e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to

Commission file number: 001-33032

Highland Distressed Opportunities, Inc.

(Exact Name of Registrant as Specified in Charter)


Delaware		680309666
(State or Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)

Two Galleria Tower
13455 Noel Road, Suite 800
Dallas, Texas 75240
(Address of Principal Executive Offices)
(877) 247-1888
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES o NO þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

On November 9, 2007, there were 17,716,771 shares outstanding of the Registrant’s common stock, $0.001 par value per share.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited)		Highland Distressed Opportunities, Inc.


Principal ($)			Value ($)
Senior Loans (a) - 85.0%
AEROSPACE - AEROSPACE/DEFENSE - 2.0%
		IAP Worldwide Services, Inc.
	4,962,121	First Lien Term Loan, 11.69%, 12/30/12	4,329,451


BROADCASTING - 14.4%
		Comcorp Broadcasting, Inc.
	359,984	CCB PIK Revolver, 07/11/08 (b) (c)	389,057
	1,622,173	CCB PIK Term Loan, 07/11/08 (b) (c)	1,753,184
	2,890,811	CCB Revolver, 07/11/08 (b) (c)	3,124,282
	13,891,588	CCB Term Loan, 07/11/08 (b) (c)	15,013,514
	651,274	WK PIK Term Loan, 07/11/08 (b) (c)	703,873
	5,584,170	WK Term Loan, 07/11/08 (b) (c)	6,035,165
		Riverdeep Interactive Learning USA, Inc.
	1,651,799	Bridge Facility, 12/21/14 (d)	1,643,540
		Tribune Co.
	2,992,500	Initial Tranche B Advance, 8.36%, 05/19/14	2,735,893

			31,398,508


CABLE - US CABLE - 2.7%
		CellNet Group, Inc.
	1,000,000	Second Lien, 9.62%, 10/22/11	975,000
		WideOpenWest Finance, LLC
	5,000,000	Second Lien Term Loan, 11.61%, 06/27/15	4,812,500

			5,787,500


DIVERSIFIED MEDIA - 0.9%
		Penton Media, Inc.
	2,000,000	Second Lien Term Loan, 10.36%, 02/01/14	1,892,500


ENERGY - EXPLORATION & PRODUCTION - 2.2%
		TARH E&P Holdings, L.P.
	5,000,000	First Lien Term Loan, 9.88%, 06/29/12	4,900,000


ENERGY - OTHER ENERGY - 3.3%
		Resolute Aneth, LLC
	7,500,000	Second Lien Term Loan, 06/26/13 (d)	7,275,000


FINANCIAL - 7.2%
		Emerson Reinsurance Ltd.
	1,500,000	Tranche C Term Loan, 10.95%, 12/15/11	1,470,000
		Flatiron Re Ltd.
	647,978	Closing Date Term Loan, 9.61%, 12/29/10	642,321
	313,864	Delayed Draw Term Loan, 9.59%, 12/29/10	311,124
		Kepler Holdings Ltd.
	5,000,000	Term Loan, 10.85%, 06/30/09	4,900,000
		Panther Re Holdings Ltd.
	500,000	Term B Loan , 9.86%, 12/01/10	490,000
		Penhall International Corp.
	7,938,145	Senior Unsecured PIK Toggle Term Loan, 12.82%, 04/01/12	7,957,990

			15,771,435

See accompanying Notes to Financial Statements.

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited)(continued)		Highland Distressed Opportunities, Inc.


Principal ($)			Value ($)
Senior Loans (continued)

FOREST PRODUCTS - PACKAGING - 3.3%
		Berry Plastics Group, Inc
	7,000,000	Holdco PIK Term Loan, 11.61%, 06/01/14	6,300,000
		Tegrant Corp.
	1,000,000	Second Lien Term Loan, 10.85%, 03/07/15	950,000

			7,250,000


GAMING/LEISURE - OTHER LEISURE - 16.7%
		Fontainebleau Florida Hotel, LLC
	10,000,000	Tranche C Term Loan, 11.78%, 06/06/12	9,575,000
		Lake at Las Vegas Joint Venture, LLC
	3,611,111	Synthetic Revolver, 15.42%, 06/20/12	3,186,805
	26,843,622	Term Loan, 15.30%, 06/20/12	23,729,543

			36,491,348


HEALTHCARE - ACUTE CARE - 0.4%
		LifeCare Holdings, Inc.
	992,405	Term Loan, 8.20%, 08/11/12	922,937


HEALTHCARE - ALTERNATE SITE SERVICES - 0.8%
		FHC Health Systems, Inc.
	1,199,281	Delayed Draw Term Loan, 14.07%, 12/18/09	1,211,274
	593,051	Initial Term Loan, 12.07%, 12/18/09	598,981

			1,810,255


HEALTHCARE - MEDICAL PRODUCTS - 4.4%
		Reliant Pharmaceuticals, Inc.
	833,023	Delayed Draw Term Loan, 8.61%, 03/31/12	795,537
	3,146,977	Initial Term Loan, 8.61%, 03/31/12	3,115,507
		Rotech Healthcare, Inc.
	6,232,459	PIK Term Loan, 11.32%, 09/26/11	5,671,538

			9,582,582


HOUSING - BUILDING MATERIALS - 0.4%
		Professional Paint, Inc.
	1,000,000	Second Lien Term Loan, 11.63%, 05/31/13	945,000


HOUSING - REAL ESTATE DEVELOPMENT - 8.7%
		Metroflag BP, LLC / Metroflag Cable, LLC
	5,000,000	Second Lien Term Loan, 14.54%, 07/06/08	5,012,500
		MPH Mezzanine II, LLC
	10,000,000	Mezzanine 2B, 8.56%, 02/09/08	9,975,000
		MPH Mezzanine III, LLC
	4,000,000	Mezzanine 3, 9.56%, 02/09/08	3,990,000

			18,977,500


INFORMATION TECHNOLOGY - 0.6%
		GXS Worldwide, Inc.
	918,333	First Lien Term Loan, 10.35%, 07/29/11	913,742
		Metrologic Instruments, Inc.
	500,000	Second Lien Term Loan, 11.45%, 12/21/13	483,750

			1,397,492

See accompanying Notes to Financial Statements.

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited)(continued)		Highland Distressed Opportunities, Inc.


Principal ($)			Value ($)
Senior Loans (continued)

MANUFACTURING - 0.9%
		Latham Manufacturing Corp.
	1,936,290	New Term Loan, 8.52%, 06/30/12	1,844,317


RETAIL - 3.4%
		Movie Gallery, Inc.
	2,867,898	First Lien Term Loan, 03/08/12 (d)	2,628,887
	120,096	Synthetic Letter of Credit, 03/08/12 (d)	110,940
		Totes Isotoner Corp.
	4,877,228	Second Lien Term Loan, 11.35%, 01/31/14	4,779,683

			7,519,510


SERVICE - ENVIRONMENTAL SERVICES - 4.5%
		LVI Services, Inc.
	10,112,069	Tranche B Term Loan, 10.36%, 11/16/11	9,821,347


SERVICE - OTHER SERVICES - 0.9%
		NES Rentals Holdings, Inc.
	2,000,000	Permanent Term Loan, 12.13%, 07/20/13	1,960,000


TRANSPORTATION - AUTO - 3.8%
		BST Safety Textiles Acquisition GMBH
	665,500	Second Lien Facility, 10.65%, 06/30/09	592,295
		Motor Coach Industries International, Inc.
	7,609,657	Second Lien, 13.82%, 12/01/08	7,609,657

			8,201,952


UTILITIES - 3.5%
		Entegra Power Group, LLC
	8,030,062	PIK Third Lien Term Loan, 11.36%, 10/19/15	7,735,680

		Total Senior Loans (cost $194,029,146)	185,814,314


Corporate Notes and Bonds - 58.1%

BROADCASTING - 6.5%
		Univision Communications, Inc.
	12,500,000	9.75%, 03/15/15 PIK (e)	12,250,000
		Young Broadcasting, Inc.
	2,000,000	10.00%, 03/01/11	1,855,000

			14,105,000


CONSUMER NON-DURABLES - 6.8%
		Ames True Temper, Inc.
	2,000,000	10.00%, 07/15/12	1,550,000
		Solo Cup Co.
	7,000,000	8.50%, 02/15/14	6,230,000
		Spectrum Brands, Inc.
	8,000,000	11.00%, 10/02/13 (f)	7,160,000

			14,940,000


DIVERSIFIED MEDIA - 3.7%
		Baker & Taylor, Inc.
	8,300,000	11.50%, 07/01/13 (e)	8,185,875

See accompanying Notes to Financial Statements.

