparty is insolvent. However, the swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments which are traded in the interbank market. The Fund may enter into total return swaps, credit default swaps, currency swaps or other swaps which may be surrogates for other instruments such as currency forwards or options.

Counterparty Credit Risk

Counterparty credit risk is the potential loss the Fund may incur as a result of the failure of a counterparty or an issuer to make payment according to the terms of a contract. Counterparty credit risk is measured as the loss the Fund would record if its counterparties failed to perform pursuant to the terms of their obligations to the Fund. Because the Fund may enter into over-the-counter forwards, options, swaps and other derivatives financial instruments, the Fund is exposed to the credit risk of its counterparties. To limit the counterparty credit risk associated with such transactions, the Fund conducts business only with financial institutions judged by the Investment Adviser to present acceptable credit risk.

Short Equity and Bond Sales Risk

Short selling involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser, with an obligation to replace the borrowed securities at a later date. The Fund will profit from declines in the market prices of securities sold short to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. However, since the borrowed securities must be replaced by purchases at market prices in order to close out the short position, any appreciation in the price of the borrowed securities would result in a loss. There can be no assurance that the securities necessary to cover a short position will be available for purchase.

Note 15. Reorganization — Merger of Highland Distressed Opportunities, Inc. into the Fund

On December 19, 2008, the Board of Trustees approved an agreement and plan of merger and liquidation (“Agreement”) which provided for the transfer of all of the assets and liabilities of HCD for shares of the Fund. Shareholders of HCD approved the merger at a meeting on May 27, 2009. The merger was completed by a tax-free exchange of shares on June 12, 2009. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from HCD was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.

Semi-Annual Report | 23

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2010

Highland Credit Strategies Fund

The shares outstanding of HCD immediately before the merger and shares of the Fund issued to HCD shareholders were:

Merged Fund

Shares Exchanged

Acquiring Fund

Shares Issued

Net Asset Value

Conversion Ratio

Highland Distressed

Highland Credit

Opportunities, Inc.

17,716,771

Strategies Fund

8,173,238

6.28

0.4613

The net assets and net unrealized appreciation/(depreciation) of HCD and the net assets of the Fund immediately before the merger were as follows:

Unrealized

Appreciation/

Merged Fund

Net Assets

(Depreciation)

Acquiring Fund

Net Assets

Highland Distressed

Highland Credit

Opportunities, Inc.

51,353,210

(86,923,196

)

Strategies Fund

348,872,330

Note 16. Subsequent Events

Management has evaluated the impact of all subsequent events on the Fund and has determined that there was the following subsequent events requiring disclosure.

On July 1, 2010, The PNC Financial Services Group, Inc. sold the outstanding stock of PNC Global Investment Servicing Inc. to The Bank of New York Mellon Corporation. At the closing of the sale, PNC Global Investment Servicing (U.S.) Inc. and PFPC Distributors, Inc. changed their names to BNY Mellon Investment Servicing (US) Inc. (“BNY”) and BNY Mellon Distributors Inc., respectively. PFPC Trust Company will not change its name until a later date to be announced.

24 | Semi-Annual Report

ADDITIONAL INFORMATION (unaudited)



June 30, 2010		Highland Credit Strategies Fund

Additional Portfolio Information

The Investment Adviser and its affiliates manage other accounts, including registered and private funds and individual accounts. Although investment decisions for the Fund are made independently from those of such other accounts, the Investment Adviser may, consistent with applicable law, make investment recommendations to other clients or accounts that may be the same or different from those made to the Fund, including investments in different levels of the capital structure of a company, such as equity versus senior loans, or that take contrary provisions in multiple levels of the capital structure. The Investment Adviser has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, this may create situations where a client could be disadvantaged because of the investment activities conducted by the Investment Adviser for other client accounts. When the Fund and one or more of such other accounts is prepared to invest in, or desires to dispose of, the same security, available investments or opportunities for each will be allocated in a manner believed by the Investment Adviser to be equitable to the Fund and such other accounts. The Investment Adviser also may aggregate orders to purchase and sell securities for the Fund and such other accounts. Although the Investment Adviser believes that, over time, the potential benefits of participating in volume transactions and negotiating lower transaction costs should benefit all accounts including the Fund, in some cases these activities may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund.

