Prospect Street High Income Portfolio Inc-Quarterly Schedule of Portfolio Holdings of Reg'd Management Investment Company (N-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-05557

Prospect Street ^® High Income Portfolio Inc.

(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)

James D. Dondero

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: October 31

Date of reporting period: January 31, 2008

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

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

Item 1. Schedule of Investments.

The Schedule(s) of Investments is attached herewith.

PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Schedule of Investments (unaudited)
As of January 31, 2008

Ratings

Principal
Amount ($)

Description

Moody’s

Standard &
Poor’s

Value
($)

Senior Loans - 15.91% (a) (b)

Aerospace and Defense - 0.49%

500,000

US Airways Group, Inc., Term Loan, 5.79%, 03/23/2014

B+

441,960

Broadcasting and Entertainment - 1.93%

1,000,000

Bresnan Communications, LLC, Additional Term Loan B First Lien, 06/30/2013 (c)

BB-

936,250

Univision Communications, Inc., Initial Term Loan, 7.20%,

966,443

09/29/2014

Ba3

B+

793,556

1,729,806

Buildings and Real Estate - 5.14%

2,970,344

Pacific Clarion, LLC, Term Loan, 15.00%, 01/23/2009 (d)

2,921,431

Realogy Corp.

1,570,973

Initial Term B Loan, 10/10/2013 (c)

Ba3

BB-

1,323,859

424,017

Synthetic Letter of Credit, 10/10/2013 (c)

Ba3

BB-

357,281

4,602,571

Electronics - 3.68%

3,840,302

Freescale Semiconductor, Inc. Term Loan, 6.98%, 11/29/2013

Ba1

3,299,780

Finance - 0.01%

Calpine Construction Finance, Term Loan First Lien, 11.34%,

5,508

08/26/2009

CCC

5,565

Healthcare, Education and Childcare - 2.10%

1,972,318

CCS Medical, Inc., First Lien Term Loan, 8.45%, 09/30/2012

B+

1,878,632

Housing - 2.10%

Weststate Land Partners LLC, Second Lien Term Loan, 13.35%,

2,000,000

05/01/2008

Caa1

1,880,000

Retail Stores - 0.46%

Burlington Coat Factory Warehouse Corp., Term Loan, 7.76%,

493,529

05/28/2013

B-

412,892

Total Senior Loans (cost $15,266,709)

14,251,206

Corporate Notes & Bonds - 116.02% (a)

Aerospace and Defense - 2.43%

4,000,000

Delta Air Lines, Inc., 8.30%, 08/11/2020 (e)

220,000

Northwest Airlines, Inc.

1,899,659

Series 2002-1, Class C2, 9.06%, 05/20/2012

1,904,824

1,500,000

8.88%, 12/30/2027 (e)

54,375

2,179,199

Automobile - 3.94%

3,500,000

American Tire Distributors Holdings, Inc., 11.08%, 04/01/2012 (f)

Caa1

CCC+

3,360,000

417,000

Delphi Corp., 6.50%, 05/01/2009 (g)

164,715

3,524,715

Broadcasting and Entertainment - 4.16%

2,960,000

Univision Communications, Inc., 9.75%, 03/15/2015 PIK (e) (h)

CCC+

2,227,400

PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Schedule of Investments (unaudited) (continued)
As of January 31, 2008

Ratings

Principal
Amount ($)

Description

Moody’s

Standard &
Poor’s

Value
($)

Corporate Notes & Bonds (continued)

Broadcasting and Entertainment (continued)

2,000,000

Young Broadcasting, Inc., 10.00%, 03/01/2011

Caa2

CCC-

1,500,000

3,727,400

Buildings and Real Estate - 6.57%

1,767,000

Associated Materials, Inc., 0.00%, 03/01/2014 (e) (i)

Caa2

CCC

1,157,385

250,000

Masonite Corp., 11.00%, 04/06/2015 (e)

BB-

183,750

Realogy Corp.