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited) (continued)		Highland Distressed Opportunities, Inc.


Principal ($)			Value ($)
Corporate Notes and Bonds (continued)

ENERGY - EXPLORATION & PRODUCTION - 3.4%
		Delta Petroleum Corp.
	3,000,000	7.00%, 04/01/15	2,565,000
		Energy XXI Gulf Coast
	5,000,000	10.00%, 06/15/13 (e)	4,750,000

			7,315,000


FOOD/TOBACCO - FOOD/TOBACCO PRODUCERS - 2.8%
		Pinnacle Foods Group, Inc.
	6,500,000	10.63%, 04/01/17 (e)	6,126,250


GAMING/LEISURE - OTHER LEISURE - 2.8%
		Six Flags, Inc.
	2,500,000	4.50%, 05/15/15	2,125,000

GAMING/LEISURE - OTHER LEISURE (continued)
		Tropicana Entertainment Resorts Holdings, L.P.
	5,000,000	9.63%, 12/15/14 (e)	3,900,000

			6,025,000


HEALTHCARE - ACUTE CARE - 5.0%
		Argatroban Royalty Sub, LLC
	5,000,000	18.50%, 09/21/14	5,000,000
		HCA, Inc.
	5,000,000	6.30%, 10/01/12	4,506,250
		Tenet Healthcare Corp.
	1,500,000	9.88%, 07/01/14	1,380,000

			10,886,250


HEALTHCARE - MEDICAL PRODUCTS - 3.3%
		Angiotech Pharmaceuticals, Inc.
	5,000,000	7.75%, 04/01/14	4,600,000
		Encysive Pharmaceuticals, Inc.
	4,000,000	2.50%, 03/15/12	2,690,000

			7,290,000


HOUSING - BUILDING MATERIALS - 0.4%
		Masonite Corp.
	1,000,000	11.00%, 04/06/15	850,000


HOUSING - REAL ESTATE DEVELOPMENT - 3.7%
		Realogy Corp.
	5,000,000	10.50%, 04/15/14 (e)	4,275,000
	5,000,000	12.38%, 04/15/15 (e)	3,787,500

			8,062,500


INFORMATION TECHNOLOGY - 4.3%
		Freescale Semiconductor, Inc.
	3,000,000	9.13%, 12/15/14 PIK (e)	2,790,000
	7,000,000	10.13%, 12/15/16	6,545,000

			9,335,000

See accompanying Notes to Financial Statements.

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited) (continued)		Highland Distressed Opportunities, Inc.


Principal ($)			Value ($)
Corporate Notes and Bonds (continued)

MANUFACTURING - 1.1%
		NTK Holdings, Inc.
	4,000,000	03/01/14 (g)	2,480,000


METALS/MINERALS - 2.3%
		PNA Group, Inc.
	5,000,000	10.75%, 09/01/16	5,125,000


RETAIL - 4.9%
		Dollar General Corp.
	8,000,000	10.63%, 07/15/15 (e)	7,560,000
		Rite Aid Corp.
	1,250,000	9.38%, 12/15/15 (e)	1,168,750
	2,000,000	9.50%, 06/15/17 (e)	1,880,000

			10,608,750


TELECOMMUNICATIONS - 2.4%
		Intelsat Bermuda, Ltd.
	5,000,000	11.41%, 06/15/13 (h)	5,250,000


TRANSPORTATION - AUTO - 4.7%
		Keystone Automotive Operations, Inc.
	2,500,000	9.75%, 11/01/13	2,050,000
		Motor Coach Industries International, Inc.
	11,000,000	11.25%, 05/01/09	8,277,500

			10,327,500

		Total Corporate Notes and Bonds (cost $136,272,569)	126,912,125


Claims - 2.0%

AEROSPACE - AIRLINES - 1.2%
		Northwest Airlines, Inc.
	3,000,000	ALPA Trade Claim, 08/21/13	255,000
	2,500,000	Bell Atlantic Trade Claim, 08/21/13	212,500
	2,500,000	EDC Trade Claims, 08/21/13	212,500
	5,326,500	Flight Attendant Claim, 08/21/13	452,753
	1,500,000	GE Trade Claim, 08/21/13	140,625
	4,728,134	IAM Trade Claim, 08/21/13	401,892
	3,433,116	Lambert Leasing Trade Claim, 08/21/13 (d)	291,815
	5,000,000	Pinnacle Trade Claim, 08/21/13	425,000
	3,512,250	Retiree Claim, 08/21/13	298,541

			2,690,626


CABLE - US CABLE - 0.8%
		Adelphia Communications
	10,000,000	06/15/11 (b)	1,750,000

		Total Claims (cost $11,867,898)	4,440,626

See accompanying Notes to Financial Statements.

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited) (continued)		Highland Distressed Opportunities, Inc.


Shares			Value ($)
Common Stocks - 22.8%

AEROSPACE - AIRLINES - 5.7%
	700,624	Northwest Airlines, Inc. (i)		12,471,107


CABLE - US CABLE - 0.7%
	47,350	Time Warner Cable, Inc. (i)		1,553,084


DIVERSIFIED MEDIA - 2.3%
	35,000	Gannett Co., Inc.		1,529,500
	62,427	R.H. Donnelley Corp. (i)		3,497,161

				5,026,661


ENERGY - EXPLORATION & PRODUCTION - 2.2%
	140,256	Williams Cos, Inc.		4,777,119


FINANCIAL - 0.0%
	7,731	Jer Investors Trust, Inc.		96,251


FOREST PRODUCTS - PAPER - 1.3%
	52,500	Temple-Inland, Inc.		2,763,075


GAMING/LEISURE - OTHER LEISURE - 0.7%
	26,923	Starwood Hotels & Resorts Worldwide, Inc. (i)		1,635,572


HEALTHCARE - MEDICAL PRODUCTS - 4.8%
	79,000	Nighthawk Radiology Holdings, Inc. (i)		1,936,290
	80,800	Omnicare, Inc.		2,676,904
	221,600	PDL BioPharma, Inc. (i)		4,788,776

HEALTHCARE - MEDICAL PRODUCTS (continued)
	316,900	TLC Vision Corp. (i)		1,004,573

				10,406,543


METALS/MINERALS - OTHER METALS/MINERALS - 2.2%
	122,906	Alcoa, Inc.		4,808,083


UTILITIES - 2.9%
	136,750	Entegra Power Group, LLC (i)		6,341,781

		Total Common Stocks (cost $54,969,365)		49,879,276


Preferred Stock - 1.0%

TRANSPORTATION - AUTO - 1.0%
	79,615	General Motors Corp., Convertible Pfd., 1.50%		2,249,920

		Total Preferred Stock (cost $1,990,375)		2,249,920


Total Investments - 168.9%				369,296,261

(cost of $399,129,353) (j)
Other Assets & Liabilities, Net - (68.9)%				(150,701,208	)

Net Assets - 100.0%				218,595,053

See accompanying Notes to Financial Statements.

SCHEDULE OF INVESTMENTS



As of September 30, 2007 (unaudited) (continued)		Highland Distressed Opportunities, Inc.


