SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------
(5) Total fee paid:

- --------------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

- --------------------------------------------------------------------------------
(3) Filing Party:

- --------------------------------------------------------------------------------
(4) Date Filed:

- --------------------------------------------------------------------------------

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.
TWO GALLERIA TOWER
13455 NOEL ROAD
DALLAS, TEXAS 75240

April 11, 2003

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Prospect Street(R) High Income Portfolio Inc. (the "Fund") to be held at the
Hilton Suites, San Antonio Room, at 13402 Noel Road, Dallas, Texas 75240, on
Friday, May 16, 2003, at 10:30 a.m. In addition to voting on the proposal
described in the Notice of Annual Meeting of Stockholders, you will have an
opportunity to hear a report on the Fund and to discuss other matters of
interest to you as a stockholder.

We hope that you will be able to attend the meeting. Whether or not you
plan to attend, please complete, date, sign and mail the enclosed proxy card to
assure that your shares are represented at the meeting.

Sincerely,

/s/ JAMES D. DONDERO
--------------------------------------
James D. Dondero
President

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.
TWO GALLERIA TOWER
13455 NOEL ROAD
DALLAS, TEXAS 75240

---------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 2003

---------------------

The Annual Meeting of Stockholders of Prospect Street High Income Portfolio
Inc., a Maryland corporation (the "Fund"), will be held at the Hilton Suites,
San Antonio Room, at 13402 Noel Road, Dallas, Texas 75240, on Friday, May 16,
2003, at 10:30 a.m., for the following purposes:

- To elect two Directors of the Fund, each to serve for a three-year term
expiring at the 2006 annual meeting and until his successor is duly
elected and qualified; and

- To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.

The close of business on March 28, 2003 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournment thereof.

YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE FUND.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE COMPLETE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE
TO VOTE IN PERSON AT THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY.

By Order of the Board of Directors

/s/ M. JASON BLACKBURN
--------------------------------------
M. Jason Blackburn
Secretary

April 11, 2003
Dallas, Texas

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.
TWO GALLERIA TOWER
13455 NOEL ROAD
DALLAS, TEXAS 75240

---------------------

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2003

---------------------

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Prospect Street High Income
Portfolio Inc., a Maryland corporation (the "Fund"), for use at the Fund's
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the Hilton
Suites, San Antonio Room, at 13402 Noel Road, Dallas, Texas 75240, on Friday,
May 16, 2003, at 10:30 a.m., and at any and all adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting dated April 11,
2003. The Fund is a closed-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act").

This Proxy Statement and the accompanying Notice of Annual Meeting and form
of proxy were sent to stockholders on or about April 14, 2003. The Board of
Directors has fixed the close of business on March 28, 2003 as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. As of the Record Date, 28,066,963 shares of
the Fund's Common Stock and 1,200 shares of the Fund's Auction Rate Cumulative
Preferred Shares (the "Preferred Shares") were issued and outstanding.
Stockholders are entitled to one vote for each Fund share held and fractional
votes for each fractional Fund share held.

If the accompanying form of proxy is properly executed and returned in time
to be voted at the Annual Meeting, the shares covered thereby will be voted in
accordance with the instructions marked thereon. Executed and returned proxies
that are unmarked will be voted FOR the proposal and in the discretion of the
persons named as proxies in connection with any other matter which may properly
come before the Annual Meeting or any adjournment thereof. The Board of
Directors does not know of any matter to be considered at the Annual Meeting
other than the election of Directors referred to in this Proxy Statement. A
stockholder may revoke his or her proxy by appearing at the Annual Meeting and
voting in person, or by giving written notice of such revocation to the
Secretary of the Fund or by returning a later-dated proxy before the Annual
Meeting.

The presence in person or by proxy of stockholders of the Corporation
entitled to cast at least a majority of the votes entitled to be cast shall
constitute a quorum ("Quorum"). If a Quorum is not present at the Annual
Meeting, or if a Quorum is present but sufficient votes to approve the proposal
are not received, the persons named as proxies may propose one or more
adjournments of the Annual Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Annual Meeting, the following factors may be
considered: the nature of the proposal, the percentage of votes actually cast,
the percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to stockholders with respect to
the reasons for the solicitation. Any adjournment will require the

affirmative vote of a majority of those shares affected by the adjournment that
are represented at the Annual Meeting in person or by proxy.

Shares represented by properly executed proxies with respect to which a
vote is withheld, an abstention is indicated, or a broker does not vote will be
treated as shares that are present and entitled to vote for purposes of
determining a quorum, but will not constitute a vote "for" or "against" a
proposal.

