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    811-02365  

 

Prospect Street ® Income Shares Inc.
(Exact name of registrant as specified in charter)
 
Two Galleria Tower
13455 Noel Road, Suite 800
Dallas, Texas 75240
(Address of principal executive offices) (Zip code)
 
James D. Dondero
Highland Capital Management, L.P.
Two Galleria 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: September 30, 2007

 

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 INCOME SHARES, INC.
Schedule of Investments (unaudited)
As of September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratings

 

 

 

 

 

 

 

 

 

 

 

 

Principal
Amount ($)

 

Description

 

Moody’s

 

Standard &
Poor’s

 

Value ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Loans - 6.55% (a) (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace and Defense - 0.78%

 

 

 

 

 

 

 

 

 

 

 

500,000

 

US Airways Group, Inc., Term Loan, 7.86%, 03/23/2014

 

 

B2

 

 

B+

 

 

477,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cargo Transport - 1.09%

 

 

 

 

 

 

 

 

 

 

 

986,290

 

SIRVA Worldwide, Inc., Tranche B Term Loan, 12.60%, 12/01/2010

 

 

B2

 

 

NR

 

 

671,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diversified Media - 1.48%

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

Tribune Co., Initial Tranche B Advance, 8.36%, 05/19/2014

 

 

Ba2

 

 

BB

 

 

914,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Technology - 0.23%

 

 

 

 

 

 

 

 

 

 

 

150,000

 

Freescale Semiconductor, Inc., Term Loan, 11/29/2013 (c)

 

 

Baa3

 

 

BB+

 

 

143,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail - 0.78%

 

 

 

 

 

 

 

 

 

 

 

500,000

 

Burlington Coat Factory Warehouse Corp., Term Loan, 05/28/2013 (c)

 

 

B2

 

 

B-

 

 

480,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Telecommunications - 2.19%

 

 

 

 

 

 

 

 

 

 

 

1,409,396

 

Univision Communications, Inc., Initial Term Loan, 7.61%, 09/29/2014

 

 

Ba3

 

 

B+

 

 

1,345,388

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Senior Loans (cost $4,298,652)

 

 

 

 

 

 

 

 

4,033,650

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Notes & Bonds - 133.02% (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace and Defense - 0.46%

 

 

 

 

 

 

 

 

 

 

 

3,000,000

 

Delta Air Lines, Inc., 8.30%, 12/15/2029 (d)

 

 

NR

 

 

NR

 

 

180,000

 

 

1,000,000

 

Northwest Airlines, Inc., 8.88%, 12/30/2027 (d)

 

 

NR

 

 

NR

 

 

102,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

282,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automobile - 4.86%

 

 

 

 

 

 

 

 

 

 

 

3,000,000

 

American Tire Distributors Holdings, Inc., 11.60%, 04/01/2012 (e)

 

 

Caa1

 

 

CCC+

 

 

2,992,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broadcasting and Entertainment - 6.24%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Liberty Media Corp., 7.88%, 07/15/2009

 

 

Ba2

 

 

BB+

 

 

2,068,370

 

 

1,500,000

 

Time Warner Entertainment Co., LP, 10.15%, 05/01/2012

 

 

Baa1

 

 

BBB+

 

 

1,774,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,843,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings and Real Estate - 6.95%

 

 

 

 

 

 

 

 

 

 

 

2,750,000

 

Black & Decker, 5.75%, 11/15/2016

 

 

Baa2

 

 

BBB

 

 

2,691,681

 

 

500,000

 

Realogy Corp., 10.50%, 04/15/2014 (f)

 

 

Caa1

 

 

B-

 

 

427,500

 

 

1,000,000

 

SUSA Partnership, LP, 7.45%, 07/01/2018

 

 

Aa1

 

 

AAA

 

 

1,159,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,278,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cable and Other Pay Television Services - 2.71%

 

 

 

 

 

 

 

 

 

 

 

500,000

 

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

 

 

Caa2

 

 

CCC

 

 

508,750

 

 

1,000,000

 

Comcast Cable Holdings, 9.80%, 02/01/2012

 

 

NR

 

 

BBB+

 

 

1,158,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,667,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cargo Transport - 0.30%

 

 

 

 

 

 

 

 

 

 

 

250,000

 

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

 

 

Ca

 

 

CC

 

 

188,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals, Plastics and Rubber - 10.55%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Albemarle Corp., 5.10%, 02/01/2015

