UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08603
Name of Fund: BlackRock Debt Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Debt Strategies Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ,
08543-9011
Registrant's telephone number, including area code: (800) 882-0052
Date of fiscal year end: 02/31/08
Date of reporting period: 03/01/07 - 08/31/07
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Debt Strategies BLACKROCK
Fund, Inc. (DSU)
SEMI-ANNUAL REPORT
AUGUST 31, 2007 | (UNAUDITED)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Debt Strategies Fund, Inc.
The Benefits and Risks of Leveraging
BlackRock Debt Strategies Fund, Inc. utilizes leveraging through borrowings or
issuance of short-term debt securities or shares of Preferred Stock. The concept
of leveraging is based on the premise that the cost of assets to be obtained
from leverage will be based on short-term interest rates, which normally will be
lower than the income earned by the Fund on its longer-term portfolio
investments. To the extent that the total assets of the Fund (including the
assets obtained from leverage) are invested in higher-yielding portfolio
investments, the Fund's Common Stock shareholders will benefit from the
incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its net asset value and market
price. If the income derived from securities purchased with assets received from
leverage exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased is not sufficient to cover the cost of leverage, the Fund's
net income will be less than if leverage had not been used, and therefore the
amount available for distribution to Common Stock shareholders will be reduced.
Proxy Results
During the six-month period ended August 31, 2007, the shareholders of BlackRock
Debt Strategies Fund, Inc. voted on the following proposal, which was approved
at an annual shareholders' meeting on August 16, 2007. This proposal was part of
the reorganization of the Fund's Board of Directors to take effect on or about
November 1, 2007. A description of the proposal and number of shares voted are
as follows:
----------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
----------------------------------------------------------------------------------------------------
To elect the Fund's Board of Directors: G. Nicholas Beckwith, III 91,318,812 2,952,837
Richard E. Cavanagh 91,339,560 2,932,088
Richard S. Davis 91,342,214 2,929,434
Kent Dixon 91,318,797 2,952,852
Frank J. Fabozzi 91,339,429 2,932,219
Kathleen F. Feldstein 91,284,804 2,986,845
James T. Flynn 91,312,677 2,958,972
Henry Gabbay 91,349,383 2,922,265
Jerrold B. Harris 91,315,357 2,956,292
R. Glenn Hubbard 91,326,907 2,944,741
W. Carl Kester 91,347,650 2,923,998
Karen P. Robards 91,343,952 2,927,697
Robert S. Salomon, Jr. 91,311,768 2,959,880
----------------------------------------------------------------------------------------------------
2 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
A Letter to Shareholders
Dear Shareholder
Financial markets embarked on a wild ride during the August reporting period.
Subprime mortgage troubles intensified in the final months of the period,
spawning a widespread credit and liquidity crisis that crept into other areas of
the market. The U.S. Federal Reserve Board (the Fed) and other countries'
central banks stepped in to inject liquidity into the markets and bolster
investor confidence. In August, the Fed cut the discount rate, the rate charged
to banks to borrow money directly from the Fed, from 6.25% to 5.75%. Another50%
cut in the discount rate came on September 18, along with a50% cut in the more
widely followed federal funds rate. This brought the target short-term interest
rate, which had remained unchanged at 5.25% for over a year, to 4.75%.
Although heightened volatility has been a recurring theme throughout the past
year, the global economy (excluding the U.S. housing market) remained quite
healthy. In general, equity market fundamentals also held firm -- second-quarter
corporate earnings exceeded expectations (although future earnings could be at
risk if the economy weakens), dividend payouts and share buybacks continued to
grow, and valuations remained attractive. These tailwinds generally prevailed
over such headwinds as a slowing U.S. economy and troubled housing market,
although the more recent credit crunch dampened corporate merger-and-acquisition
activity, a key source of strength for equity markets. Stocks recorded their
second-worst day of the year in August, yet remained comfortably in the black
year-to-date.
Meanwhile, mixed economic signals and the credit market debacle made for a
volatile backdrop for fixed income, with investors fleeing from bonds associated
with the housing and credit markets in favor of higher-quality Treasury issues.