In addition to soliciting proxies by mail, the employees of the Fund or the
investment adviser may solicit proxies by telephone or in person. The costs of
proxy solicitation and expenses incurred in connection with preparing this Proxy
Statement and its enclosures will be paid by the Fund.

THE INVESTMENT ADVISER

Highland Capital Management, L.P. (the "Adviser"), with its principal
office at 13455 Noel Road, Suite 1300, Dallas, Texas 75240, serves as the
investment adviser to the Fund.

PROPOSAL

ELECTION OF DIRECTORS

The holders of the Fund's Common Stock are being asked to elect James F.
Leary as a Director of the Fund, and the holders of the Fund's Preferred Shares
are being asked to elect Bryan A. Ward as a Director of the Fund, each to serve
for a three-year term until the 2006 Annual Meeting of Stockholders and until
his successor is duly elected and qualified. Messrs. Leary and Ward are
currently serving as Directors of the Fund, and each has agreed to continue to
serve as a Director if elected. If either Mr. Leary or Mr. Ward is not available
for election at the time of the Annual Meeting, the persons named as proxies
will vote for such substitute nominee as the Board of Directors may recommend.

The Board of Directors is divided into three classes with the term of
office of one class expiring each year. Class I is comprised of one Director,
and Classes II and III are each comprised of two Directors. Mr. Dondero is a
Class I Director and was re-elected to serve a three-year term at the Fund's
2001 Annual Stockholders' Meeting held on March 30, 2001. Messrs. Hui and
Kavanaugh are Class II Directors and were each re-elected to serve a three-year
term at the Fund's 2002 Annual Stockholders' Meeting held on March 15, 2002.
Messrs. Leary and Ward are Class III Directors (if elected at the annual
meeting).

In elections of Directors, the holders of any outstanding Preferred Shares,
as a separate class, will vote to elect two Directors, the holders of the Common
Stock, as a separate class, will vote to elect two Directors and the holders of
the Preferred Shares and the Common Stock, voting together as a single class,
will elect the remaining Directors. The Fund's Board has designed Messrs. Hui
and Ward as the Directors to be elected by holders of the Preferred Shares;
Messrs. Kavanaugh and Leary as the Directors to be elected by holders of the
Common Stock; and Mr. Dondero as the Director to be elected by holders of the
Preferred Shares and Common Stock.

In addition, during any period ("Voting Period") in which the Fund has not
paid dividends on the Preferred Shares in an amount equal to two full years
dividends, the holders of Preferred Shares, voting as a separate class, are
entitled to elect (in addition to the two Directors set forth above) the
smallest number of additional Directors as is necessary to assure that a
majority of the Directors has been elected by the holders of Preferred Shares.
If the Fund has not so paid dividends, the terms of office of all persons who
are Directors of the Fund at the time of the commencement of a Voting Period
will continue,
2

notwithstanding the election by the holders of the Preferred Shares of the
number of Directors that such holders are entitled to elect. The additional
Directors elected by the holders of the Preferred Shares, together with the
incumbent Directors, will constitute the duly elected Directors of the Fund.
When all dividends in arrears on the Preferred Shares have been paid or provided
for, the terms of office of the additional Directors elected by the holders of
the Preferred Shares will terminate.

INFORMATION ABOUT NOMINEES FOR DIRECTOR AND CONTINUING DIRECTORS

Set forth below is the name and certain biographical and other information
for Messrs. Leary and Ward as the nominees for Director and each continuing
Director, as reported to the Fund by Messrs. Leary and Ward and each continuing
Director:

CLASS III -- NOMINEES FOR DIRECTOR WITH TERMS EXPIRING IN 2006 (NOMINEES FOR
NON-INTERESTED DIRECTORS)

<Table>
<Caption>
NAME (AGE) ADDRESS PRINCIPAL OCCUPATION(S)
POSITION WITH THE FUND (SINCE) DURING THE PAST FIVE YEARS OTHER DIRECTORSHIPS HELD*
- ------------------------------ ----------------------------- -----------------------------