 

 

Baa3

 

 

BBB

 

 

1,894,632

 

See accompanying notes.
1

PROSPECT STREET INCOME SHARES, INC.
Schedule of Investments (unaudited) (continued)
As of September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratings

 

 

 

 

 

 

 

 

 

 

Principal
Amount ($)

 

Description

 

Moody’s

 

Standard &
Poor’s

 

Value ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Notes & Bonds (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals, Plastics and Rubber (continued)

 

 

 

 

 

 

 

 

 

 

 

2,500,000

 

Clorox Co., 4.20%, 01/15/2010

 

 

A3

 

 

BBB+

 

 

2,452,810

 

 

2,000,000

 

Potash Corp. of Saskatchewan, Inc., 7.75%, 05/31/2011

 

 

Baa1

 

 

BBB+

 

 

2,153,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,500,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Containers, Packaging and Glass - 7.99%

 

 

 

 

 

 

 

 

 

 

 

4,750,000

 

Solo Cup Co., 8.50%, 02/15/2014

 

 

Caa2

 

 

CCC-

 

 

4,227,500

 

 

1,000,000

 

Tekni-Plex, Inc., Series B, 12.75%, 06/15/2010

 

 

Caa3

 

 

C

 

 

695,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,922,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronics - 6.88%

 

 

 

 

 

 

 

 

 

 

 

2,500,000

 

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

 

 

NR

 

 

NR

 

 

2,525,000

 

 

2,000,000

 

MagnaChip Semiconductor, 8.94%, 12/15/2011 (e)

 

 

B2

 

 

B

 

 

1,710,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,235,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Environmental Services - 3.40%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Republic Services, Inc., 6.75%, 08/15/2011

 

 

Baa2

 

 

NR

 

 

2,093,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance - 17.98%

 

 

 

 

 

 

 

 

 

 

 

3,500,000

 

Allied Capital Corp., 6.00%, 04/01/2012

 

 

Baa2

 

 

BBB+

 

 

3,486,217

 

 

2,000,000

 

BankAmerica Institutional, Series A, 8.07%, 12/31/2026 (f)

 

 

Aa3

 

 

A-

 

 

2,080,700

 

 

1,500,000

 

Penhall International, Corp., 12.00%, 08/01/2014 (f)

 

 

B3

 

 

CCC+

 

 

1,522,500

 

 

3,750,000

 

Unilever Capital Corp., 7.13%, 11/01/2010

 

 

A1

 

 

A+

 

 

3,986,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,075,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food, Beverage and Tobacco - 9.40%

 

 

 

 

 

 

 

 

 

 

 

3,750,000

 

Kellogg Co., Series B, 6.60%, 04/01/2011

 

 

A3

 

 

BBB+

 

 

3,917,325

 

 

500,000

 

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

 

 

B1

 

 

B-

 

 

452,500

 

 

 

 

Pinnacle Foods Finance LLC

 

 

 

 

 

 

 

 

 

 

 

500,000

 

9.25%, 04/01/2015 (f)

 

 

Caa2

 

 

CCC

 

 

478,750

 

 

1,000,000

 

10.63%, 04/01/2017 (f)

 

 

Caa2

 

 

CCC

 

 

942,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,791,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare, Education and Childcare - 7.71%

 

 

 

 

 

 

 

 

 

 

 

2,500,000

 

Argatroban Royalty Sub LLC, 18.50%, 09/21/2014 (g)

 

 

NR

 

 

NR

 

 

2,500,000

 

 

1,495,000

 

Eszopiclone Royalty Sub LLC, 12.00%, 06/30/2014 (g)

 

 

NR

 

 

NR

 

 

1,554,800

 

 

500,000

 

Select Medical Corp., 7.63%, 02/01/2015

 

 

B3

 

 

CCC+

 

 

450,000

 

 

250,000

 

Teva Pharmaceutical Finance LLC, 5.55%, 02/01/2016

 

 

Baa2

 

 

BBB

 

 

243,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,748,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home and Office Furnishings, Housewares, and Durable Consumer - 2.06%

 

 

 

 

 

 

 

250,000

 

Masonite Corp., 11.00%, 04/06/2015

 

 

NR

 

 

NR

 

 

212,500

 

 

 

 

Spectrum Brands, Inc.