As a result, the 10-year Treasury yield, which touched 5.30% in June ( its
highest level in five years), fell to 4.54% by period-end, while prices
correspondingly rose.
Against this backdrop, financial markets posted mixed results for the six- and
12-month periods ended August 31, 2007:
Total Returns as of August 31, 2007 6-month 12-month
========================================================================================================
U.S. equities (S&P 500 Index) +5.70% +15.13%
--------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) +0.54 +11.36
--------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +5.83 +18.71
--------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) +1.54 + 5.26
--------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) -0.57 + 2.30
--------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index) -1.71 + 6.46
--------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index.
As you navigate market volatility, we encourage you to review your investment
goals with your financial professional and to make portfolio changes, as needed.
For more market insight, we invite you to visit www.blackrock.com/funds. We
thank you for entrusting BlackRock with your investment assets, and we look
forward to continuing to serve you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Fund President and Director
THIS PAGE NOT PART OF YOUR FUND REPORT
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 3
Fund Summary as of August 31, 2007 (Unaudited)
Fund Information
Symbol on New York Stock Exchange ............................ DSU
Initial Offering Date ........................................ March 27, 1998
Yield on Closing Market Price as of 8/31/07 ($6.41)* ......... 9.92%
Current Monthly Distribution per share of Common Stock** ..... $.053
Current Annualized Distribution per share of Common Stock** .. $.636
Leverage as of 8/31/07*** .................................... 26%
--------------------------------------------------------------------------------
* Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price. Past
performance does not guarantee future results.
** The distribution is not constant and is subject to change. A portion of
the distribution may be deemed a tax return of capital or net realized
gain at fiscal year end.
*** As a percentage of managed assets, which is the total assets of the Fund
(including any assets attributable to any borrowing that may be
outstanding) minus the sum of accrued liabilities (other than debt
representing financial leverage).
The table below summarizes the changes in the Fund's market price and net asset
value:
--------------------------------------------------------------------------------
8/31/07 2/28/07 Change High Low
--------------------------------------------------------------------------------
Market Price .................... $6.41 $7.28 (11.95%) $7.44 $4.75
Net Asset Value ................. $6.47 $7.01 (7.70%) $7.08 $6.36
--------------------------------------------------------------------------------
The following charts show the Fund's portfolio composition and credit quality
allocations of the Fund's long-term investments:
Portfolio Composition
Asset Mix 8/31/07 2/28/07
--------------------------------------------------------------------------------
Corporate Bonds ............................................ 63% 70%
Floating Rate Loan Interests ............................... 33 28
Common Stocks .............................................. 3 2
Preferred Stocks ........................................... 1 --*
Warrants ................................................... --* --*
Other Interests ............................................ --* --*
--------------------------------------------------------------------------------
* Amount is less than 1%.
Credit Quality Allocations*
Credit Rating 8/31/07 2/28/07
--------------------------------------------------------------------------------
BBB/Baa .................................................... 2% 1%
BB/Ba ...................................................... 12 11
B/B ........................................................ 56 62
CCC/Caa .................................................... 17 15
CC/Ca ...................................................... 1 1
D .......................................................... --+ --+
NR (Not Rated) ............................................. 8 8
Other** .................................................... 4 2
--------------------------------------------------------------------------------
* Using the higher of S&P's or Moody's ratings.
** Includes portfolio holdings in common stocks, preferred stocks, warrants
and other interests.
+ Amount is less than 1%.
