UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Highland Credit Strategies Fund

(Exact name of registrant as specified in charter)

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

R. Joseph Dougherty
Highland Capital Management, L.P.
NexBank Tower
13455 Noel Road, Suite 800
Dallas, Texas 75240

Registrant’s telephone number, including area code: (877) 665-1287

Date of fiscal year end: December 31

Date of reporting period: March 31, 2009

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2009		Highland Credit Strategies Fund

Principal Amount ($)						Value ($)
Senior Loans (a) - 67.2%
AEROSPACE - 3.2%
				AWAS Capital, Inc.
	1,653,129			Second Lien Priority Term Facility, 7.25%, 03/15/13			619,923
				Continental Airlines, Inc.
	571,429			Tranche A-1 Term Loan, 4.64%, 06/01/11			334,286
	1,428,571			Tranche A-2 Term Loan, 4.64%, 06/01/11			835,714
				Delta Airlines, Inc.
	6,676,274			Term Loan Equipment Notes, 4.73%, 09/29/12			4,005,765
				IAP Worldwide Services, Inc.
	2,734,977			First Lien Term Loan, PIK, 9.25%, 12/30/12			1,203,390
	2,090,629			Second Lien Term Loan, PIK, 15.50%, 06/28/13			324,048
				Northwest Airlines, Inc.
	2,312,255			Term Loan, 2.57%, 12/31/10			2,083,342
				United Air Lines, Inc.
	2,464,899			Tranche B Loan, 2.56%, 03/20/12			1,190,866
							10,597,334
BROADCASTING - 1.7%
				ComCorp Broadcasting, Inc.
	1,130,971			Revolving Loan, 7.75%, 10/03/12 (b) (c)			513,235
	11,309,712			Term Loan, 7.75%, 04/03/13 (b) (c)			5,132,347
							5,645,582
CABLE/WIRELESS VIDEO - 3.4%
				Broadstripe, LLC
	14,160,585			First Lien Term Loan, PIK, 9.25%, 06/30/11 (c) (d)			10,276,337
	1,428,203			Revolver, 06/30/11 (c) (d)			1,036,447
							11,312,784
CHEMICALS - 0.8%
				Arclin US Holdings, Inc.
	398,985			First Lien Term Loan, 5.98%, 07/10/14 (d)			189,518
				Solutia, Inc.
	1,960,113			Term Loan, 8.50%, 02/28/14			1,313,276
				Tronox Worldwide LLC
	1,910,160			Revolving Credit Loan, 5.26%, 11/28/10 (e)			1,209,361
							2,712,155
CONSUMER DURABLES - 0.5%
				Rexair LLC
	2,053,552			First Lien Term Loan, 5.47%, 06/30/10			1,642,842
DIVERSIFIED MEDIA - 5.5%
				Clarke American Corp.
	1,965,000			Tranche B Term Loan, 3.40%, 06/30/14			1,192,755
				Cydcor, Inc.
	8,437,500			First Lien Tranche B Term Loan, 9.00%, 02/05/13			6,750,000
	3,000,000			Second Lien Tranche B Term Loan, 12.00%, 02/05/14 (c)			2,286,000
				DTN, Inc.
	1,662,993			Tranche C Term Loan, 5.95%, 03/10/13			1,419,082
				Endurance Business Media, Inc.
	3,000,000			Second Lien Term Loan, 9.25%, 01/26/14 (d)			1,890,000
				Metro-Goldwyn-Mayer, Inc.
	6,213,296			Tranche B Term Loan, 3.77%, 04/09/12			2,831,492
	2,940,000			Tranche B-1 Term Loan, 3.77%, 04/09/12			1,339,802
				Tribune Co.
	2,730,667			Tranche X Advance, 5.00%, 06/04/09 (d)			728,747
							18,437,878
ENERGY - 6.9%
				Alon USA Energy, Inc.
	216,111			Edington Facility, 3.43%, 08/05/13			92,928
	1,728,889			Paramount Facility, 2.93%, 08/05/13			743,422
				Crusader Energy Group, Inc.
	14,985,000			Second Lien Term Loan, 11.25%, 07/18/13 (d)			10,864,125
				Resolute Aneth, LLC
	6,000,000			Second Lien Term Loan, 5.68%, 06/26/13			3,750,000
				Venoco, Inc.
	14,340,079			Second Lien Loan, 5.25%, 05/07/14			7,528,542
							22,979,017
FOOD/TOBACCO - 0.9%
				DS Waters of America, Inc.
	1,843,889			Term Loan, 2.81%, 10/29/12			1,429,014
				PBM Holdings, Inc.
	1,822,802			Term Loan, 2.77%, 09/28/12			1,549,381
							2,978,395
FOREST PRODUCTS/CONTAINERS - 0.8%
				Boise Paper Holdings, LLC
	2,500,000			Second Lien Term Loan, 9.25%, 02/23/15			962,500
				Newark Group, Inc.
	1,512,271			Credit-Link Letter of Credit, 7.02%, 03/09/13			725,890
	340,349			Term Loan, 10.75%, 03/09/13			163,368
				Verso Paper Finance Holdings LLC
	5,056,828			Term Loan, 7.70%, 02/01/13			758,524
							2,610,282

See accompanying Notes to Investment Portfolio.

INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2009		Highland Credit Strategies Fund

Principal Amount ($)						Value ($)
Senior Loans (continued)
GAMING/LEISURE - 18.6%
				Drake Hotel Acquisition
	6,041,285			B Note 1, 12.90% (c) (d)			3,303,978
				Fontainebleau Florida Hotel, LLC
	12,500,000			Tranche C Term Loan, 7.33%, 06/06/12			9,375,000
				Fontainebleau Las Vegas, LLC
	666,667			Delayed Draw Term Loan, 3.77%, 06/06/14			123,333
	1,333,333			Initial Term Loan, 4.53%, 06/06/14			246,667
				Ginn LA Conduit Lender, Inc.
	3,937,249			First Lien Tranche A Credit- Linked Deposit, 7.31%, 06/08/11 (d)			580,744
	8,438,203			First Lien Tranche B Term Loan, 6.20%, 06/08/11 (d)			1,244,635
				Green Valley Ranch Gaming, LLC
	1,000,000			Second Lien Term Loan, 3.81%, 08/16/14			83,750
				Kuilima Resort Co.
	4,621,285			First Lien Term Loan, 11.50%, 09/30/10 (d)			1,540,436
				Lake at Las Vegas Joint Venture
	4,551,702			Revolving Loan Credit-Linked Deposit Account, 14.35%, 06/20/12 (d)			438,101
	34,125,359			Term Loan DIP, PIK, 10.02%, 07/16/09			34,125,359
	44,212,596			Term Loan, PIK, 14.35%, 06/20/12 (d)			3,476,054
				WAICCS Las Vegas 3 LLC
	6,000,000			First Lien Term Loan, 4.02%, 07/30/09			4,500,000
	7,000,000			Second Lien Term Loan, 9.52%, 07/30/09			2,800,000
							61,838,057
HEALTHCARE - 4.4%
				Aveta, Inc.
	3,794,392			MMM Original Term Loan, 6.02%, 08/22/11 (f)			3,063,972
	563,675			NAMM New Term Loan, 6.02%, 08/22/11 (f)			455,168
	1,015,715			NAMM Original Term Loan, 6.02%, 08/22/11 (f)			820,190
	3,109,591			PHMC Acquisition Term Loan, 6.02%, 08/22/11 (f)			2,510,994
				Danish Holdco A/S
	2,500,000			Facility D, 5.21%, 11/30/16			937,500
	3,383,051			Mezzanine Facility, PIK, 8.94%, 05/01/17			718,898
				LifeCare Holdings
	5,394,563			Term Loan, 5.43%, 08/11/12			3,243,481
				Talecris Biotherapeutics Holdings Corp.
	2,924,167			First Lien Term Loan, 4.74%, 12/06/13			2,690,234
				Triumph Healthcare Second Holdings, LLC
	500,000			Second Lien Term Loan, 9.10%, 07/28/14			250,000
							14,690,437
HOUSING - 5.4%
				Custom Building Products, Inc.
	3,573,419			First Lien Term Loan, 8.00%, 10/29/11			2,590,729
	1,625,000			Second Lien Term Loan, 10.75%, 04/20/12			914,063
				LBREP/L-Suncal Master I LLC
	3,190,581			First Lien Term Loan, 8.59%, 01/18/10 (d)			55,835
				MPH Mezzanine II, LLC
	6,000,000			Mezzanine 2B, 7.48% (c) (d)			—
				MPH Mezzanine III, LLC
	4,000,000			Mezzanine 3, 8.48% (c) (d)			—
				November 2005 Land Investors, LLC
	2,514,475			Second Lien Term Loan, PIK, 10.77%, 05/09/12 (d)			188,586
				Pacific Clarion LLC
	19,802,292			Term Loan, 15.00% (c) (d) (g)			3,291,141
				Roofing Supply Group, LLC
	3,780,148			Term Loan, 9.25%, 08/24/13			2,362,592
				Universal Buildings Products, Inc.
	920,845			Term Loan, 4.83%, 04/28/12			524,882
				Westgate Investments, LLC
	8,422,194			Senior Secured Loan, PIK, 13.00%, 09/25/10 (g)			5,474,426
	1,980,405			Senior Unsecured Loan, PIK, 18.00%, 09/25/12 (d)			594,122
	3,165,493			Third Lien Term Loan, 18.00%, 06/30/15 (d) (e) (g)			1,741,021
				Weststate Land Partners LLC
	2,000,000			Second Lien Term Loan, 10.99%, 10/31/18 (d)			200,000
							17,937,397
INFORMATION TECHNOLOGY - 0.8%
				Serena Software, Inc.
	1,706,667			Term Loan, 2.51%, 03/10/13			1,045,333
				Verint Systems, Inc.
	2,500,000			Term Loan, 3.81%, 05/25/14			1,562,500
							2,607,833
MANUFACTURING - 2.5%
				Acument Global Technologies, Inc.
	7,802,444			Term Loan, 4.72%, 08/11/13			3,706,161
				Hunter Defense Technologies, Inc.
	945,685			Term Loan, 4.47%, 08/22/14			624,152
				Manitowoc Co., Inc.
	997,500			Term B Loan, 6.50%, 08/25/14			716,060