 

 

 

 

 

 

 

 

 

 

 

530,000

 

11.25%, 10/02/2013 PIK (e)

 

 

Caa3

 

 

CCC-

 

 

474,350

 

 

750,000

 

7.38%, 02/01/2015

 

 

Caa3

 

 

CCC-

 

 

581,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,268,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotels, Motels, Inns and Gaming - 3.95%

 

 

 

 

 

 

 

 

 

 

 

3,000,000

 

Harrahs Operating Co., Inc., 5.38%, 12/15/2013

 

 

Baa3

 

 

BB

 

 

2,433,045

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.
2

PROSPECT STREET INCOME SHARES, INC.
Schedule of Investments (unaudited) (continued)
As of September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratings

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal
Amount ($)

 

Description

 

Moody’s

 

Standard &
Poor’s

 

Value ($)

 

 

 

 

 

 

 

Corporate Notes & Bonds (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leisure, Amusement, Motion Pictures, Entertainment - 11.74%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Blockbuster, Inc., 9.00%, 09/01/2012

 

 

Caa2

 

 

CCC

 

 

1,810,000

 

 

2,250,000

 

Six Flags, Inc., 4.50%, 05/15/2015

 

 

NR

 

 

CCC

 

 

1,912,500

 

 

4,500,000

 

Tropicana Entertainment LLC Finance Corp., 9.63%, 12/15/2014 (f)

 

 

Caa1

 

 

CCC+

 

 

3,510,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,232,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and Gas - 4.30%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Dominion Resources, Inc., 5.00%, 03/15/2013

 

 

Baa2

 

 

BBB

 

 

1,934,772

 

 

750,000

 

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

 

 

Caa2

 

 

CCC

 

 

712,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,647,272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Printing and Publishing - 3.28%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Network Communications, Inc., 10.75%, 12/01/2013

 

 

B2

 

 

B-

 

 

2,017,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Stores - 3.11%

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

Macy’s Retail Holdings, Inc., 5.90%, 12/01/2016

 

 

Baa2

 

 

BBB

 

 

1,917,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Telecommunications - 5.64%

 

 

 

 

 

 

 

 

 

 

 

500,000

 

Digicel Group, Ltd., 8.88%, 01/15/2015 (f)

 

 

Caa2

 

 

NR

 

 

471,250

 

 

1,000,000

 

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

 

 

Caa1

 

 

B-

 

 

1,050,000

 

 

2,000,000

 

ICO North America, 7.50%, 08/15/2009 (g)

 

 

NR

 

 

NR

 

 

1,950,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,471,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilities - 13.51%

 

 

 

 

 

 

 

 

 

 

 

4,000,000

 

Consolidated Edison Co. of New York, 4.70%, 06/15/2009

 

 

A1

 

 

A

 

 

3,984,576

 

 

2,000,000

 

Kiowa Power Partners LLC, 5.74%, 03/30/2021 (f)

 

 

Baa3

 

 

BBB-

 

 

1,989,776

 

 

500,000

 

Southern Power Co., Series D, 4.88%, 07/15/2015

 

 

Baa1

 

 

BBB+

 

 

468,218

 

 

1,867,657

 

Tenaska Virginia Partners LP, 6.12%, 03/30/2024 (f)

 

 

NR

 

 

NR

 

 

1,876,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,319,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Corporate Notes & Bonds (cost $84,263,598)

 

 

 

 

 

 

 

 

81,924,797

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-Backed Security - 5.72%

 

 

 

 

 

 

 

 

 

 

 

4,000,000

 

ACA CLO, Ltd., Series 2006-2A, Class B, 6.08%, 01/20/2021 (e) (g)

 

 

A2

 

 

A

 

 

3,526,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Asset-Backed Security (cost $3,595,991)

 

 

 

 

 

 

 

 

3,526,252

 

 

 

 

 

 

 

 

 

 

 

 

 

Claims - 0.28%

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace and Defense - 0.28%

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Airlines, Inc.

 

 

 

 

 

 

 

 

 

 

 

400,000

 

ALPA Trade Claim, 08/21/2013

 

 

NR

 

 

NR

 

 

34,000

 

 

421,500

 

IAM Trade Claim, 08/21/2013

 

 

NR

 

 

NR

 

 

35,828

 

 

468,300

 

Retiree Claim, 08/21/2013

 

 

NR

 

 

NR

 

 

39,805

 

 

710,200

 

Flight Attendant Claim, 08/21/2013

 

 

NR

 

 

NR

 

 

60,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Claims (cost $431,681)

 

 

 

 

 

 

 

 

170,000

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.
3

PROSPECT STREET INCOME SHARES, INC.
Schedule of Investments (unaudited) (continued)
As of September 30, 2007

 

 

 

 

 

 

 

 

Shares

 

Description

 

Value ($)

 

 

 

 

 

Common Stocks - 4.01% (a) (h)

 

 

 

 

 

68,864

 

Delta Air Lines, Inc.