(a)		Senior loans in which Highland Distressed Opportunities, Inc. (the “Company”) invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a premium. (Unless otherwise identified, 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 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 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 the stated maturity shown.

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

(c)		Securities with a total aggregate market value of $27,019,075 or 12.36% of net assets were valued under fair value as determined in good faith under the direction of the Company’s Board of Directors.

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

(e)		Securities exempt from registration pursuant to Rule 144A under the 1933 Act. These securities may only be resold, in transactions exempt from registration, to qualified institutional buyers. At September 30, 2007, these securities amounted to $56,673,375 or 25.92% of net assets. These securities have been determined by the Company’s investment adviser to be liquid securities.

(f)		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. Coupon rate will be 11.00% until 04/02/08, and 12.00% for the next six month period.

(g)		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. Step Coupon. Coupon rate will be 0.00% until 09/01/09, and 10.75% thereafter.

(h)		Floating rate note. The interest rate shown reflects the rate in effect at September 30, 2007.

(i)		Non-income producing security.

(j)		Cost for U.S. federal income tax purposes is $399,129,353.


Gross unrealized appreciation	$	3,713,833
Gross unrealized depreciation		(33,546,925	)
Net unrealized depreciation	$	(29,833,092	)

PIK Payment-in-Kind

See accompanying Notes to Financial Statements.

STATEMENT OF ASSETS AND LIABILITIES



As of September 30, 2007 (unaudited)		Highland Distressed Opportunities, Inc.


	($)
Assets:
Investments, at value (cost $399,129,353)	369,296,261
Cash	11,775,661
Foreign currency (cost $14)	15
Receivable for:
Receivable for investments sold	45,153,853
Dividend and interest receivable	6,643,588
Other assets	278,297

Total assets	433,147,675


Liabilities:
Notes payable (Note 4)	165,000,000
Payables for:
Investments purchased	46,630,844
Investment advisory fee payable (Note 3)	1,462,439
Administration fee payable (Note 3)	385,988
Interest expense payable (Note 4)	868,643
Accrued offering cost	50,240
Accrued expenses and other liabilities	154,468

Total liabilities	214,552,622

Shareholders’ equity (net assets)	218,595,053


Composition of shareholders’ equity (net assets)
Common Stock, par value $.001 per share: 550,000,000 common stock authorized, 17,716,771 common stock outstanding	17,717
Paid-in capital	253,163,644
Undistributed net investment income	2,463,157
Accumulated net realized gain/(loss) on investments	(7,254,735	)
Net unrealized appreciation/(depreciation) on investments and unfunded transactions	(29,794,730	)

Shareholders’ equity (net assets)	218,595,053


NET ASSET VALUE PER SHARE (NET ASSETS/COMMON STOCK OUTSTANDING)	12.34

See accompanying Notes to Financial Statements

STATEMENT OF OPERATIONS

Highland Distressed Opportunities, Inc.


	For the Quarter Ended			For the Period Ended
	September 30, 2007			September 30, 2007^(a)
	(unaudited)			(unaudited)
	($)			($)
Investment Income:
Interest income		9,345,514			19,796,684
Dividends (net of foreign taxes withheld)		175,720			954,901

Total investment income		9,521,216			20,751,585


Expenses:
Investment advisory fee (Note 3)		2,207,594			4,493,525
Incentive fees (Note 3)		—			1,326,507
Administration fee (Note 3)		386,356			786,367
Accounting service fee		37,934			89,063
Transfer agent fee		8,192			19,233
Professional fees		133,266			234,356
Trustees’ fees		10,334			24,263
Custody fee		15,450			38,673
Registration fees		8,072			8,072
Reports to shareholders		10,982			49,371
Delaware franchise tax expense		27,357			48,455
Organization expense (Note 3)		—			170,383
Rating agency fees		24,506			32,497
Other expense		46,785			80,954

Total operating expenses		2,916,828			7,401,719
Interest expense (Notes 4)		3,083,273			5,216,061

Total expenses		6,000,101			12,617,780

Fees and expenses waived or reimbursed by Investment Adviser (Note 3)		(744,834	)		(3,594,496	)

Net expenses		5,255,267			9,023,284

Net investment income		4,265,949			11,728,301


Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on investments		(7,645,111	)		(7,401,030	)
Net realized gain/(loss) on total return swaps		137,821			172,955
Net realized gain/(loss) on foreign currency transactions		18,914			(26,660	)
Net change in unrealized appreciation/(depreciation) on investments		(22,906,625	)		(29,833,092	)
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities denominated in foreign currency		8,611			38,362

Net realized and unrealized gain/(loss) on investments		(30,386,390	)		(37,049,465	)

Net decrease in shareholders’ equity (net assets) resulting from operations		(26,120,441	)		(25,321,164	)


(a)		Highland Distressed Opportunities, Inc. commenced investment operations on January 18, 2007.

See accompanying Notes to Financial Statements

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (NET ASSETS)



For the Period Ended September 30, 2007^(a) (unaudited)		Highland Distressed Opportunities, Inc.


																	Total
								Undistributed			Undistributed			Net Unrealized			Shareholders’
	Common Stock				Paid-in Capital			Net Investment			Net Realized			Appreciation/			Equity
	Shares		Amount		in Excess of Par			Income (Loss)			(Loss)			(Depreciation)			(Net Assets)

Balance at January 18, 2007		—	$	—	$	—		$	—		$	—		$	—		$	—
Issuance of common stock, 01/18/07		333,333		333		4,999,667			—			—			—			5,000,000
Issuance of common stock		17,284,300		17,285		247,965,312			—			—			—			247,982,597
Dividends reinvested		99,138		99		1,328,558												1,328,657
Capital contribution, 02/20/07 (b)		—		—		87,596			—			—			—			87,596
Dividends declared		—		—		—			(9,265,144	)		—			—			(9,265,144	)
Offering cost		—		—		(1,217,489	)		—			—			—			(1,217,489	)

Net increase/(decrease) in shareholders’ equity (net assets) resulting from operations		—		—		—			11,728,301			(7,254,735	)		(29,794,730	)		(25,321,164	)

Balance at September 30, 2007		17,716,771	$	17,717	$	253,163,644		$	2,463,157		$	(7,254,735	)	$	(29,794,730	)	$	218,595,053


(a)		Highland Distressed Opportunities, Inc. (the “Company”) commenced investment operations on January 18, 2007.

(b)		On February 20, 2007, the Company’s investment adviser contributed an additional $87,596 in capital to the Company prior to the Offering. No additional shares were issued in conjunction with this transaction.

See accompanying Notes to Financial Statements

STATEMENT OF CASH FLOWS



For the Period Ended September 30, 2007^(a) (unaudited)		Highland Distressed Opportunities, Inc.


	($)
Cash Flow Used in Operating Activities
Net decrease in net assets resulting from operations	(25,321,164	)
Adjustments to reconcile net decrease in net assets resulting from operations:
Net realized gain/(loss) on investments, total return swaps and foreign currency transactions	7,254,735
Net change in unrealized gain/(loss) on investments and total return swaps	29,794,730
Purchase of investment securities	(1,078,148,157	)
Proceeds from disposition of investment securities, total return swaps and foreign currency transactions	672,568,075
Increase in dividends, interest and fees receivable	(6,643,588	)
Increase in receivable for investments sold	(45,153,853	)
Increase in other assets	(278,297	)
Net amortization/(accretion) of premium/(discount)	(804,006	)
Increase in payable for investments purchased	46,630,844
Increase in payables to related parties	1,848,427
Increase in mark to market on unrealized gain/(loss) on foreign currency	38,362
Increase in other liabilities	154,468

Net cash and foreign currency flow used in operating activities	(398,059,424	)


Cash Flows Provided by Financing Activities
Net proceeds from issuance of common stock	251,852,704
Increase in notes payable (b)	165,000,000
Increase in interest payable	868,643
Increase in accrued offering cost	50,240
Distributions paid in cash	(7,936,487	)

Net cash flow provided by financing activities	409,835,100

Net increase in cash and foreign currency	11,775,676


Cash and Foreign Currency
Beginning of the period	—
End of the period	11,775,676


Supplemental Information:
Interest paid during the period	4,347,418


(a)		Highland Distressed Opportunities, Inc. commenced investment operations on January 18, 2007.