See accompanying Notes to Investment Portfolio.

INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2009		Highland Credit Strategies Fund

Principal Amount ($)						Value ($)
Senior Loans (continued)
MANUFACTURING (continued)
				Matinvest 2 SAS / Butterfly Wendal US, Inc.
	1,254,328			B-2 Facility, 2.76%, 06/22/14			843,535
	1,116,317			C-2 Facility, 3.26%, 06/22/15			756,305
				Matinvest 2 SAS / Deutsche Connector
	1,091,124			Mezzanine A USD Facility, PIK, 10.08%, 06/22/16			354,615
				United Central Industrial Supply Co., LLC
	1,555,819			Term Loan, 3.21%, 03/31/12			1,361,341
							8,362,169
METALS/MINERALS - 0.4%
				Euramax International Holdings B.V.
	1,332,947			Second Lien European Loan, 13.00%, 06/29/13			133,295
				Euramax International, Inc.
	2,766,683			Domestic Term Loan, 8.75%, 06/29/12			660,546
	6,707,053			Second Lien Domestic Term Loan, 13.00%, 06/29/13			653,938
							1,447,779
RETAIL - 1.3%
				Dollar General Corp.
	2,000,000			Tranche B-2 Term Loan, 3.27%, 07/07/14			1,728,130
				Home Interiors & Gifts, Inc.
	7,231,697			Proof of Claims, 03/31/11 (c) (d)			107,752
				Spirit Finance Corp.
	6,500,000			Term Loan, 4.17%, 08/01/13			2,031,250
				Sports Authority, Inc.,
	1,945,000			The Term Loan, 3.23%, 05/03/13			606,188
							4,473,320
SERVICE - 4.2%
				NES Rentals Holdings, Inc.
	7,765,705			Second Lien Permanent Term Loan, 8.00%, 07/20/13			3,106,282
				Penhall Holding Co.
	3,154,521			Term Loan PIK, 12.29%, 04/01/12			1,104,082
				Safety-Kleen Systems, Inc.
	1,627,119			Synthetic Letter of Credit, 3.00%, 08/02/13			1,407,458
	6,096,949			Term B Loan, 3.00%, 08/02/13			5,273,861
				Valleycrest Cos., LLC
	4,653,265			New Term Loan, 3.26%, 10/04/13			3,187,486
							14,079,169
TRANSPORTATION - AUTOMOTIVE - 2.3%
				BST Safety Textiles Acquisition GMBH
	2,729,659			Second Lien Facility, PIK, 16.53%, 06/30/09 (d)			177,428
				Motor Coach Industries International, Inc.
	3,651,379			Second Lien Loan, 12.75%			1,734,405
	4,177,583			Tranche A Note, PIK, 12.75%, 09/16/09			3,342,067
	2,996,998			Tranche B Note, PIK, 15.25%, 09/16/09 (c)			2,360,436
							7,614,336
TRANSPORTATION - LAND TRANSPORTATION - 0.8%
				New Century Transportation, Inc.
	2,068,476			Term Loan, 5.30%, 08/14/12			1,344,509
				SIRVA Worldwide, Inc.
	726,105			Revolving Credit Loan (Exit Finance), 3.27%, 05/12/12 (e)			326,747
	3,103,002			Second Lien Term Loan, PIK, 12.00%, 05/12/15			310,300
	1,527,541			Term Loan (Exit Finance), 9.50%, 05/12/12			763,771
							2,745,327
UTILITY - 2.8%
				Coleto Creek Power, LP
	184,651			First Lien Synthetic Letter of Credit, 3.97%, 06/28/13			126,486
	2,599,910			First Lien Term Loan, 3.77%, 06/28/13			1,780,938
	4,862,500			Second Lien Term Loan, 4.86%, 06/28/13			3,039,063
				Entegra TC LLC
	9,675,420			Third Lien Term Loan, PIK, 7.22%, 10/19/15			2,785,166
				GBGH, LLC
	5,074,648			First Lien Advance, PIK, 11.50%, 08/07/13 (c) (d)			1,460,991
	5,945,865			Second Lien Advance, PIK, 08/07/14 (c) (d)			—
							9,192,644
				Total Senior Loans (Cost $431,917,362)			223,904,737