James F. Leary (73) Since January 1999, a Board member of Capstone
(Common Stock Designee) Managing Director of Benefit Asset Management Group of
15851 N. Dallas Parkway Capital Southwest, Inc., a Mutual Funds (a family of
Suite 500 financial consulting firm. mutual funds consisting of
Addison, Texas 75001 From 1995 to December 1998, nine investment portfolios).
Director (January 2000) he was the Vice Chairman,
Finance and a Director of
Search Financial Services,
Inc., a financial services
firm.
Bryan A. Ward (48) Since January 2002, Senior
(Preferred Shares Designee) Manager of Accenture, LLP.
901 Main Street From September 1998 to
Dallas, Texas 75202 December 2001, he was Special
Director (December 2001) Projects Advisor to
Accenture, LLP. From March
1996 to August 1998, Mr. Ward
was an independent oil & gas
and real estate consultant.
</Table>

- ---------------

* Each Director and officer of the Fund serves in the same capacity with respect
to Prospect Street(R) Income Shares Inc. ("Prospect Street Income Fund"),
another registered investment company advised by the Adviser.

CLASS II -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2005 (NON-INTERESTED
DIRECTORS)

<Table>
<Caption>
NAME (AGE) ADDRESS PRINCIPAL OCCUPATION(S)
POSITION WITH THE FUND (SINCE) DURING THE PAST FIVE YEARS OTHER DIRECTORSHIPS HELD
- ------------------------------ ----------------------------- -----------------------------

Timothy K. Hui (54) Assistant Provost for and,
(Preferred Shares Designee) since September 1998,
48 Willow Greene Drive Director of Learning
Churchville, Pennsylvania Resources of the Philadelphia
18966 Biblical University. Prior
Director (January 2000) thereto, Mr. Hui was in
private practice as an
attorney serving as the
managing partner of the law
firm of Hui & Malik L.L.P.
Scott F. Kavanaugh (41) Since February 2003, an
(Common Stock Designee) Executive at Provident
1633 Bayshore Highway, Suite Funding Mortgage Corporation.
155 From January 2000 to February
Burlingame, CA 94010 2003 he was Executive Vice
Director (January 2000) President, Director, and
Treasurer of Commercial
Capital Bank. He was the
Managing Principal and Chief
Operating Officer of
Financial Institutional
Partners Mortgage Company and
the Managing Principal and
President of Financial
Institutional Partners, LLC,
an investment banking firm,
from April 1998 to February
2003.
</Table>

CLASS I -- CONTINUING DIRECTOR WITH TERM EXPIRING IN 2004 (INTERESTED DIRECTOR)

James D. Dondero (40)** President and Managing Member of the Board of
13455 Noel Road, Suite 1300 Partner of the Adviser and Directors of Genesis Health
Dallas, Texas 75240 President of the Fund. Ventures, Inc., American
President and Director Banknote Corporation, Audio
(January 2000) Visual Services Corporation,
and Motient Corporation.
</Table>

- ---------------

** Mr. Dondero is deemed to be an "interested person" of the Fund under the 1940
Act because of his position with the Adviser.

* * *

In addition to Mr. Dondero, the Fund's other executive officers are Mark K.
Okada, R. Joseph Dougherty, and M. Jason Blackburn. Set forth below is the name
and certain biographical and other information for Messrs. Okada, Dougherty, and
Blackburn as reported by them to the Fund.

<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME (AGE) POSITION(S) HELD WITH THE FUND DURING THE PAST FIVE YEARS
- ---------- ------------------------------ -----------------------------

Mark K. Okada (40) Executive Vice President since Chief Investment Officer of
January 2000. the Adviser.
R. Joseph Dougherty (32) Senior Vice President, Portfolio Manager of the
Secretary and Treasurer since Adviser. Prior to 2000, he
January 2000. was a Portfolio Analyst for
the Adviser.
M. Jason Blackburn (27) Secretary and Treasurer since Compliance Officer and
March 2003 Assistant Controller of the
Adviser. From September 1999
to October 2001, he was an
accountant for KPMG LLP.
Previously, he attended the
University of Texas at
Austin.
</Table>

The address of Messrs. Okada, Dougherty and Blackburn is 13455 Noel Road,
Suite 1300, Dallas, Texas 75240.

BENEFICIAL OWNERSHIP OF SHARES OF THE FUND AND PROSPECT STREET INCOME FUND.

Set forth in the table below is the dollar range of Common Stock of the
Fund and the aggregate range of Common Stock of the Fund and Prospect Street
Income Fund beneficially owned by each Director.