5,000,000

10.50%, 04/15/2014 (e) (h)

Caa1

CCC+

3,600,000

1,570,000

12.38%, 04/15/2015 (e) (h)

Caa2

CCC+

942,000

5,883,135

Cable and Other Pay Television Services - 3.92%

4,861,000

CCH I LLC, 11.00%, 10/01/2015

Caa2

CCC

3,505,996

Cable/Wireless Video - 5.05%

4,500,000

Intelsat Bermuda, Ltd., 11.25%, 06/15/2016 (h)

Caa2

B-

4,522,500

Cargo Transport - 0.48%

1,000,000

Motor Coach Industries International, Inc., 11.25%, 05/01/2009

425,000

Chemicals, Plastics and Rubber - 0.87%

1,000,000

Georgia Gulf Corp., 9.50%, 10/15/2014 (e)

CCC+

780,000

Containers, Packaging and Glass - 7.62%

8,300,000

Solo Cup Co., 8.50%, 02/15/2014 (e)

Caa2

CCC-

6,826,750

Electronics - 1.07%

1,000,000

WII Components, Inc., 10.00%, 02/15/2012

B-

955,000

Food, Beverage and Tobacco - 7.80%

5,300,000

Chiquita Brands International, Inc., 7.50%, 11/01/2014

Caa2

CCC

4,478,500

500,000

Land O’ Lakes Capital Trust I, 7.45%, 03/15/2028 (h)

BBB-

442,500

Pinnacle Foods Finance LLC

500,000

9.25%, 04/01/2015 (h)

Caa2

CCC

430,000

2,000,000

10.63%, 04/01/2017 (h) (e)

Caa2

CCC

1,635,000

6,986,000

Forest Products - Containers - 0.27%

279,321

NewPage Corp., 11.82%, 11/01/2013 PIK (f)

244,406

Healthcare, Education and Childcare - 11.14%

3,511,539

Argatroban Royalty Sub, LLC, 18.50%, 09/30/2014

3,529,097

1,794,000

Eszopiclone Royalty Sub LLC, 12.00%, 06/30/2014

1,865,760

HCA, Inc.

500,000

7.69%, 06/15/2025

Caa1

B-

404,595

500,000

7.50%, 11/15/2095

Caa1

B-

373,622

2,000,000

Risperidone Royalty Sub, 7.00%, 01/01/2018

1,830,000

Select Medical Corp.

975,000

7.63%, 02/01/2015

CCC+

811,687

1,412,000

11.26%, 09/15/2015 (e) (f)

Caa1

CCC+

1,161,370

9,976,131

PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Schedule of Investments (unaudited) (continued)
As of January 31, 2008

Ratings

Principal
Amount ($)

Description

Moody’s

Standard &
Poor’s

Value
($)

Corporate Notes & Bonds (continued)

Home and Office Furnishings, Housewares, and Durable Consumer - 3.81%

Spectrum Brands, Inc.

2,000,000

11.50%, 10/02/2013 PIK (e) (f)

Caa3

CCC-

1,700,000

2,450,000

7.38%, 02/01/2015

Caa3

CCC-

1,715,000

3,415,000

Information Technology - 8.80%

2,500,000

Charys Holding Co., Inc., 8.75%, 02/16/2012 (g) (h)

1,387,500

2,000,000

Freescale Semiconductor, Inc., 8.87%, 12/15/2014 (f)

1,450,000

6,500,000

MagnaChip Semiconductor, 8.24%, 12/15/2011 (f)

5,037,500

7,875,000

Insurance - 5.98%

7,000,000

HUB International Holdings, Inc., 10.25%, 06/15/2015 (h)

Caa1

CCC+

5,355,000

Leisure, Amusement, Motion Pictures, Entertainment - 18.34%

Ames True Temper, Inc.