Principal Amount
Foreign Denominated Senior Loans (a) - 2.4%
AUSTRALIA - 2.4%
AUD
				SMG H5 Property Ltd.
	22,885,307			Facility A Term Loan, 5.54%, 12/24/12 (h)			7,870,863
				Total Foreign Denominated Senior Loans (Cost $18,426,656)			7,870,863

See accompanying Notes to Investment Portfolio.

INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2009		Highland Credit Strategies Fund

Principal Amount ($)						Value ($)
Asset-Backed Securities (i) - 1.4%
				AB CLO, Ltd.
	2,033,746			Series 2007-1A, Class C, 2.94%, 04/15/21 (j)			101,687
				ACA CLO, Ltd.
	4,000,000			Series 2006-2A, Class B, 1.86%, 01/20/21 (j)			240,000
	2,000,000			Series 2007-1A, Class D, 3.44%, 06/15/22 (j)			160,000
				Babson CLO, Ltd.
	1,000,000			Series 2007-2A, Class D, 2.79%, 04/15/21 (j)			20,000
				Bluemountain CLO, Ltd.
	1,000,000			Series 2007-3A, Class D, 2.71%, 03/17/21 (j)			172,700
				Cent CDO, Ltd.
	2,000,000			Series 2007-15A, Class C, 3.56%, 03/11/21 (j)			141,000
				Columbus Nova CLO, Ltd.
	2,000,000			Series 2007- 1A, Class D, 2.58%, 05/16/19 (j)			120,000
				Commercial Industrial Finance Corp.
	1,000,000			Series 2006-1BA, Class B2L, 5.23%, 12/22/20			70,000
	1,000,000			Series 2006-2A, Class B2L, 5.26%, 03/01/21 (j)			56,297
				Cornerstone CLO, Ltd.
	2,500,000			Series 2007-1A, Class C, 3.49%, 07/15/21 (j)			204,575
				Goldman Sachs Asset Management CLO PLC
	4,060,085			Series 2007-1A, Class D, 3.92%, 08/01/22 (j)			243,605
	1,020,709			Series 2007-1A, Class E, 6.17%, 08/02/22 (j)			53,587
				Greywolf CLO, Ltd
	1,000,000			Series 2007-1A, Class D, 2.75%, 02/18/21 (j)			50,131
	1,000,000			Series 2007-1A, Class E, 5.20%, 02/18/21 (j)			70,000
				GSC Partners CDO Fund, Ltd.
	3,000,000			Series 2007-8A, Class C, 2.62%, 04/17/21 (j)			150,000
				Gulf Stream Sextant CLO, Ltd.
	1,013,185			Series 2007-1A, Class D, 3.72%, 06/17/21 (j)			75,989
				Hillmark Funding
	2,000,000			Series 2006-1A, Class C, 2.95%, 05/21/21 (j)			113,780
	790,676			Series 2006-1A, Class D, 4.85%, 05/21/21 (j)			7,907
				Inwood Park CDO, Ltd.
	1,000,000			Series 2006-1A, Class C, 1.84%, 01/20/21 (j)			110,000
	1,000,000			Series 2006-1A, Class D, 2.54%, 01/20/21 (j)			95,000
				Limerock CLO
	2,000,000			Series 2007-1A, Class D, 4.51%, 04/24/23 (j)			80,000
				Madison Park Funding Ltd.
	2,000,000			Series 2007-5A, Class C, 2.70%, 02/26/21 (j)			115,400
	1,500,000			Series 2007-5A, Class D, 4.75%, 02/26/21 (j)			75,000
				Marquette US/European CLO, PLC
	1,000,000			Series 2006-1A, Class D1, 2.84%, 07/15/20 (j)			56,846
				Navigator CDO, Ltd.
	961,909			Series 2006-2A, Class D, 4.79%, 09/20/20 (j)			175,452
				Ocean Trails CLO
	1,021,422			Series 2006-1A, Class D, 5.10%, 10/12/20 (j)			20,428
	2,500,000			Series 2007-2A, Class C, 3.61%, 06/27/22 (j)			100,000
				PPM Grayhawk CLO, Ltd.
	1,000,000			Series 2007-1A, Class C, 2.49%, 04/18/21 (j)			70,000
	1,150,000			Series 2007-1A, Class D, 4.69%, 04/18/21 (j)			89,815
				Primus CLO, Ltd.
	5,000,000			Series 2007-2A, Class D, 3.49%, 07/15/21 (j)			450,000
	2,000,000			Series 2007-2A, Class E, 5.84%, 07/15/21 (j)			60,000
				Rampart CLO, Ltd.
	4,000,000			Series 2006-1A, Class C, 2.59%, 04/18/21 (j)			223,076
				St. James River CLO, Ltd.
	2,871,359			Series 2007-1A, Class E, 5.61%, 06/11/21 (j)			287,136
				Stanfield Daytona CLO, Ltd.
	1,200,000			Series 2007-1A, Class B1L, 2.52%, 04/27/21 (j)			57,567
				Stanfield McLaren CLO, Ltd.
	4,000,000			Series 2007-1A, Class B1L, 3.66%, 02/27/21 (j)			255,960
				Stone Tower CLO, Ltd.
	2,000,000			Series 2007-6A, Class C, 2.44%, 04/17/21 (j)			80,000
				Venture CDO, Ltd.
	2,000,000			Series 2007-9A, Class D, 5.50%, 10/12/21 (j)			249,600
				Westbrook CLO, Ltd.
	1,000,000			Series 2006-1A, Class D, 2.99%, 12/20/20 (j)			63,079
				Total Asset-Backed Securities (Cost $50,300,634)			4,765,617
Foreign Asset-Backed Securities (i) - 0.1%
Principal Amount
IRELAND - 0.1%
EUR
				Static Loan Funding
	2,000,000			Series 2007-1X, Class D, 9.19%, 07/31/17 (j)			212,433
	2,000,000			Series 2007-1X, Class E, 6.69%, 07/31/17 (j)			212,433
				Total Foreign Asset-Backed Securities (Cost $5,651,273)			424,866