 

 

1,236,111

 

 

69,253

 

Northwest Airlines Corp.

 

 

1,232,704

 

 

 

 

 

 

 

 

 

 

Total Common Stocks (cost $3,374,743)

 

 

2,468,815

 

 

 

 

 

 

 

Preferred Stocks - 0.00% (a) (h)

 

 

 

 

 

10,000

 

Adelphia Communications Corp., Series B

 

 

0

 

 

1,000,000

 

Adelphia Recovery Trust

 

 

0

 

 

 

 

 

 

 

 

 

 

Total Preferred Stocks (cost $935,000)

 

 

0

 

 

 

 

 

 

 

Units

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants - 0.00% (a) (i)

 

 

 

 

 

1,000

 

Grande Communications 04/01/2011

 

 

10

 

 

17,481

 

Pathmark Stores, Inc. 09/19/2010

 

 

612

 

 

1,000

 

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

 

 

0

 

 

 

 

 

 

 

 

 

 

Total Warrants (cost $140,010)

 

 

622

 

 

 

 

 

 

 

 

 

 

Total Investments - 149.58% (cost $97,039,674) (i)

 

 

92,124,136

 

 

 

 

 

 

 

 

 

 

Other Assets & Liabilities, Net - (0.87)%

 

 

(537,183

)

 

 

 

 

 

 

 

 

 

Preferred Stock - (48.71)%

 

 

(30,000,000

)

 

 

 

 

 

 

 

 

 

Net Assets Applicable to Common Stock - 100.00%

 

$

61,586,953

 

 

 

 

 

 

 


 

 

(a)

Percentages are based on net assets applicable to common stock.

 

 

(b)

Senior loans in which 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 (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 U.S. banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (“LIBOR”) or (iii) the certificate of deposit rate. Rate shown represents the weighted average rate at September 30, 2007. Senior loans, while exempt from registration under the Security 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 the stated maturities shown.

 

 

(c)

All or a portion of this position has not settled. Contract rates do not take effect until settlement date.

 

 

(d)

The issuer is in default of certain debt covenants. Income is not being accrued.

 

 

(e)

Variable rate security. The interest rate shown reflects the rate in effect at September 30, 2007.

 

 

(f)

Rule 144A securities - Private placement securities issued under Rule 144A are exempt from the registration requirement of the Securities Act of 1933, as amended. These securities may only be resold, in transactions exempt from registration, to qualified institutional buyers. At September 30, 2007, the market value of these securities aggregated $17,721,456 or 28.77% of net assets applicable to common stock.

 

 

(g)

Represents fair value as determined in good faith under the direction of the Board of Directors.

 

 

(h)

Non-income producing security.

 

 

(i)

The cost of a tax basis is identical to book. Unrealized appreciation and depreciation on investments are as follows:


 

 

 

 

 

Gross unrealized appreciation

 

$

1,307,868

 

Gross unrealized depreciation

 

 

(6,223,406

)

 

 

 

Net unrealized appreciation

 

$

(4,915,538

)

 

 

 


 

 

PIK

Payment in Kind

 

 

“NR”

Not Rated

See accompanying notes.
4

PROSPECT STREET INCOME SHARES, INC.
Schedule of Investments (unaudited) (continued)
As of September 30, 2007

 

 

 

Securities Valuation: Investments in debt securities are valued at the mean of the bid and ask prices on the last business day of the accounting period. Equity securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the accounting period; equity securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the closing bid price on that date. Warrants are valued at the last reported sales price on the last business day of the accounting period. Obligations with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available (which includes all restricted securities) are valued at fair value as determined by, or under the direction of, the Fund’s Board of Directors; such values require the use of estimates.

 

 

 

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

See accompanying notes.
5

 

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 ® Income Shares Inc.

 

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

 

Date   November 26, 2007

 

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   November 26, 2007

 

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

 

Date   November 26, 2007

 

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

 

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