(b)		During the period, $4 million was borrowed from an affiliate and repaid. See Note 9 for details.

See accompanying Notes to Financial Statements

NOTES TO FINANCIAL STATEMENTS (unaudited)



September 30, 2007		Highland Distressed Opportunities, Inc.

Note 1. Organization

Highland Distressed Opportunities, Inc. (the “Company”), is a non-diversified closed-end company that has filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). The Company was incorporated under the laws of Delaware on August 22, 2006. In addition, for tax purposes, the Company will elect to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended. The Company’s investment objective is total return generated by both capital appreciation and current income. The Company intends to invest primarily in financially-troubled or distressed companies that are either middle-market companies or unlisted companies by investing in senior secured debt, mezzanine debt and unsecured debt, each of which may include an equity component, and in equity investments.

The Company commenced operations on January 18, 2007. On February 27, 2007, the Company closed its initial public offering (“IPO” or the “Offering”) and sold 17,000,000 shares of its common stock at a price of $15.00 per share, less an underwriting discount and commissions totaling $0.675 per share. The Company received $243,525,000 in total net proceeds from the Offering, before expenses.

On March 23, 2007, the Company issued 284,300 shares of common stock to cover the underwriters’ partial exercise of the over-allotment option on the Offering and received approximately $4,072,698 in net proceeds after deducting underwriting discounts and commissions.

Note 2. Significant Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amount 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 reported period. Actual results could differ from those estimates. In management’s opinion, the unaudited financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such financial statements.

The following are significant accounting policies consistently followed by the Company in preparation of its financial statements:

(a) Investments in financial instruments

Investment transactions are recorded on the trade date.

The Company will use the following valuation methods to determine either current market value for investments for which market quotations are available, or if not available, then fair value, as determined in good faith pursuant to policies and procedures approved by the Company’s Board of Directors (the “Board”):

Market Quotations Available

The market value of each security listed or traded on any recognized securities exchange or automated quotation system will be the last reported sale price at the relevant valuation date on the composite tape or on the principal exchange on which such security is traded. If no sale is reported on that date, the Company utilizes, when available, pricing quotations from principal market makers. Such quotations may be obtained from third-party pricing services or directly from investment brokers and dealers in the secondary market. Generally, the Company’s loan and bond positions are not traded on exchanges and consequently are valued based on market prices received from third-party pricing services or broker-dealer sources. The valuation of certain securities for which there is no market may take into account appraisal reports from independent valuation firms. Short-term debt securities having a remaining maturity of 60 days or less when purchased and debt securities originally purchased with maturities in excess of 60 days but which currently have maturities of 60 days or less may be valued at cost adjusted for amortization of premiums and accretion of discounts.

Market Quotations Not Available

The Company will take the following steps each time it determines its net asset value in order to determine the value of its securities for which market quotations are not readily available, as determined in good faith pursuant to policies and procedures approved by the Board:

	1.		The valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment.

	2.		Preliminary valuation conclusions will then be documented and discussed with Highland’s senior management.

	3.		The valuation committee, comprised of Highland investment professionals, will then review these preliminary valuations. An independent valuation firm engaged by the Company’s Board will review some or all of these preliminary valuations at least annually.

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



September 30, 2007		Highland Distressed Opportunities, Inc.

Finally, the Board discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith, pursuant to policies and procedures approved by the Board, based on the input of the valuation committee and an independent valuation firm.

Determination of fair values is uncertain because it involves subjective judgments and estimates not easily substantiated by auditing procedures.

(b) Net asset value per share

The net asset value per share disclosed on the statement of assets and liabilities is calculated by dividing the net assets attributable to the shares of the Company’s common stock by the number of such shares outstanding at period-end.

All securities transactions are accounted for on a trade-date basis. Gains or losses on the sale of investments are calculated by using the specific identification method.

(d) Interest income

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. Payment-in-kind, (“PIK”) interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the company has not yet collected cash. For the three months ended September 30, 2007, approximately $302,851 of PIK interest income was recorded.

(e) Taxation — general

The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. However, depending on the level of taxable income earned in a year, the Company may choose to carry forward taxable income in excess of distributions and pay the 4% excise tax on the difference. Additionally, the Company is subject to franchise taxes in the state of Delaware.

(f) Taxation of dividends and distributions

Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

(g) Payment of dividends

Dividends and distributions to common shareholders are recorded as of the date of declaration. The amount to be paid out as a dividend is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually.

(h) Foreign currency

The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company’s investments in foreign securities may involve certain risks such as foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

(i) Forward contracts

The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



September 30, 2007		Highland Distressed Opportunities, Inc.

(j) Investment in swap agreements

Swap agreements are recorded at fair value as estimated by management in good faith. The net unrealized gain or loss on swap agreement is recorded as an asset or liability on the statement of assets and liabilities. The change in unrealized gain or loss is recorded in the statement of operations. Cash paid or received on net settlements is recorded as realized gain or loss in the statement of operations.

(k) Cash and cash equivalents

Cash and cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less when purchased. Cash and cash equivalents are carried at cost which approximates fair value as of September 30, 2007.

(l) Restricted cash

Restricted cash consists of cash held by the Company’s custodian as collateral with respect to certain transactions. The Company earns interest on the restricted cash, which is recorded on the accrual basis.

(m) Registration expenses

The Company records registration expenses related to shelf filings as prepaid assets. These expenses are charged as a reduction of capital upon utilization, in accordance with Section 8.24 of the AICPA Audit and Accounting Guide for Investment Companies.

(n) Incentive fee expense recognition

The realized capital gain component of the incentive fee (the “Capital Gains Fee”), is payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement, as of the termination date.) The Capital Gains Fee is estimated as of the end of the each calendar quarter based on the Company’s realized capital gains, if any, net of all realized capital losses, unrealized capital depreciation and fees paid on such net capital gains, computed on a cumulative basis.. To the extent that Capital Gains Fees are earned by the Investment Adviser, an accrual is made in the amount of the estimated Capital Gains Fee. Because unrealized losses may fluctuate from quarter to quarter, the accrual, if any, may fluctuate as well. There were no Capital Gains Fees accrued as of September 30, 2007. (See Note 3 for additional information.)

Note 3. Agreements

The Company has entered into an Investment Advisory and Management Agreement with Highland Capital Management, L.P. (the “Investment Adviser”), under which the Investment Adviser, subject to the overall supervision of the Company’s Board, manages the
day-to-day operations of, and provides investment advisory services to, the Company. For providing these services, the Investment Adviser receives a base management fee and an incentive fee from the Company.

The base management fee is equal to 2.00% per annum of the Company’s managed assets. Managed assets are the value of total assets of the Company less all accrued liabilities of the Company (other than the aggregate amount of any outstanding borrowings, preferred stock issuances, or other instruments or obligations constituting financial leverage). The base management fee is payable quarterly in arrears; however, the Investment Adviser contractually agreed to waive or reimburse the Company for all base management fees during the first three months of the Company’s operations and half of all the base management fees during the next three months of the Company’s operations. This contractual waiver expired on August 31, 2007. For the quarter and period ended September 30, 2007, the Investment Adviser waived management fees of approximately $744,834 and $2,727,952, respectively.