See accompanying Notes to Investment Portfolio.

INVESTMENT PORTFOLIO (unaudited) (continued)

As of March 31, 2009		Highland Credit Strategies Fund

Principal Amount ($)						Value ($)
Corporate Notes and Bonds - 36.6%
AEROSPACE - 0.3%
				Delta Air Lines, Inc.
	5,000,000			8.00%, 06/30/23 (d)			36,250
	7,000,000			8.30%, 12/15/29 (d)			56,700
				Northwest Airlines Corp.
	2,500,000			8.88%, 12/30/27 (d)			12,500
				Northwest Airlines, Inc.
	1,530,351			9.06%, 05/20/12			950,731
							1,056,181
BROADCASTING - 0.0%
				Young Broadcasting, Inc.
	3,065,000			10.00%, 03/01/11 (d) (k)			337
CHEMICALS - 0.4%
				Georgia Gulf Corp.
	2,000,000			9.50%, 10/15/14			345,000
				Tronox Worldwide LLC
	6,750,000			9.50%, 12/01/12 (d) (k)			928,125
							1,273,125
ENERGY - 0.6%
				Energy XXI Gulf Coast, Inc.
	4,150,000			10.00%, 06/15/13			1,877,875
FINANCIAL - 3.0%
				Allied Capital Corp.
	3,500,000			6.00%, 04/01/12			648,694
				HUB International Holdings, Inc.
	17,200,000			10.25%, 06/15/15 (j)			8,256,000
				Penhall International Corp.
	3,500,000			12.00%, 08/01/14 (j)			1,155,000
							10,059,694
FOREST PRODUCTS/CONTAINERS - 0.0%
				NewPage Holding Corp., PIK
	311,080			10.27%, 11/01/13 (i)			10,110
HEALTHCARE - 25.9%
				Argatroban Royalty Sub LLC
	11,683,914			18.50%, 09/21/14 (j)			10,515,522
				Azithromycin Royalty Sub LLC
	10,000,000			16.00%, 05/15/19 (j)			8,800,000
				Celtic Pharma Phinco B.V.
	34,135,102			17.00%, 06/15/12 PIK (j)			22,187,816
				Cinacalcet Royalty Sub LLC
	270,520			8.00%, 03/30/17 (j)			292,162
				Fosamprenavir Pharma
	4,356,115			15.50%, 06/15/18 (j)			3,833,381
				Molecular Insight
				Pharmaceuticals, Inc., PIK
	2,642,485			11.19%, 11/01/12 (i) (j)			2,325,387
				Pharma 17 (Sanctura XR)
	22,000,000			16.00%, 11/05/24 (j)			19,360,000
				Pharma IV (Eszopiclone)
	2,635,271			12.00%, 06/30/14 (j)			2,424,449
				Pharma V (Duloxetine)
	1,520,000			13.00%, 10/15/13 (j)			1,398,400
				Pharma X (Sensipar-Cinacalcet)
	2,158,003			15.50%, 03/30/17 PIK (j)			1,402,702
				TCD Pharma
	15,500,000			16.00%, 04/15/24 (j)			13,640,000
							86,179,819
HOUSING - 0.3%
				SUSA Partnership LP
	1,000,000			7.45%, 07/01/18			1,005,289
INFORMATION TECHNOLOGY - 0.2%
				Charys Holding Co., Inc.
	5,000,000			8.75%, 02/16/12 (c) (d)			—
				MagnaChip Semiconductor
	13,000,000			5.25%, 12/15/11 (d) (i) (k)			195,000
				New Holding, Inc.
	477,689			15.00%, 03/12/13			477,689
							672,689