2,000,000

8.26%, 01/15/2012 (f)

Caa3

CCC-

1,630,000

1,375,000

10.00%, 07/15/2012 (e)

Caa3

CCC-

666,875

8,000,000

Blockbuster, Inc., 9.00%, 09/01/2012 (e)

Caa2

CCC

6,360,000

Six Flags, Inc.

2,000,000

8.88%, 02/01/2010 (e)

Caa2

CCC

1,475,000

2,267,000

Convertible, 4.50%, 05/15/2015

Caa2

CCC

1,414,041

8,000,000

Tropicana Entertainment LLC, 9.63%, 12/15/2014 (e)

Caa1

4,880,000

16,425,916

Oil and Gas - 4.14%

1,750,000

Energy XXI Gulf Coast, Inc., 10.00%, 06/15/2013

Caa2

CCC

1,483,125

1,100,000

Helix Energy Solutions, 9.50%, 01/15/2016 (h)

B+

1,122,000

1,080,000

McMoran Exploration Co., 11.88%, 11/15/2014

Caa1

CCC+

1,104,300

3,709,425

Personal, Food, and Miscellaneous Services - 0.00%

801,760

Outsourcing Services Group, Inc., 9.00%, 03/01/2009 PIK (j)

Retail Stores - 3.38%

3,250,000

Dollar General Corp., 10.63%, 07/15/2015 (e) (h)

Caa1

CCC+

3,022,500

Telecommunications - 16.25%

6,537,854

Digicel Group, Ltd., 9.13%, 01/15/2015 PIK (e) (h)

Caa2

5,769,656

2,000,000

Grande Communications Holdings, Inc., 14.00%, 04/01/2011

Caa1

B-

2,058,000

500,000

Nordic Telephone Co. Holdings, 8.88%, 05/01/2016 (h)

510,000

6,000,000

SunCom Wireless Holdings, Inc., 8.50%, 06/01/2013

Caa2

CCC

6,210,000

14,547,656

Utilities - 0.00%

56,303

USGen New England, Inc., 7.46%, 01/02/2015 (g) (h)

Total Corporate Notes & Bonds (cost $122,558,006)

103,886,729

PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Schedule of Investments (unaudited) (continued)
As of January 31, 2008

Ratings

Principal
Amount ($)

Description

Moody’s

Standard &
Poor’s

Value
($)

Claims - 0.10% (a)

Aerospace and Defense - 0.10%

Northwest Airlines, Inc.

600,000

ALPA Trade Claim, 08/21/2013

18,000

1,065,300

Flight Attendant Claim, 08/21/2013

31,959

632,250

IAM Trade Claim, 08/21/2013

18,968

702,450

Retiree Claim, 08/21/2013

21,073

Total Claims (cost $647,521)

90,000

Shares

Common Stocks - 5.44% (a) (k)

555,258

Altiva Financial Corp.

3,331

46,601

American Banknote Corp. (j)

1,095,123

Delta Air Lines, Inc.

853,905

ICO Global Communications Holding, Ltd. (e)

2,356,778

232

Knology, Inc.

2,633

73,730

Northwest Airlines, Inc.

1,379,479

24,015

Outsourcing Services Group, Inc. (j)

1,184

Time Warner Cable, Inc., Class A

29,790

303

Viatel Holding, Ltd.

Total Common Stocks (cost $12,855,290)

4,867,156

Units

Warrants - 0.00% (a) (k)

5,000

XM Satellite Radio, Inc., 03/15/2010

Total Warrants (cost $870,339)

Total Investments - 137.47% (cost $152,197,865) (l)

123,095,091

Other Assets & Liabilities, Net - 7.20%

6,449,830

Preferred Shares - (44.67)%

(40,000,000

)