The incentive fee consists of two components: (1) the Pre-Incentive Fee Net Investment Income and (2) the Capital Gains Fee. Pre-Incentive Fee Net Investment Income is calculated and payable quarterly in arrears. For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, any expenses payable under the administration agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities), and accrued income that we have not yet received in cash. The Investment Adviser is not under any obligation to reimburse the Company for any part of the Incentive Fee it received that was based on accrued income that we never received as a result of a default by an entity on an obligation that resulted in the accrual of such income. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized and unrealized capital losses or unrealized capital appreciation or depreciation.

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



September 30, 2007		Highland Distressed Opportunities, Inc.

Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared to the “hurdle rate” of 1.75% per quarter (7.00% annualized) (the “Hurdle Rate”). The Company will pay the Investment Adviser an Incentive Fee with respect to the Company’s Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which Pre-Incentive Fee Net Investment Income does not exceed the Hurdle Rate; (2) 100% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle Rate but is less than 2.1875% in any calendar quarter (8.75% annualized) (the “Catch-up Provision”); and (3) 20% of the amount of Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized). With respect to the Company’s Pre-Incentive Fee Net Investment Income from the Company’s commencement of operations until December 31, 2007, the Investment Adviser voluntarily has agreed to waive or reimburse the “Catch-Up” Provision, provided, however, that for such period the Company will pay the Investment Adviser 20% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle Rate, but is less than 2.1875% in any calendar quarter (8.75% annualized). For the quarter and period ended September 30, 2007, the Investment Adviser voluntarily waived Incentive Fees of approximately $0 and $866,544, respectively.

These calculations are appropriately pro rated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter.

The second part of the Incentive Fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement), beginning on December 31, 2007, and is calculated at the end of each applicable year by subtracting (A) the sum of the Company’s cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (B) the Company’s cumulative aggregate realized capital gains, in each case calculated from the date of the IPO of the Company’s shares. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee paid for such year. For the quarter and period ended September 30, 2007, no capital gains incentive fees were earned by the Investment Adviser.

Pursuant to a separate administration agreement, the Investment Adviser will furnish the Company with office facilities, equipment, clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreement, the Investment Adviser also will perform, or oversee the performance of, the Company’s required administrative services, which include, among other things, being responsible for the financial records that the Company is required to maintain, monitoring portfolio and regulatory compliance matters and preparing reports to the Company’s shareholders and reports filed with the SEC. In addition, the Investment Adviser will assist the Company in determining, and arranging for the publishing of, the Company’s net asset value, overseeing the preparation and filing of tax returns and the printing and disseminating of reports to shareholders, and generally overseeing the payment of expenses and the performance of administrative and professional services rendered to the Company by others. For providing these services, the Investment Adviser will receive an annual administration fee, payable quarterly in arrears at an annual rate of 0.35% of the Company’s managed assets. Under a separate sub-administration agreement, the Investment Adviser has delegated certain administrative functions to PFPC, Inc. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. For the quarter and period ended September 30, 2007, the Investment Adviser earned administration fees of approximately $386,356 and $786,367, respectively.

The Investment Adviser paid to the underwriters an additional sales load of $0.15 per share, for a total sales load of $0.825 per share. The Company will pay this amount to the Investment Adviser, together with an interest factor, pursuant to an Agreement Regarding Payment of Sales Load (i) if during either the period commencing with the date of the IPO through the end of the Company’s first fiscal year or during the period of the Company’s second fiscal year (each a “ Measuring Period”), the sum of (a) the Company’s aggregate distributions to its shareholders plus (b) the change in the Company’s net assets, equals or exceeds 7.00% of the net assets of the Company at the beginning of such Measuring Period (but after adjusting, if necessary, the net assets of the Company at the end of such Measuring Period as follows: by subtracting the net proceeds of any of the Company’s stock issuances, and by adding the amount of any of the Company’s stock repurchases, that occurred during such Measuring Period) and without taking into account any accrual for the total payment amount; or (ii) upon the Company’s liquidation. If neither (i) nor (ii) above has occurred by the conclusion of the second Measuring Period, then the Agreement Regarding Payment of Sales Load shall terminate on such date, without the Company having any payment obligation to the Investment Adviser. As of September 30, 2007, the Company was under no obligation to make a payment to the Investment Adviser.

Note 4. Credit Facility

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. On April 25, 2007, the Company entered into a $265 million Revolving Credit Agreement (the “Credit Agreement” or the “Facility”), with Barton Capital LLC, the lender party thereto and Société Générale, as agent.

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



September 30, 2007		Highland Distressed Opportunities, Inc.

The Credit Agreement is a 364-day revolving credit facility with a stated maturity date of April 25, 2012 and is secured by substantially all of the assets in the Company’s portfolio, including cash and cash equivalents. Pricing is set at 0.325% over LIBOR. Additionally, there is a commitment fee of 0.17% on the unused portion of the Credit Agreement. Borrowings under the Credit Agreement are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio. The Company continues to be in compliance with all of the limitations and requirements of the Facility.

At September 30, 2007, the Company had borrowings outstanding under the Facility of $165 million. The interest rate charged on this loan as of September 30, 2007 was approximately 5.77%. The average daily loan balance was approximately $198,647,541 at a weighted average interest rate of approximately 5.46%. Interest expense incurred during the three months ended September 30, 2007 was approximately $3,042,200.

Note 5. Net Asset Value Per Share

At September 30, 2007, the Company’s total net assets and net asset value per share were $218,595,053 and $12.34, respectively.

Note 6. Unfunded Loan Commitments

As of September 30, 2007, the Company’s portfolio had no unfunded loan commitments. Unfunded loan commitments are marked to fair value along with the funded portion of the respective loans, in accordance with the Company’s valuation policy discussed in Note 2(a).

Note 7. Portfolio Information

For the period ended September 30, 2007, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were approximately $1,078,148,157 and $672,568,075, respectively.

Note 8. Certain Transactions

On January 19, 2007, the Company entered into a warehouse arrangement in the form of a total return swap with the Bank of Nova Scotia, (“Scotia”). As of February 15, 2007, the notional value of the portfolio was approximately $124 million. The Company had the option, exercisable by the Company not later than March 15, 2007, to acquire the underlying assets in the total return swap at their value at the time of exercise. Upon entering into the warehouse arrangement the Company posted $9 million in collateral in a segregated account at the Company’s custodian. Prior to the termination of the warehouse arrangement, Scotia recorded the positive total return, if any, on such assets net of the warehouse arrangement’s financing cost in a collection account. To the extent there was a negative total return and the collection account had a negative balance, collateral was transferred from the collateral account to the collection account. The Company had no obligation to post additional collateral. If at any time the value of the collateral and collection account, as a percentage of the book value of the bank loans and other assets, was less than 5.00%, or 3.50% under certain circumstances, and the Company did not choose to post additional collateral by the next business day, Scotia would have the right to terminate the warehouse arrangement, dispose of all of the assets and charge the Company for any cumulative negative total return up to the remaining amount of the posted collateral. On February 26, 2007, the Company exercised the option to acquire the underlying assets. Purchases from the entire underlying portfolio were settled on June 21, 2007. The net realized gain on the warehouse arrangement was $172,956, and is recorded on the Statement of Operations as net realized gain/(loss) on total return swaps. As of September 30, 2007, the Company did not have any investments in total return swaps.

Note 9. Affiliated Transactions

On January 18, 2007, the Company issued a promissory note payable to the Investment Adviser in the amount of $4 million with interest at 4.87% per annum, compounded semi-annually. The promissory note was paid off on March 8, 2007. The average daily balance on the promissory note for the time it was held was $4 million at a weighted average interest rate of 5.00%. Interest expense for this promissory note was approximately $25,929, and is recorded on the Statement of Operations.

Highland Financial Solutions, LLC (“HFS”), a wholly-owned subsidiary of the Company, was formed as a limited liability company under the laws of the State of Delaware on May 24, 2007. HFS was established to provide loan origination, syndication, placement and agency services on behalf of the Company, registered investment companies managed by the Investment Adviser and third parties.

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



September 30, 2007		Highland Distressed Opportunities, Inc.