TELECOMMUNICATIONS - 0.1%
				Nordic Telephone Co. Holdings APS
	500,000			8.88%, 05/01/16 (j)			470,000
TRANSPORTATION - AUTOMOTIVE - 2.5%
				American Tire Distributors Holdings, Inc.
	11,500,000			7.69%, 04/01/12 (i)			8,107,500
				Delphi Corp.
	3,750,000			6.50%, 05/01/09 (d)			75,000
	3,933,000			6.55% (d) (k)			78,660
	8,334,000			7.13%, 05/01/29 (d) (k)			166,680
							8,427,840
UTILITY - 0.5%
				Kiowa Power
	2,000,000			5.74%, 03/30/21 (j)			1,526,716
				USGEN New England PCG
	56,303			7.46%, 01/02/15 (d)			—
							1,526,716
WIRELESS COMMUNICATIONS - 2.8%
				Digicel Group, Ltd. PIK
	14,492,000			9.13%, 01/15/15 (j) (k)			8,912,580
				ICO North America, Inc.
	2,265,000			8.50%, 08/15/09			515,288
							9,427,868
				Total Corporate Notes and Bonds (Cost $188,607,656)			121,987,543
Claims (l) - 0.0%
AEROSPACE - 0.0%
				Delta Airlines, Inc.
	581,794			Delta ALPA Claim			4,363

See accompanying Notes to Investment Portfolio.

INVESTMENT PORTFOLIO (unaudited) (continued)

As of March 31, 2009		Highland Credit Strategies Fund

Principal Amount ($)						Value ($)
Claims (continued)
AEROSPACE (continued)
				Northwest Airlines, Inc.
	3,000,000			ALPA Trade Claim			2,430
	5,326,500			Flight Attendant Claim			4,314
	3,161,250			IAM Trade Claim			2,561
	3,512,250			Retiree Claim			2,845
				Total Claims (Cost $2,426,844)			16,513

Shares
Common Stocks - 6.6%
AEROSPACE - 0.0%
	26,042			Delta Air Lines, Inc. (l)			146,616
BROADCASTING - 0.0%
	753,981			Communications Corp. of America (b) (c) (l)			—
	108,472			Gray Television, Inc., Class A			75,930
							75,930
DIVERSIFIED MEDIA - 0.2%
	46,601			American Banknote Corp. (c) (l)			522,397
FINANCIAL - 0.0%
	555,258			Altiva Financial Corp. (l)			3,970
HEALTHCARE - 4.6%
	12,000,000			Genesys Ventures IA, LP (b) (c) (l)			15,240,000
HOUSING - 0.0%
	8			Westgate Investments LLC, Class B-1 (c) (l)			—
INFORMATION TECHNOLOGY - 0.8%
	1,072,961			Microvision, Inc. (k) (l)			1,384,120
	9,342			New Holding, Inc. (l)			1,216,796
							2,600,916
SERVICE - 0.6%
	200,964			Safety-Kleen Systems, Inc. (l)			2,009,643
TELECOMMUNICATIONS - 0.0%
	232			Knology, Inc. (l)			956
	70,342			Micadent PLC (c) (l)			—
	1			Viatel Holding (Bermuda) Ltd. (l)			10
							966
TRANSPORTATION — AUTOMOTIVE - 0.0%
	1,544,148			Delphi Corp. (k) (l)			94,193
TRANSPORTATION — LAND TRANSPORTATION - 0.1%
	18,030			SIRVA Worldwide, Inc. (c) (l)			291,545
UTILITY - 0.1%
	81,194			Entegra TC LLC (l)			233,433