Dividend Reinvestment Plan

Unless the registered owner of Common Shares elects to receive cash by contacting BNY (the “Plan Agent”), agent for shareholders in administering the Fund’s Dividend Reinvestment Plan (the “Plan”), all dividends declared for your Common Shares of the Fund will be automatically reinvested by BNY in additional Common Shares of the Fund. If a registered owner of Common Shares elects not to participate in the Plan, you will receive all dividends in cash paid by check mailed directly to you (or, if the shares are held in street or other nominee name, then to such nominee) by BNY, as dividend disbursing agent. You may elect not to participate in the Plan and to receive all dividends in cash by sending written instructions or by contacting BNY, as dividend disbursing agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Some brokers may automatically elect to receive cash on your behalf and may reinvest that cash in additional Common Shares of the Fund for you.

The Plan Agent will open an account for each shareholder under the Plan in the same name in which such shareholder’s Common Shares are registered. Whenever the Fund declares a dividend or other distribution (together, a “dividend”) payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“newly issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“open-market purchases”) on the New York Stock Exchange or elsewhere.

If, on the payment date for any dividend, the market price per Common Share plus estimated brokerage commissions is greater than the net asset value per Common Share (such condition being referred to herein as “market premium”), the Plan Agent will invest the dividend amount in newly issued Common Shares, including fractions, on behalf of the participants. The number of newly issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the net asset value per Common Share on the payment date; provided that, if the net asset value per Common Share is less than 95% of the market price per Common Share on the payment date, the dollar amount of the dividend will be divided by 95% of the market price per Common Share on the payment date.

If, on the payment date for any dividend, the net asset value per Common Share is greater than the market value per common share plus estimated brokerage commissions (such condition being referred to herein as “market discount”), the Plan Agent will invest the dividend amount in Common Shares acquired on behalf of the participants in open-market purchases.

In the event of a market discount on the payment date for any dividend, the Plan Agent will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 120 days after the payment date for such dividend, whichever is sooner (the “last purchase date”), to invest the dividend amount in Common Shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date of each dividend through the date before the “ex-dividend” date of the third month of the quarter. If, before the Plan Agent has completed its open-market purchases, the market price of a Common Share exceeds the net asset value per Common Share, the average per Common Share purchase price paid by the Plan Agent may exceed the net asset value of the Common Shares, resulting in the acquisition of fewer common shares than if the dividend had been paid in newly issued Common Shares on the dividend payment date. Because of the foregoing difficulty with respect to open market purchases, if the Plan Agent is unable to invest

Semi-Annual Report | 25

ADDITIONAL INFORMATION (unaudited)



June 30, 2010		Highland Credit Strategies Fund

the full dividend amount in open market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making open-market purchases and may invest the uninvested portion of the dividend amount in newly issued Common Shares at the net asset value per Common Share at the close of business on the last purchase date; provided that, if the net asset value per Common Share is less than 95% of the market price per Common Share on the payment date, the dollar amount of the dividend will be divided by 95% of the market price per Common Share on the payment date.

The Plan Agent maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.

There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with open-market purchases. The automatic reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Accordingly, any taxable dividend received by a participant that is reinvested in additional Common Shares will be subject to federal (and possibly state and local) income tax even though such participant will not receive a corresponding amount of cash with which to pay such taxes. Participants who request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and pay a brokerage commission of $0.05 per share sold.

The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

All correspondence concerning the Plan should be directed to the Plan Agent at BNY, 301 Bellevue Parkway, Wilmington, Delaware 19809; telephone (877) 665-1287.