4 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments as of August 31, 2007 (Unaudited) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===============================================================================
Aerospace & Defense -- 3.3%
USD 5,000,000 Alliant Techsystems, Inc., 3%
due 8/15/2024 (a)(m) $ 7,400,000
7,500,000 L-3 Communications Corp., 3%
due 8/01/2035 (a)(m) 8,540,625
7,170,000 Vought Aircraft Industries, Inc., 8%
due 7/15/2011 6,954,900
--------------
22,895,525
===============================================================================
Auto Components -- 2.0%
245,000 Compagnie Generale de Geophysique SA,
7.50% due 5/15/2015 246,225
The Goodyear Tire & Rubber Co. (m):
4,500,000 9.135% due 12/01/2009 (b) 4,500,000
2,000 8.625% due 12/01/2011 2,031
1,020,000 Lear Corp., 8.75% due 12/01/2016 943,500
9,350,000 Metaldyne Corp., 11% due 6/15/2012 8,368,250
Venture Holdings Co. LLC:
4,450,000 12% due 6/01/2009 (e) 0
1,800,000 Series B, 9.50% due 7/01/2005 (m) 5,400
--------------
14,065,406
===============================================================================
Biotechnology -- 0.7%
5,000,000 Angiotech Pharmaceuticals, Inc., 9.371%
due 12/01/2013 (b) 4,950,000
===============================================================================
Building Products -- 1.9%
CPG International I, Inc.:
3,000,000 12.13% due 7/01/2012 (b) 3,015,000
1,300,000 10.50% due 7/01/2013 1,274,000
5,900,000 Goodman Global Holding Co., Inc., 7.875%
due 12/15/2012 5,841,000
2,270,000 Masonite International Corp., 11%
due 4/06/2015 1,850,050
1,050,000 Momentive Performance Materials, Inc.,
10.125% due 12/01/2014 (g)(m) 976,500
--------------
12,956,550
===============================================================================
Capital Markets -- 0.2%
2,000,000 Pennant CBO Ltd., 13.43%
due 3/14/2011 (m) 1,700,000
===============================================================================
Chemicals -- 5.9%
1,490,000 American Pacific Corp., 9% due 2/01/2015 1,467,650
3,550,000 ArCo Chemical Co., 9.80% due 2/01/2020 3,692,000
9,783,000 GEO Specialty Chemicals, Inc., 13.85%
due 12/31/2009 (a)(m) 8,070,975
3,100,000 Hexion U.S. Finance Corp., 10.058%
due 11/15/2014 (b) 3,162,000
2,515,000 Ineos Group Holdings Plc, 8.50%
due 2/15/2016 (m) 2,313,800
6,360,000 MacDermid, Inc., 9.50% due 4/15/2017 (m) 5,914,800
14,060,000 NOVA Chemicals Corp., 8.484%
due 11/15/2013 (b) 13,638,200
2,500,000 PolyOne Corp., 6.89% due 9/22/2008 2,500,000
--------------
40,759,425
===============================================================================
Commercial Banks -- 0.2%
1,500,000 Investcorp SA, 7.54% due 10/21/2008 1,506,723
===============================================================================
Commercial Services & Supplies -- 1.4%
1,090,000 PNA Intermediate Holding Corp., 12.558%
due 2/15/2013 (b)(m) 1,049,125
4,280,000 Sally Holdings LLC, 10.50%
due 11/15/2016 (m) 4,087,400
3,270,000 West Corp., 11% due 10/15/2016 3,319,050
1,395,000 Yankee Acquisition Corp., 9.75%
due 2/15/2017 1,248,525
--------------
9,704,100
===============================================================================
Face
Amount Corporate Bonds Value
===============================================================================
Communications Equipment -- 0.3%
USD 983,000 Loral Spacecom Corp., 14%
due 11/15/2015 (g) $ 1,059,183
630,000 Nortel Networks Ltd., 9.61%
due 7/15/2011 (b)(m) 631,575
--------------
1,690,758
===============================================================================
Computers & Peripherals -- 0.4%
2,700,000 Viasystems, Inc., 10.50% due 1/15/2011 2,700,000
===============================================================================
Construction Materials -- 0.7%