Note 10. Financial Highlights

The following is a schedule of financial highlights for the period ended September 30, 2007:


	Period ended
	September 30,
	2007^(a)
	(unaudited)
Net asset value, beginning of period	$	14.33	^(b)

Net investment income		0.67
Net realized and unrealized loss on investments		(2.32	)

Total from investment operations		(1.65	)
Common Stock Offering Cost		(0.07	)
Capital Contribution		0.26	^(c)
Dividends Paid		(0.53	)

Net asset value, end of period	$	12.34


Market price per share, beginning of period	$	15.00
Market price per share, end of period	$	12.85
Total investment return (d)
Based on net asset value per share		(10.42)	%(e)
Based on market price per share		(10.88)	%(e)

Net assets, end of period (f)	$	218,595
Ratios to Average Net Assets/Supplemental Data (g):
Total operating expenses		5.15	%
Interest expense		3.63	%
Waiver/reimbursement		2.50	%
Net expense (h)		6.28	%
Net investment income		8.16	%
Portfolio turnover rate		166	%^(e)


(a)		The Company commenced operations on January 18, 2007.

(b)		Net asset value at the beginning of the period reflects the deduction of the one-time initial sales load in connection with the offering.

(c)		On February 20, 2007, the Investment Adviser contributed an additional $87,596 in capital to the Company prior to the Offering. No additional shares were issued in the transaction. The contribution per share is based on the pre-offering share amount of 333,333.33

(d)		Total investment return based on market value may result in substantially different returns than investment return based on net asset value, because market value can be significantly greater or less than the net asset value. Investment return assumes reinvestment of dividends.

(e)		Not annualized.

(f)		Dollars in thousands.

(g)		Ratios to average net assets are calculated using the net assets for the period starting from the Offering on February 27, 2007 through September 30, 2007.

(h)		Net expense ratio has been calculated after applying any waiver/reimbursement.

Note 11. Income Tax Information and Distributions to Shareholders

On August 3, 2007, the Company’s Board declared a third quarter divided of $0.2625 per share, which was paid on September 28, 2007 to common shareholders of record on September 18, 2007.

Note 12. Impact of New Accounting Standards

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”). FIN 48 provides guidance on how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)



September 30, 2007		Highland Distressed Opportunities, Inc.

to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authorities. Tax positions not deemed to satisfy the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. FASB required adoption of FIN 48 for fiscal years beginning after December 15, 2006, and FIN 48 is to be applied to all open tax years as of the effective date. However, on December 22, 2006, the Securities and Exchange Commission delayed the required implementation date of FIN 48 for business development companies until March 31, 2007. As of September 30, 2007, the Company evaluated the implications of FIN 48 and determined that there is no material impact on the financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurement (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but is not expected to result in any changes to the fair value measurements of the investments. FAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. At this time, the Company is evaluating the implications of FAS 157, and its impact in the financial statements has not yet been determined.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of FAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. FAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of a company’s choice to use fair value on its earnings. FAS 159 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. FAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in FAS 157. FAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of Statement 157. At this time, the Company is evaluating the implications of FAS 159, and its impact in the financial statements has not yet been determined.

Note 13. Subsequent Event

On November 6, 2007, the Company’s Board declared a fourth quarter dividend of $0.2625 per share, payable on December 31, 2007 to common shareholders of record on December 21, 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Some of the statements in this report constitute forward-looking statements, which relate to future events or the future performance or financial condition of Highland Distressed Opportunities, Inc. (the “Company,” “we,” “us” and “our”). The forward-looking statements contained in this report involve risks and uncertainties, including statements as to:

our future operating results;

our business prospects;

the impact of investments that we expect to make;

our contractual arrangements and relationships with third parties;

the dependence of our future success on the general economy and its impact on the industries in which we invest;

our expected financings and investments;

the adequacy of our cash resources and working capital;

the ability of Highland Capital Management, L.P. (the “Investment Adviser”) to locate suitable investments for us and to monitor and administer our investments.

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

We were incorporated in Delaware on August 22, 2006 and initially funded on January 18, 2007. We commenced material operations on February 27, 2007. Our investment objective is total return generated by both capital appreciation and current income. We will seek to achieve this objective by investing in financially-troubled or distressed companies that are either middle-market companies or unlisted companies by investing in senior secured debt, mezzanine debt and unsecured debt, each of which may include an equity component, and in equity investments.

Generally, distressed companies are those that (i) are facing financial or other difficulties and (ii) are or have been operating under the provisions of the U.S. Bankruptcy Code or other similar laws or, in the near future, may become subject to such provisions or otherwise be involved in a restructuring of their capital structure. We use the term “middle-market” to refer to companies with annual revenues between $50 million and $1 billion. We use the term “unlisted” to refer to companies not listed on a national securities exchange (for example, companies whose securities are quoted on the over-the-counter bulletin board or through Pink Sheets LLC would not be “listed” on a national securities exchange, although they may be considered “public” companies).

We have elected to be treated as a business development company (a “BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we are required to comply with certain regulatory requirements. For instance, we are generally prohibited from acquiring assets other than “qualifying assets” unless, after giving effect to the acquisition, at least 70% of our total assets are qualifying assets. Qualifying assets generally include securities of “eligible portfolio companies” (as defined in the 1940 Act), cash, cash equivalents, U.S. government securities and high-quality debt instruments maturing in one year or less from the time of investment. Additionally, we will elect to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 26, 2007, the Company closed its initial public offering (“IPO” or the “Offering”) and sold 17,000,000 shares of its common stock at a price of $15.00 per share, less an underwriting discount and commissions totaling $0.675 per share. We commenced material operations on February 27, 2007 as we received $243,525,000 in total net proceeds from the IPO. On March 23, 2007 the Company issued 284,300 shares of common stock to cover the underwriters’ partial exercise of the over-allotment option on the Offering and received approximately $4,072,698 in net proceeds after deducting underwriting discounts and commissions.

Portfolio and Investment Activity

On September 30, 2007, we completed our second full quarter of operations after our IPO, with approximately 50.3% of our portfolio invested in senior loans (bank debt), 34.4% in corporate notes and bonds, 1.2% in claims, and 14.1% in equity interests as of that date.

Bank debt typically accrues interest at variable rates determined on a basis of a benchmark LIBOR or prime rate, and typically will have maturities of 3 to 5 years. Corporate notes and bonds will typically accrue interest at fixed rates and have stated maturities at origination that range from 5 to 10 years. At September 30, 2007, the weighted average yield of our portfolio investments, exclusive of cash and cash equivalents, was approximately 8.5%. At September 30, 2007, the weighted average yield of our investments in

senior loans and corporate notes and bonds, was approximately 10.2%. Yields are computed assuming a fully settled portfolio; using interest rates as of the report date and include amortization of senior loan discount points, original issue discount and market premium or discount; weighted by their respective costs when averaged.

As of September 30, 2007, approximately 41.7% of our portfolio consisted of investments in 10 issuers. Additional information regarding these specific investments has been outlined below. This additional information is limited to publicly available information, and does not address the creditworthiness or financial viability of the issuer, or the future plans of the Company as it relates to a specific investment. Furthermore, while the objective of the Company is to invest primarily in financially-troubled or distressed companies, the Company can and does invest in issuers that are not financially-troubled or distressed at the time of investment. The Company may have sold some, or all, of the positions outlined below subsequent to September 30, 2007.

Comcorp Broadcasting, Inc.

Comcorp Broadcasting, Inc. (“ComCorp”) is a privately-held regional broadcasting company based in Lafayette, LA. ComCorp operates 23 TV stations in 10 markets in Texas, Louisiana, and Indiana. ComCorp filed for bankruptcy in June 2006 after it was unable to meet its ongoing debt obligations. Our investment is related to a June 2004 credit facility led by General Electric Capital Corporation to refinance certain indebtedness. Subsequent to the end of the quarter, ComCorp, and its direct and indirect subsidiaries, exited bankruptcy with an effective date of October 4, 2007 under Plans filed with the United States Bankruptcy Court in the Western District of Louisiana (Case No. 06-50410). Copies of the Plans and the Confirmation Orders may be downloaded, without cost, at www.kccllc.net/cca, or be requested free of charge by calling Kurtzman Carson Consultants LLC at 1-866-381-9100.