26 | Semi-Annual Report

IMPORTANT INFORMATION ABOUT THIS REPORT

Investment Adviser
Highland Capital Management, L.P.
NexBank Tower
13455 Noel Road, Suite 800
Dallas, TX 75240

Transfer Agent
BNY Mellon Investment Servicing (US) Inc.
101 Sabin Street
Pawtucket, RI 02860

Custodian
PFPC Trust Company
301 Bellevue Parkway
Wilmington, DE 19809

Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
2001 Ross Avenue, Suite 1800
Dallas, TX 75201

Fund Counsel
Ropes & Gray LLP
One International Place
Boston, MA 02110

This report has been prepared for shareholders of Highland Credit Strategies Fund (the “Fund”). The Fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 1-877-665-1287 to request that additional reports be sent to you.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities, and the Fund’s proxy voting record for the most recent 12-month period ended June 30, are available (i) without charge, upon request, by calling 1-877-665-1287 and (ii) on the SEC’s website at http://www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and also may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the Public Reference Room may be obtained by calling 1-800-SEC-0330. Shareholders may also obtain the Form N-Q by visiting the Fund’s website at www.highlandfunds.com.

On May 19, 2010, the Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Fund’s principal executive officer certified that he was not aware, as of the date, of any violation by the Fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s principal executive officer and principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Fund’s disclosure controls and procedures and internal controls over financial reporting, as applicable.

Semi-Annual Report | 29

There has been no change, as of the date of this filing, in any of the portfolio managers identified in response to paragraph (a)(1) of this Item in the registrant’s most recently filed annual report on Form N-CSR.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

REGISTRANT PURCHASES OF EQUITY SECURITIES


			(c) Total Number of Shares	(d) Maximum Number (or
			(or Units) Purchased as	Approximate Dollar Value) of
	(a) Total Number	(b) Average	Part of Publicly	Shares (or Units) that May Yet Be
	of Shares (or	Price Paid per	Announced Plans or	Purchased Under the Plans or
Period	Units) Purchased	Share (or Unit)	Programs	Programs
01/01/10 – 01/31/10	39,088	6.98683	39,088	63,699,428

02/01/10 – 02/28/10	35,861	7.34420	35,861	63,699,428

05/01/10 – 05/31/10	34,936	7.1968	34,936	63,766,598

06/01/10 – 06/30/10	35,141	7.053301	35,141	63,766,598

Total	145,026		145,026	63,766,598

Footnote columns (c) and (d) of the table, by disclosing the following information in the aggregate for all plans or programs publicly announced:


a.		The date each plan or program was announced: Purchases were made pursuant to an Automatic Dividend Reinvestment Plan that was last filed with the SEC on June 21, 2006

b.		The dollar amount (or share or unit amount) approved: NONE


c.		The expiration date (if any) of each plan or program: NONE

d.		Each plan or program that has expired during the period covered by the table: NONE

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors.

Item 11. Controls and Procedures.

	(a)		The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s 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 registrant’s 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 registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

	(a)(1)		Not applicable.

	(a)(2)		Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

	(a)(3)		Not applicable.

	(b)		Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.


By (Signature and Title)*		/s/ R. Joseph Dougherty

		R. Joseph Dougherty, Chief Executive Officer and President
		(principal executive officer)


By (Signature and Title)*		/s/ R. Joseph Dougherty

		R. Joseph Dougherty, Chief Executive Officer and President
		(principal executive officer)


By (Signature and Title)*		/s/ M. Jason Blackburn

		M. Jason Blackburn, Treasurer and Secretary
		(principal financial officer)


AUD		Australian Dollar
EUR		Euro Currency
GBP		Great Britain Pound
CDO		Collateralized Debt Obligation
CLO		Collateralized Loan Obligation
DIP		Debtor-in-Possession
PIK		Payment-in-Kind

(a)		Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.

(b)		Not applicable.


Item 7.		Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.


^*		Print the name and title of each signing officer under his or her signature.