<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF COMMON
DOLLAR RANGE OF COMMON STOCK OF THE FUND AND PROSPECT STREET
DIRECTOR STOCK OF THE FUND* INCOME SHARES FUND.
- -------- ---------------------- -------------------------------------

James D. Dondero.......................... Over $100,000 Over $100,000
Timothy K. Hui............................ $1 - $10,000 $1 - $10,000
Scott F. Kavanaugh........................ $1 - $10,000 $1 - $10,000
James F. Leary............................ $1 - $10,000 $1 - $10,000
Bryan A. Ward............................. $1 - $10,000 $1 - $10,000
</Table>

- ---------------

* Valued as of March 28, 2003. Except as otherwise indicated, each person has
sole voting and investment power.

As of March 28, 2003, Directors and officers of the Fund, as a group, owned
2.30% of the Fund's outstanding Common Stock and did not own any Preferred
Shares.

During the fiscal year ended October 31, 2002, the Directors of the Fund,
identified in the table set forth in "Remuneration of Directors and Executive
Officers" below, met six times. During that year, only Mr. Dondero attended
fewer than 75% of all the meetings of the Board. The Board of Directors has
three committees, the Audit Committee, the Nominating Committee and the
Litigation Committee. Pursuant to the Audit Committee Charter adopted by the
Fund's Board, the Audit Committee is responsible for conferring with the Fund's
independent accountants, reviewing the scope and procedures of the year-end
audit, reviewing annual financial statements and recommending the selection of
the Fund's independent accountants. In addition, the Audit Committee may address
questions arising with respect to the valuation

of certain securities in the Fund's portfolio. The Audit Committee currently is
comprised of Messrs. Hui, Kavanaugh, Leary and Ward, representing all of the
non-interested members of the Board. The Audit Committee members are also
"independent" under the listing standard of the New York Stock Exchange. The
Audit Committee met two times in fiscal 2002, and each Audit Committee member
(except Mr. Kavanaugh, who attended only one meeting) attended both meetings.
The report of the Audit Committee for the fiscal year ended October 31, 2002 is
attached as Appendix A to this Proxy Statement. The Nominating Committee is
currently comprised of all of the non-interested members of the Board, and its
function is to canvass, recruit, interview, solicit and nominate any directors
who would be non-interested members of the Board. The Nominating Committee does
not consider nominees recommended by Fund stockholders. The Nominating Committee
did not meet in fiscal 2002. The Litigation Committee currently is comprised of
all of the non-interested members of the Board, and its function is to seek to
address any potential conflicts of interest between the Fund and the Adviser in
connection with any potential or existing litigation or other legal proceeding
relating to securities held by both the Fund and the Adviser or another client
of the Adviser. The Litigation Committee did not meet in fiscal 2002.

REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS

The executive officers of the Fund and those of its Directors who are
"interested persons" of the Fund receive no direct remuneration from the Fund.
Those Directors who are not interested persons are compensated at the rate of
$10,000 annually, plus $2,000 per Directors' meeting attended in person or
$1,000 per Directors' meeting attended by telephone, and are reimbursed for
actual out-of-pocket expenses relating to attendance at such meetings. In
addition, the members of the Fund's Audit Committee receive $1,000 for each
Audit Committee meeting attended, together with actual out-of-pocket expenses
relating to attendance at such meetings.

The following table summarizes the compensation paid by the Fund to its
Directors for the fiscal year ended October 31, 2002 and the aggregate
compensation paid by the Fund and Prospect Street Income Shares Inc. to
Directors during the year ended December 31, 2002.

<Table>
<Caption>
AGGREGATE COMPENSATION FROM
THE FUND AND PROSPECT STREET
DIRECTOR COMPENSATION FROM THE FUND INCOME FUND
- -------- -------------------------- ----------------------------

James D. Dondero*..................... $0 $0
Timothy K. Hui........................ $23,000 $33,000
Scott F. Kavanaugh.................... $19,000 $29,000
James F. Leary........................ $23,000 $33,000
Bryan A. Ward......................... $20,333 $30,333
</Table>

- ---------------

* "Interested person" of the Fund under the 1940 Act.