Net Assets Applicable to Common Stock - 100.00%

89,544,921


(a)	Percentages are based on net assets applicable to common stock.
(b)	Senior loans in which the Prospect Street High Income Portfolio, Inc. (the “Fund”) invests generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. (Unless otherwise identified by (d), all senior loans carry a variable rate interest.) These base lending rates are generally (i) the Prime Rate offered by one or more major U.S. 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 January 31, 2008. Senior loans, while exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than stated maturities shown.
(c)	All or a portion of this position has not settled. Contract rates do not take effect until settlement date.
(d)	Fixed rate senior loan.
(e)	Securities (or a portion of securities) on loan. As of January 31, 2008, the market value of securities loaned was $42,071,085. The loans were secured with cash collateral of $44,689,058.
(f)	Variable rate Corporate Note & Bond. The interest rate shown reflects the rate in effect at January 31, 2008.
(g)	Issuer is in default of certain debt covenants. Income is not being accrued.

PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Schedule of Investments (unaudited) (continued)
As of January 31, 2008


(h)	Rule 144A securities - Private placement securities issued under Rule 144A are exempt from the registration requirement of the 1933 Act. These securities may only be resold, in transactions exempt from registration, to qualified institutional buyers. At January 31, 2008, the market value of these securities aggregated to $30,966,056 or 34.58% of net assets applicable to common stock. Pursuant to procedures duly adopted by the Fund’s Board of Directors, the Adviser has determined that all of the Rule 144A securities, with the exception of Charys Holding Co., Inc., which represented a market value of $1,387,500 or 1.55% of the Fund’s net assets at January 31, 2008, were, at the time of acquisition, readily marketable.
(i)	Step Coupon. A bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods until maturity. The coupon rate will be 0.000% until the date shown below and the subsequent rate below, thereafter.


Security	Date	Rate

Associated Materials, Inc.	03/01/09	11.25	%


(j)	Represents fair value as determined by the Investment Adviser, in good faith, pursuant to the policies and procedures approved by the Fund’s Board of Directors. Securities with a total market value of $1,095,123, or 1.22% of net assets, were valued under fair value by the Investment Adviser as of January 31, 2008.
(k)	Non-income producing security.
(l)	The cost on a tax basis is identical to book. Unrealized appreciation and depreciation on investments are as follows:


Gross unrealized appreciation	$	1,177,851
Gross unrealized depreciation		(30,280,625	)

Net unrealized depreciation	$	(29,102,774	)


PIK	Payment in Kind
NR	Not Rated

Unfunded Loan Commitment:

As of January 31, 2008, the Fund had an unfunded loan commitment to Univision Communications, Inc. of $33,557, which could be extended at the option of the borrower, pursuant to the loan agreement.

Security Valuation:

Investments for which listed market quotations are readily available are stated at market value, which is determined by using the last reported sale price or, if no sales are reported, as in the case of some securities traded over-the-counter, the last reported bid price. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value.

Other investments, which comprise the major portion of the Fund’s portfolio holdings, are primarily non-investment grade corporate debt securities, for which market quotations are not readily available due to a thinly traded market with a limited number of market makers. These investments are stated at fair value on the basis of subjective valuations furnished by an independent pricing service or broker dealers, subject to review and adjustment by Highland Capital Management, L.P. (“Highland,” or “Investment Adviser”) based upon quotations obtained from market makers. The independent pricing service determines value based primarily on quotations from dealers and brokers, market transactions, accessing data from quotation services, offering sheets obtained from dealers and various relationships between securities. The independent pricing service utilizes the last sales price based on odd-lot trades, if available. If such price is not available, the price furnished is based on round-lot or institutional size trades. For securities in which there is no independent price from a pricing service or from round-lot or institutional size trades, they are fair value priced in good faith by the Fund’s Board of Directors (“Board of Directors”).

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

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)

Prospect Street ^® High Income Portfolio Inc.

By (Signature and Title)*	/s/ James D. Dondero
	James D. Dondero, Chief Executive Officer
	(principal executive officer)

Date	March 20, 2008

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

By (Signature and Title)*	/s/ James D. Dondero
	James D. Dondero, Chief Executive Officer
	(principal executive officer)

Date	March 20, 2008

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

Date	March 20, 2008

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

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