Entegra Power Group, LLC

Entegra Power Group, LLC (“Entegra”) was formed June 1, 2005. Entegra is owned by a consortium of major banks and private equity funds and is governed by an independent Board of Directors. Entegra owns and operates two of the largest independent power plants in the United States. Both plants, similar in size and design, are natural gas fired combined cycle facilities, each capable of producing approximately 2,200 MW of power and have been in commercial operation since 2003. The Gila River Power Station is located just south of Phoenix, Arizona and the Union Power Station is located in southern Arkansas. Our investment is related to the financing of the power plants. More information can be found at www.entegrapower.com.

Fontainebleau Florida Hotel, LLC

Fontainebleau Resorts, Inc. (“Fontainebleau”) is led by Chairman Jeffrey Soffer, who also serves as Chief Executive Officer of Turnberry, Ltd., a creator of luxury condominium and condominium-hotel developments, and President and Chief Financial Officer Glenn Schaeffer, a former Chief Executive Officer of Mandalay Resort Group. Fontainebleau Miami Beach is a resort located in Miami Beach, Florida. Fontainbleau plans to renovate and expand this property into a 22-acre destination resort. Our investment is related to the renovation of the original resort buildings. More information can be found at www.bleaumiamibeach.com.

Freescale Semiconductor, Inc.

On December 1, 2006, Freescale Semiconductor, Inc. (“Freescale”) was acquired by a consortium of private equity funds. Freescale is one of the world’s largest semiconductor companies, with leadership in the design and manufacture of embedded processors. More information can be found at www.freescale.com.

Lake at Las Vegas Joint Venture, LLC

Lake at Las Vegas Joint Venture, LLC is a 3,592-acre resort and destination community and is one of the larger master-planned communities in Las Vegas, NV. The development is located approximately 17 miles from the Las Vegas strip. Our investment is related to a portion of land associated with the Lake Las Vegas development. More information can be found at www.lakelasvegas.com.

LVI Services, Inc.

LVI Services, Inc. (“LVI”) is a remediation and facility services firm serving commercial, industrial, retail, government, healthcare and education end markets. From a nationwide branch network, LVI provides asbestos abatement, soft and structural demolition, mold remediation, emergency response, fireproofing, decontamination and decommissioning, lead-based paint abatement and infection control. More information can be found at www.lviservices.com.

Motor Coach Industries International, Inc.

Motor Coach Industries International, Inc. designs, manufactures, assembles and markets intercity coaches, transit buses and their replacement parts. Their coaches are used for intercity regularly scheduled passenger service, tour and charter operations and suburban commuting. More information can be found at www.mcicoach.com.

MPH Mezzanine II, LLC / MPH Mezzanine III, LLC

In February, 2007, Equity Office Properties (“EOP”), and one or more affiliates, merged with affiliates of Blackstone Real Estate Partners (“Blackstone”). Macklowe Properties (“Macklowe”) purchased all but one of EOP’s Manhattan, NY holdings, through an agreement with Blackstone. Our investment is related to financing the purchase of a portion of these Manhattan properties. More information can be found at www.macklowe.com.

Northwest Airlines, Inc.

Northwest Airlines, Inc. (“Northwest”), with hubs in Detroit, Minneapolis/St. Paul, Memphis, Tokyo, and Amsterdam, operated approximately 1,400 daily departures, as of October, 2007. According to Northwest, it and its travel partners serve more than 1,000 cities in excess of 160 countries on six continents. Northwest emerged from Chapter 11 protection on May 31, 2007, and began trading on the NYSE under tickers symbol “NWA”. More information can be found at www.NWA.com or Chapter 11 filing Case No 05-17930, Southern District of New York.

Univision Communications, Inc.

Univision Communications, Inc., together with the subsidiaries through which its businesses are conducted (“UCI”), is the leading Spanish-Language media company in the United States and has continuing operations in three business segments: television, radio and Internet. UCI’s television operations include the Univision and TeleFutura networks; UCI’s owned and operated television stations and Galavision, UCI’s cable television network. Univision Radio, Inc. operates UCI’s radio business, which includes its owned and operated radio stations and radio network. Univision Online, Inc. operates UCI’s Internet portal, Univision.com. Our investment is related to financing the acquisition of UCI by a private equity consortium. More information can be found at www.univision.com.

Results of Operations

We initially funded on January 18, 2007, and therefore, have no comparable period from the prior year with which to compare the results of operations for the quarter ended September 30, 2007 and the period ended September 30, 2007.

Operating Income

We primarily generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and capital gains or losses on any debt or equity securities that we acquire and subsequently sell. We also may acquire investments, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. Investment income for the quarter ended September 30, 2007 was approximately $9.5 million, with approximately $0.1 million of income attributable to invested cash and cash equivalents and approximately $9.4 million attributable to investments in equity interests, bank debt/senior secured debt, and corporate notes/subordinated debt. This compares to investment income for the quarter ended June 30, 2007 of approximately $9.6 million, with approximately $0.2 million of income attributable to invested cash and cash equivalents and approximately $9.4 million attributable to investments in equity interests, bank debt/senior secured debt, and corporate notes/subordinated debt. For the period ended September 30, 2007, investment income was approximately $20.8 million.

Operating Expenses

Operating expenses for the quarter ended September 30, 2007 were approximately $2.9 million. This amount consisted of advisory fees of approximately $2.2 million and administrative fees, accounting fees, professional fees, directors’ fees, taxes and other expenses of approximately $0.7 million. In comparison, operating expenses for the quarter ended June 30, 2007 were approximately $3.7 million. For the period ended September 30, 2007, operating expenses were $7.4 million.

Per an agreement with the Investment Adviser, advisory fees of approximately $0.7 million were waived during the quarter ended September 30, 2007, compared to approximately $1.5 million for the quarter ended June 30, 2007. For the period ended September 30, 2007, the Investment Adviser waived advisory fees of approximately $2.7 million. Additionally, for the period ended September 30, 2007, the Investment Advisor voluntarily waived Incentive Fees of approximately $0.9 million.

Net Investment Income

The Company’s net investment income for the quarter ended September 30, 2007 was approximately $4.3 million, compared to net investment income of approximately $6.2 million for the quarter ended June 30, 2007. For the period ended September 30, 2007, net investment income was approximately $11.7 million.

Net Unrealized Depreciation on Investments

For the quarter ended September 30, 2007, the Company’s investments had net unrealized depreciation of approximately ($22.9) million, compared to net unrealized depreciation of approximately ($5.9) million for the quarter ended June 30, 2007. The decrease was attributable to net unrealized depreciation on senior loans, corporate notes/subordinated debt, and claims and equity interests of approximately ($8.6) million, ($3.3) million, and ($11.0) million, respectively. For the period ended September 30, 2007, net unrealized depreciation on the Company’s investments was approximately ($29.8) million.

Net Realized Losses

For the quarter ended September 30, 2007, we had net realized losses on investments of approximately ($7.6) million, compared to net realized gains of approximately $0.2 million for the quarter ended June 30, 2007. For the period ended September 30, 2007, net realized losses on investments were approximately ($7.4) million.

Net Decrease in Shareholders’ Equity (Net Assets) from Operations

For the quarter ended September 30, 2007, we had a net decrease in shareholders’ equity (net assets) resulting from operations of approximately ($26.1) million, compared to a net increase of approximately $0.4 million for the quarter ended June 30, 2007. For the period ended September 30, 2007, we had a net decrease in shareholders’ equity (net assets) resulting from operations of approximately ($25.3) million.