5,850,000 Nortek, Inc., 8.50% due 9/01/2014 5,060,250
===============================================================================
Containers & Packaging -- 2.7%
Berry Plastics Holding Corp.:
665,000 8.875% due 9/15/2014 663,338
375,000 9.569% due 9/15/2014 (b) 371,250
1,100,000 Graham Packing Co., Inc., 9.875%
due 10/15/2014 1,078,000
705,000 Graphic Packaging International
Corp., 9.50% due 8/15/2013 712,050
6,215,000 Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (m) 6,222,769
Smurfit-Stone Container Enterprises, Inc.:
1,600,000 8.375% due 7/01/2012 1,568,000
2,600,000 8% due 3/15/2017 2,479,750
6,325,000 Wise Metals Group LLC, 10.25%
due 5/15/2012 5,692,500
--------------
18,787,657
===============================================================================
Distributors -- 0.3%
2,000,000 Buhrmann US, Inc., 7.875% due 3/01/2015 1,840,000
===============================================================================
Diversified Consumer Services -- 0.5%
3,875,000 NBC Acquisition Corp., 11%
due 3/15/2013 (i) 3,448,750
===============================================================================
Diversified Financial Services -- 1.2%
5,743,690 Archimedes Funding III Ltd., 5.50%
due 11/29/2011 (b)(m) 2,871,836
Ford Motor Credit Co. LLC:
760,000 5.80% due 1/12/2009 716,127
4,480,000 8.11% due 1/13/2012 (b) 4,102,824
750,000 9.81% due 4/15/2012 (b) 755,516
--------------
8,446,303
===============================================================================
Diversified Telecommunication Services -- 1.3%
2,675,000 Qwest Corp., 8.944% due 6/15/2013 (b) 2,822,125
6,000,000 Time Warner Telecom Holdings, Inc., 9.25%
due 2/15/2014 6,210,000
--------------
9,032,125
===============================================================================
Electric Utilities -- 0.8%
5,380,000 NSG Holdings LLC, 7.75%
due 12/15/2025 (l)(m) 5,225,325
===============================================================================
Electronic Equipment & Instruments -- 1.4%
2,675,000 Muzak Holdings, LLC, 13% due 3/15/2010 (i) 2,113,250
NXP BV:
5,520,000 8.11% due 10/15/2013 (b) 5,002,500
2,300,000 9.50% due 10/15/2015 1,989,500
375,000 Sanmina-SCI Corp., 8.125% due 3/01/2016 324,375
--------------
9,429,625
===============================================================================
Energy Equipment & Services -- 2.1%
670,000 Compagnie Generale de Geophysique-Veritas,
7.75% due 5/15/2017 676,700
8,000,000 Ocean RIG ASA, 9.36% due 4/04/2011 (b) 7,900,000
6,300,000 SemGroup LP, 8.75% due 11/15/2015 (m) 6,063,750
--------------
14,640,450
===============================================================================
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 5
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===============================================================================
Food & Staples Retailing -- 0.4%
USD 2,900,000 Rite Aid Corp., 9.375% due 12/15/2015 (m) $ 2,639,000
===============================================================================
Gas Utilities -- 0.4%
2,900,000 El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (m) 2,971,169
===============================================================================
Health Care Providers & Services -- 2.4%
3,975,000 Community Health Systems, Inc., 8.875%
due 7/15/2015 (m) 3,970,031
Tenet Healthcare Corp.:
2,990,000 6.50% due 6/01/2012 2,481,700
6,000,000 7.375% due 2/01/2013 4,980,000
Universal Hospital Services, Inc. (m):
1,000,000 8.50% due 6/01/2015 (g) 927,826
930,000 8.759% due 6/01/2015 (b) 897,450
4,100,000 Vanguard Health Holding Co. I, LLC, 11.25%
due 10/01/2015 (i) 2,972,500
--------------
16,229,507
===============================================================================
Hotels, Restaurants & Leisure -- 6.0%