WIRELESS COMMUNICATIONS - 0.2%
				ICO Global Communications
	1,633,432			Holding Ltd. (l)			571,701
				Total Common Stocks (Cost $44,875,323)			21,791,310
Preferred Stocks (l) - 3.1%
	1,000,000			Adelphia Recovery Trust			6,000
	2,150,537			Dfine, Inc., Series D (c)			10,430,104
				Total Preferred Stocks (Cost $10,934,997)			10,436,104

Units
Warrants (l) - 0.1%
				Clearwire Corp., expires
	20,000			08/15/10			113
				Grande Communications, expires
	1,000			04/01/11 (c)			—
				IAP Worldwide Services, Inc.,
	49,317			Series A, expires 06/12/15			—
				IAP Worldwide Services, Inc.,
	14,444			Series B, expires 06/12/15			—
				IAP Worldwide Services, Inc.,
	7,312			Series C, expires 06/12/15			—
				Microvision, Inc., expires
	643,777			07/23/13 (c)			312,232
				Sirius XM Radio, Inc., expires
	6,000			03/15/10			—
				Total Warrants (Cost $1,010,349)			312,345
Total Investments - 117.5% (Cost of $754,151,094) (m)							391,509,898
Other Assets & Liabilities, Net - (17.5)%							(58,378,820	)
Net Assets applicable to Common Shareholders - 100.0%						$	333,131,078

See accompanying Notes to Investment Portfolio.

INVESTMENT PORTFOLIO (unaudited) (continued)

As of March 31, 2009		Highland Credit Strategies Fund

		Par Value				Shares at				Market Value
		at March				March 31,				March 31,				December 31,
		31, 2009				2009				2009				2008
ComCorp Broadcasting, Inc. (Senior Loans) *		$	12,440,683				—			$	5,645,582			$	5,807,308
Communications Corp of America (Common Stock)			—				753,981				—				—
Genesys Ventures IA, LP (Common Stock)			—				12,000,000				15,240,000				10,157,000
		$	12,440,683				12,753,981			$	20,885,582			$	15,964,308

		Unfunded Loan
Borrower		Commitment
Mobileserv Ltd.		$	5,000,000
Sirva Worldwide, Inc.			1,633,733
Sorenson Communications, Inc.			2,000,000
Tronox Worldwide, LLC			1,314,866
Westgate Investments, LLC			1,804,223
		$	11,752,822

Gross unrealized appreciation		$	4,317,674
Gross unrealized depreciation			(366,958,870	)
Net unrealized depreciation		$	(362,641,196	)

Foreign Denominated Senior Loans &
Asset Backed Securities
Industry Concentration Table:
(% of Net Assets)

Diversified Media			2.4	%
Financial			0.1	%
Total			2.5	%

Forward foreign currency contracts outstanding as of March 31, 2009 were as follows:

Principal

Net

Contracts

Amount

Unrealized

to Buy or

Covered by

Appreciation/

to Sell

Currency

Contracts

Expiration

(Depreciation)

Sell

EUR

1,150,000

05/05/09

(16,808

)

Sell

GBP

1,940,000

05/05/09

1,582

Sell

GBP

350,000

08/03/09

(2,819

)

$

(18,045

)

See accompanying Notes to Investment Portfolio.

NOTES TO INVESTMENT PORTFOLIO (unaudited)

As of March 31, 2009		Highland Credit Strategies Fund

Security Valuation

In computing the Fund’s net assets attributable to common shares, securities with readily available market quotations use those quotations for valuation. When portfolio securities are traded on the relevant day of valuation, the valuation will be the last reported sale price on that day. If there are no such sales on that day, the security will be valued at the mean between the most recently quoted bid and asked prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day 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 is approved by the Fund’s Board.

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 but not limited to: (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 net asset value will reflect the affected portfolio securities’ fair value as determined in the judgement 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 net asset values. Determination of fair value is uncertain because it involves subjective judgements 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 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.

For more information with regard to significant accounting policies, see the most recent annual report filed with the Securities and Exchange Commission.