SHARE OWNERSHIP AND CERTAIN BENEFICIAL OWNERS

To the Fund's knowledge, no person owned beneficially 5% or more of the
outstanding shares of Common Stock or Preferred Shares of the Fund as of the
Record Date, other than Cede & Co., which held of record 93.87% of the
outstanding shares of Common Stock and 100% of the outstanding Preferred Shares.
The Adviser beneficially owned 639,334 shares of Common Stock, or 2.28% of the
outstanding shares of Common Stock as of the Record Date.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Under the securities laws of the United States, the Advisor and its
affiliates and the Fund's Directors and officers, and any persons beneficially
owning more than ten percent of the Fund's Common Stock are required to report
their ownership of the Fund's Common Stock and any changes in that ownership to
the Fund, the Securities and Exchange Commission and The New York Stock
Exchange. Specific due dates for these reports have been established, and the
Fund is required to report in this proxy statement any failure to file by these
dates during the Fund's last fiscal year. Based solely upon a review of these
reports and written representations received from such persons, these filing
requirements appear to have been satisfied, except that James F. Leary, a
Director of the Fund, purchased in one transaction approximately 700 shares of
the Fund's Common Stock that was not reported on a timely basis in a Form 4
filing. Mr. Leary's purchase subsequently was reported on the appropriate form.

REQUIRED VOTE

The election of Directors requires the affirmative vote of the holders of a
majority of the Common Stock, represented in person or by proxy at the Annual
Meeting and entitled to vote, in the case of Mr. Leary, and the holders of a
majority of the Preferred Shares, represented in person or by proxy at the
Annual Meeting and entitled to vote, in the case of Mr. Ward.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" EACH NOMINEE AS
DIRECTOR.

SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

The 1940 Act requires that the Fund's independent accountants be selected
by a majority of those Directors who are not "interested persons" (as defined in
the 1940 Act) of the Fund. One of the purposes of the Audit Committee is to
recommend to the Fund's Board the selection, retention or termination of
independent accountants for the Fund. At a meeting held on March 7, 2003, the
Fund's Audit Committee recommended and the Fund's Board, including a majority of
those Directors who are not "interested persons" of the Fund, approved the
selection of Ernst & Young LLP ("Ernst & Young") as the Fund's independent
accountants for the fiscal year ending October 31, 2003. A representative of
Ernst & Young will not be present at the Meeting, but will be available by
telephone and will have an opportunity to make a statement (if the
representative so desires) and to respond to appropriate questions. After
reviewing the Fund's audited financial statements for the fiscal year ended
October 31, 2002, the Fund's Audit Committee recommended to the Fund's Board
that such statements be included in the Fund's annual report to stockholders. A
copy of the Committee's report is attached as Appendix A to this proxy
statement.

Audit Fees. For the fiscal year ended October 31, 2002, Ernst & Young
billed the Fund $44,000, for services rendered for the audit of the Fund's
annual financial statements.

Financial Information Systems Design and Implementation. For the fiscal
year ended October 31, 2002, Ernst & Young did not bill the Fund, the Adviser or
any entity controlling, controlled by or under common control with the Adviser
for financial information systems design or implementation services.

All Other Fees. For the fiscal year ended October 31, 2002, Ernst & Young
billed the Fund $18,667 and billed the Fund, the Adviser and entities
controlling, controlled by or under common control with the Adviser in the
aggregate $347,287 for services other than those described above. The Audit
Committee for the Fund considered the compatibility of these non-audit services
with Ernst & Young's independence.
7

ANNUAL REPORT

COPIES OF THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED OCTOBER 31,
2002 ARE AVAILABLE UPON REQUEST, WITHOUT CHARGE, BY WRITING TO THE FUND AT 13455
NOEL ROAD, SUITE 1300, DALLAS, TEXAS 75240, OR BY CALLING 1-877-532-2834.

OTHER MATTERS TO COME BEFORE THE MEETING

The Directors do not intend to present any other business at the Annual
Meeting nor are they aware that any stockholder intends to do so. If, however,
any other matters are properly brought before the Annual Meeting, the persons
named in the accompanying proxy will vote thereon in accordance with their
judgment.

STOCKHOLDER PROPOSALS

Any proposals of stockholders that are intended to be presented at the
Fund's 2004 Annual Meeting of Stockholders must be received at the Fund's
principal executive offices no later than December 8, 2003 and must comply with
all other legal requirements in order to be included in the Fund's proxy
statement and form of proxy for that meeting. The date after which notice of a
shareholder proposal submitted is considered untimely and persons holding
proxies will have discretionary voting authority over such proposals, except as
otherwise provided under applicable law, is April 1, 2004.

By Order of the Board of Directors

/s/ JAMES D. DONDERO
--------------------------------------
James D. Dondero
President

Dallas, Texas
April 11, 2003

APPENDIX A

REPORT OF THE AUDIT COMMITTEE

The Audit Committee oversees the Fund's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.

The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Fund's accounting principles and
such other matters as are required to be discussed with the committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Fund including the matters in the written disclosures required by the
Independence Standards Board.