Financial Condition, Liquidity and Capital Resources

During the period ended September 30, 2007, we generated cash from the net proceeds of our IPO as well as cash flows from operations. All of the net proceeds from our IPO and cash flows from operations were used to acquire the portfolio, to make investments, to make cash distributions to holders of our common stock, and to pay fees and our operating expenses. We also generated additional cash from borrowings under the credit facility entered into in April 2007. These borrowings were made in order to provide additional liquidity and to seek to meet our investment objective and strategies.

Dividends

We have elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. In order to maintain our status as a regulated investment company, we are required to meet specified source-of-income and asset diversification requirements and must distribute annually at least 90% of our investment company taxable income. Additionally, we must distribute at least 98% of our income (both ordinary income and net capital gains) to avoid an excise tax. We intend to make distributions to our shareholders on a quarterly basis of substantially all of our net operating income. We also intend to make distributions of net realized capital gains, if any, at least annually.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings when applicable to us as a business development company under the Investment Company Act of 1940 and due to provisions in our credit facilities. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure shareholders that they will receive any distributions or distributions at a particular level.

On August 3, 2007, the Company’s Board declared a third quarter dividend of $0.2625 per share ($4,640,515), which was paid on September 28, 2007 to common shareholders of record on September 18, 2007. The Company has established an “opt out” dividend reinvestment plan for its common shareholders. As a result, if the Company declares a cash dividend in future periods, a shareholder’s cash dividend will be automatically reinvested in additional shares of the Company’s common stock unless the shareholder specifically “opts out” of the dividend reinvestment plan and elects to receive cash dividends. For the third quarter dividend, holders of 1,815,420 shares participated in the dividend reinvestment plan. As a result, of the $4,640,515 total amount distributed, $476,548 was used by the dividend reinvestment plan agent to issue new shares, including fractions, on behalf of the Plan participants. On March 9, 2007, the Company’s Board declared a second quarter dividend of $0.2625 per share, which was paid on June 29, 2007 to common shareholders of record on June 19, 2007.

Portfolio Credit Quality

We maintain a system to evaluate the credit quality of our loans. This system is intended to reflect the performance of a portfolio company’s business, the collateral coverage of a loan, and other factors considered relevant.

Recently Issued Accounting Pronouncements

See Note 12: Impact of New Accounting Standards in the accompanying notes to financial statements for details of recently issued accounting pronouncements and their expected impact on the Company’s financial statements

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.

As of September 30, 2007, approximately 85.9% of our portfolio was invested in debt securities. This exposes the Company to a great degree of default risk with respect to the issuers in our portfolio. Although defaults are at all time historic lows, defaults may increase in the future. New derivative products are available to hedge against default risk; however, the Company did not hedge its exposure during the period ended September 30, 2007.

As of September 30, 2007, approximately 51.7% and 32.9% of our portfolio was invested in securities that paid floating and fixed rates of interest, respectively. Increases or decreases in market interest rates may potentially affect the Company’s net asset value.

When interest rates decline, the value of fixed rate securities in the Company’s portfolio may be expected to rise. Conversely, when interest rates rise, the value of fixed rate portfolio securities may decline. The sensitivity of the Company’s net asset value to changes in interest rates will increase to the extent that it holds a higher percentage of its portfolio in fixed rate investments.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not a defendant in any material pending legal proceeding, and no such material proceedings are known to be contemplated.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 21, 2007, our registration statement on Form N-2 (SEC File No. 333-137435), for the initial public offering (“IPO” or the “Offering”) of 17,000,000 shares of our common stock became effective. All 17,000,000 shares were sold upon completion of the Offering at an aggregate offering price of $255,000,000, reflecting an initial offering price of $15.00 per share. Citigroup, Merrill Lynch & Co. and Wachovia Securities acted as Joint Book-Running Managers. A.G. Edwards, Banc of America Securities LLC, Deutsche Bank Securities, Oppenheimer & Co. and Stifel Nicolaus acted as underwriters for the IPO.

On January 18, 2007, we issued and sold 333,333.33 shares of its common stock for an aggregate purchase price of $5,000,000 to the Investment Adviser. These shares were issued prior to and not a part of the 17,000,000 shares offered in the IPO.

In connection with the IPO, we registered and offered the underwriters an option to purchase an additional 2,550,000 shares of common stock at the $15.00 per share offering price. On March 20, 2007, the underwriters gave notice of partial exercise of this option and purchased 284,300 shares on March 23, 2007.

Underwriting discounts and commissions for the shares sold in the Offering totaled $11,475,000. In connection with the IPO, we incurred expenses of approximately $1.5 million. None of these expenses were paid directly or indirectly to our directors, officers or associates, or to persons owning 10% or more of our common stock or that of other affiliates. After deducting underwriting discounts and commissions, we received net proceeds of $243,525,000 from the Offering, before expenses.

The primary purposes of the IPO was to obtain capital with which to invest primarily in financially-troubled or distressed companies that are either middle-market companies or unlisted companies by investing in senior secured debt, mezzanine debt and unsecured debt, each of which may include an equity component, and in equity investments.

We did not repurchase any shares of our common stock during the period covered by this report.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports

(a) Exhibits


Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of the Company.(2)

3.2		Bylaws of the Company.(1)

4.1		Form of Specimen Certificate.(2)

10.1		Form of Investment Advisory and Management Agreement between Company and Highland Capital Management, L.P.(1)

10.2		Form of Custodian Services Agreement between Company and PFPC, Inc. (1)

10.3		Form of Administration Services Agreement between Company and PFPC, Inc.(2)

10.4		Form of Transfer Agency Services Agreement between Company and PFPC, Inc.(1)

10.5		Form of Accounting Services Agreement.(1)

10.6		Form of Structuring Fee Agreement between the Investment Adviser and Citigroup Global Markets Inc. (2)

10.7		Form of Structuring Fee Agreement between the Investment Adviser and Merrill Lynch & Co. (2)

10.8		Form of Structuring Fee Agreement between the Investment Adviser and Wachovia Capital Markets, LLC. (2)

10.9		Form of Agreement Regarding Payment of Sales Load.(2)

10.10		Form of Fee Waiver Agreement.(2)

10.11		Confirmation Agreement between the Company and the Bank Nova Scotia.(2)

24.1		Power of Attorney.(1)

31.1		Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)(3)

31.2		Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)(3)

32.1		Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350.(3)


(1)		Previously filed in Pre-Effective Amendment No. 1 to the Company’s Initial Registration Statement on Form N-2, File No. 333-137435, filed on January 18, 2007.

(2)		Previously filed in Pre-Effective Amendment No. 3 to the Company’s Initial Registration Statement on Form N-2, File No. 333-137435, filed on February 16, 2007.

(3)		Filed herewith.

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Part I.		Financial Information
Item 1.		Financial Statements
		Schedule of Investments—As of September 30, 2007 (unaudited)
		Statement of Assets and Liabilities—As of September 30, 2007 (unaudited)
		Statement of Operations (unaudited)—For the quarter ended September 30, 2007 and for the period January 18, 2007* through September 30, 2007
		Statement of Changes in Shareholders’ Equity (Net Assets) (unaudited)—For the period January 18, 2007* through September 30, 2007
		Statement of Cash Flows (unaudited)—For the period January 18, 2007* through September 30, 2007
		Notes to Financial Statements (unaudited)
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures

Part II.		Other Information
Item 1.		Legal Proceedings
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.		Defaults Upon Senior Securities
Item 4.		Submission of Matters to a Vote of Security Holders
Item 5.		Other Information
Item 6.		Exhibits
		Signatures
Certification of CEO Pursuant to Rule 13a-14(a) and Rule 15d-14(a)(3)
Certification of CFO Pursuant to Rule 13a-14(a) and Rule 15d-14(a)(3)
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350


*		Commencement of operations