FAS 157

Adoption of Statement of Financial Accounting Standards No. 157 “Fair Value Measurement” (“FAS 157”):

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FAS 157, “Fair Value Measurement,” which is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. FAS 157 defines how fair value should be determined for financial reporting purposes, establishes a framework for measuring fair value under GAAP, and requires additional disclosures about the use of fair value measurements in interim and annual periods subsequent to initial recognition, expanded information about the assets and liabilities measured at fair value and the potential effect of these fair valuations on net assets, but is not expected to result in any changes to the fair value measurements of the Fund’s investments. Adoption of FAS 157 requires the Fund to assume that the portfolio investment is sold in a principal market to a market participant, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market.

The Fund has adopted FAS 157 as of January 1, 2008. 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. Based on this assessment, the adoption of FAS 157 did not have any material effect on the Fund’s NAV. However, the adoption of FAS 157 does require the Fund to provide additional disclosures about the inputs used to develop the measurements and the effect of certain measurements on changes in net assets for the reportable periods as contained in the Fund’s periodic filings. The levels of fair value inputs used to measure the Fund’s investments are characterized in accordance with the fair value hierarchy established by FAS 157. 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 established under FAS 157 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

NOTES TO INVESTMENT PORTFOLIO (unaudited) (continued)

As of March 31, 2009		Highland Credit Strategies Fund

assumptions that market participants would use to price the asset or liability based on the best available information.

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. A summary of the inputs used to value the Fund’s assets as of March 31, 2009 is as follows:

Investments in Securities
(Market Value)		Total				Level 1				Level 2				Level 3
Portfolio Investments		$	391,509,898			$	2,273,526			$	82,381,256			$	306,855,116
Total		$	391,509,898			$	2,273,526			$	82,381,256			$	306,855,116
Other Financial Instruments
(Unrealized Depreciation) *		Total				Level 1				Level 2				Level 3
Forward Foreign Currency Contracts		$	(18,045	)		$	—			$	(18,045	)		$	—
Total		$	(18,045	)		$	—			$	(18,045	)		$	—

The Fund did not have any liabilities that were measured at fair value on a recurring basis at March 31, 2009.

The table below sets forth a summary of changes in the Fund’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2009.

Assets at Fair Value using unobservable inputs (Level 3)	Portfolio Investments
Balance as of December 31, 2008		$	362,137,475
Transfers in/(out) of Level 3			(9,465,388	)
Net amortization/(accretion) of premium/(discount)			1,467,448
Net realized gains/(losses)			(33,257,503	)
Net unrealized gains/(losses)			9,298,360
Net purchases/(sales) *			(23,325,276	)
Balance as of March 31, 2009		$	306,855,116

The $9,298,360 of net unrealized gains presented in the table above relates to investments that are still held at March 31, 2009.

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 three months ended March 31, 2009, $9,465,388 of the Fund’s portfolio investments was transferred to/from Level 2 to Level 3. Determination of fair values is uncertain because it involves subjective judgments and estimates not easily substantiated by auditing procedures.

New Accounting Pronouncements

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Fund has adopted FAS 161 as of January 1, 2009. As of March 31, 2009, the Fund evaluated the implications of FAS 161 and determined that there is no material impact on the Investment Portfolio.

In April 2009, FASB Staff Position No. 157-4 – Determining Fair Value when the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”) was issued. FSP 157-4 clarifies the process for measuring the fair value of financial instruments when the markets become inactive and quoted prices may reflect distressed transactions. FSP 157-4 provides a non-exclusive list of factors a reporting entity should consider when determining whether there has been a significant decrease in the volume and level of activity for an asset or liability when compared with normal market activity. Under FSP 157-4, if a reporting entity concludes there has been a significant decrease in volume and level of activity for the asset or liability (or similar assets or liabilities), transactions or quoted prices may not be determinative of fair value. Further analysis of the transactions or

NOTES TO INVESTMENT PORTFOLIO (unaudited) (continued)

As of March 31, 2009		Highland Credit Strategies Fund

quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with FASB Statement No. 157 — Fair Value Measurement. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. At this time, Management is evaluating the impact of FSP 157-4 on the Fund’s financial statements.

Item 2. 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 last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Highland Credit Strategies Fund
By (Signature and Title)*		/s/ R. Joseph Dougherty   R. Joseph Dougherty, Chief Executive Officer and President
		(principal executive officer)

Date 5/26/09

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)*		/s/ R. Joseph Dougherty   R. Joseph Dougherty, Chief Executive Officer and President
		(principal executive officer)

Date 5/26/09

By (Signature and Title)*		/s/ M. Jason Blackburn   M. Jason Blackburn, Chief Financial Officer, Treasurer and Secretary
		(principal financial officer)

Date 5/26/09