The Committee discussed with the Fund's independent auditors the overall
scope and plans for the audits. The Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Fund's internal controls, and the overall
quality of the Fund's financial reporting.

In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report to Stockholders
for the year ended October 31, 2002. The Committee and the Board have also
approved the selection of the Fund's independent auditors.

Scott F. Kavanaugh, Audit Committee Chair
Timothy K. Hui, Audit Committee Member
James F. Leary, Audit Committee Member
Bryan A. Ward, Audit Committee Member

December 2002

A-1

---------------------

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.

---------------------

COMMON STOCK

Mark box at right if an address or comment has been noted on the reverse side of
this card. [ ]

CONTROL NUMBER:

<Table>

Please be sure to sign and date this Proxy. Date: -----------------------------------------------

- ----------------------------------------------------- -----------------------------------------------------
Stockholder sign here Co-owner sign here
</Table>

[X] PLEASE MARK VOTES AS IN THIS EXAMPLE

1. With respect to the proposal to elect Mr. James F. Leary as a Director:

For [ ] Withhold Authority [ ]

2. In their discretion, on such other matters as may properly come before the
meeting and any adjournment thereof.

RECORD DATE SHARES:

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.

ANNUAL MEETING OF STOCKHOLDERS -- MAY 16, 2003
COMMON STOCK PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS

The undersigned holder of shares of Common Stock of Prospect Street(R) High
Income Portfolio Inc., a Maryland corporation (the "Fund"), hereby appoints Mark
K. Okada, R. Joseph Dougherty and M. Jason Blackburn, and each of them, with
full power of substitution and revocation, as proxies to represent the
undersigned at the Annual Meeting of Stockholders of the Fund to be held at the
Hilton Suites, San Antonio Room, at 13402 Noel Road, Dallas, Texas 75240, on
Friday, May 16, 2003, at 10:30 a.m., and at any and all adjournments thereof,
and thereat to vote all shares of Common Stock of the Fund which the undersigned
would be entitled to vote, with all powers the undersigned would possess if
personally present, in accordance with the instructions on this proxy.

THIS PROXY IS SOLICITED BY THE FUND'S BOARD OF DIRECTORS AND WILL BE VOTED
FOR THE PROPOSALS UNLESS OTHERWISE INDICATED. BY SIGNING THIS PROXY CARD,
RECEIPT OF THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT IS
ACKNOWLEDGED.

PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.

Please sign exactly as name or names appear on this proxy. If stock is held
jointly, each holder should sign. If signing as attorney, trustee, executor,
administrator, custodian, guardian or corporate officer, please give full title.

<Table>

Has your address changed? Do you have any comments?
- ----------------------------------------------------- -----------------------------------------------------
- ----------------------------------------------------- -----------------------------------------------------
- ----------------------------------------------------- -----------------------------------------------------
</Table>

---------------------

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.

---------------------

PREFERRED SHARES

Mark box at right if an address or comment has been noted on the reverse side of
this card. [ ]

CONTROL NUMBER:

<Table>

Please be sure to sign and date this Proxy. Date: -----------------------------------------------

- ----------------------------------------------------- -----------------------------------------------------
Stockholder sign here Co-owner sign here
</Table>

[X] PLEASE MARK VOTES AS IN THIS EXAMPLE

1. With respect to the proposal to elect Mr. Bryan A. Ward as a Director:

For [ ] Withhold Authority [ ]

2. In their discretion, on such other matters as may properly come before the
meeting and any adjournment thereof.

RECORD DATE SHARES:

PROSPECT STREET(R) HIGH INCOME PORTFOLIO INC.

ANNUAL MEETING OF STOCKHOLDERS -- MAY 16, 2003
PREFERRED SHARES PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS

The undersigned holder of shares of Preferred Shares of Prospect Street(R)
High Income Portfolio Inc., a Maryland corporation (the "Fund"), hereby appoints
Mark K. Okada, R. Joseph Dougherty and M. Jason Blackburn, and each of them,
with full power of substitution and revocation, as proxies to represent the
undersigned at the Annual Meeting of Stockholders of the Fund to be held at the
Hilton Suites, San Antonio Room, at 13402 Noel Road, Dallas, Texas 75240, on
Friday, May 16, 2003, at 10:30 a.m., and at any and all adjournments thereof,
and thereat to vote all Preferred Shares of the Fund which the undersigned would
be entitled to vote, with all powers the undersigned would possess if personally
present, in accordance with the instructions on this proxy.

PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.

<Table>