1,250,000 Galaxy Entertainment Finance Co. Ltd.,
9.875% due 12/15/2012 (m) 1,268,750
HRP Myrtle Beach (m):
5,976,698 Holdings LLC, 14.50%
due 4/01/2014 (g) 5,767,514
5,000,000 Operations LLC, 10.07%
due 4/01/2012 (b) 4,750,000
5,000,000 Operations LLC, 12.50% due 4/01/2013 4,900,000
2,560,000 Little Traverse Bay Bands of Odawa
Indians, 10.25% due 2/15/2014 (m) 2,572,800
915,000 Penn National Gaming, Inc., 6.75%
due 3/01/2015 917,288
2,700,000 Pinnacle Entertainment, Inc., 7.50%
due 6/15/2015 (m) 2,484,000
1,370,000 Shingle Springs Tribal Gaming Authority,
9.375% due 6/15/2015 (m) 1,349,450
1,015,000 Snoqualmie Entertainment Authority, 9.063%
due 2/01/2014 (b)(m) 990,894
3,400,000 Station Casinos, Inc., 7.75% due 8/15/2016 3,255,500
2,600,000 Travelport LLC, 10.246% due 9/01/2014 (b) 2,600,000
3,265,000 Tropicana Entertainment, LLC, 9.625%
due 12/15/2014 (m) 2,416,100
3,000,000 Tunica-Biloxi Gaming Authority, 9%
due 11/15/2015 (m) 3,000,000
5,300,000 Universal City Florida Holding Co. I,
10.106% due 5/01/2010 (b) 5,353,000
--------------
41,625,296
===============================================================================
Household Durables -- 0.6%
175,000 Fedders North America, Inc., 9.875%
due 3/01/2014 28,000
2,610,000 Jarden Corp., 7.50% due 5/01/2017 2,440,350
2,250,000 Stanley-Martin Communities LLC, 9.75%
due 8/15/2015 1,676,250
--------------
4,144,600
===============================================================================
IT Services -- 0.7%
4,818,000 SunGard Data Systems, Inc., 10.25%
due 8/15/2015 (m) 4,962,540
===============================================================================
Insurance -- 0.2%
1,630,000 USI Holdings Corp., 9.433%
due 11/15/2014 (b)(m) 1,515,900
===============================================================================
Leisure Equipment & Products -- 0.2%
2,000,000 True Temper Sports, Inc., 8.375%
due 9/15/2011 1,560,000
===============================================================================
Face
Amount Corporate Bonds Value
===============================================================================
Machinery -- 1.7%
USD 3,070,000 Esco Corp., 9.235% due 12/15/2013 (b)(m) $ 3,008,600
3,815,000 Invensys Plc, 9.875% due 3/15/2011 (m) 4,053,438
RBS Global, Inc.:
1,480,000 9.50% due 8/01/2014 1,494,800
1,685,000 8.875% due 9/01/2016 1,647,088
1,530,000 Titan International, Inc., 8%
due 1/15/2012 1,507,968
--------------
11,711,894
===============================================================================
Marine -- 0.5%
1,500,000 Navios Maritime Holdings, Inc., 9.50%
due 12/15/2014 (m) 1,531,875
1,760,000 Titan Petrochemicals Group Ltd., 8.50%
due 3/18/2012 (m) 1,548,800
--------------
3,080,675
===============================================================================
Media -- 11.6%
Affinion Group, Inc.:
280,000 10.125% due 10/15/2013 280,000
800,000 11.50% due 10/15/2015 800,000
5,950,000 Cablevision Systems Corp. Series B, 9.82%
due 4/01/2009 (b) 6,098,750
2,000,000 Cadmus Communications Corp., 8.375%
due 6/15/2014 1,900,000
5,000,000 Canadian Satellite Radio Holdings,
Inc., 12.75% due 2/15/2014 (m) 4,906,250
Charter Communications Holdings LLC:
3,750,000 10% due 4/01/2009 3,740,625
1,319,000 11.125% due 1/15/2011 1,282,728
1,978,000 10% due 5/15/2011 1,888,990
Intelsat Bermuda Ltd. (b):
8,605,000 11.409% due 6/15/2013 8,841,638
2,880,000 8.886% due 1/15/2015 2,901,600
10,350,000 Intelsat Intermediate Holding Co. Ltd.,
9.25% due 2/01/2015 (i) 8,383,500
4,125,000 Liberty Media Corp., 0.75%
due 3/30/2023 (a) 4,666,406
3,875,000 Mediacom LLC, 9.50% due 1/15/2013 3,875,000
750,000 NTL Cable Plc, 8.75% due 4/15/2014 759,375
580,000 Network Communications, Inc., 10.75%
due 12/01/2013 580,000
4,325,000 Nielsen Finance LLC, 10% due 8/01/2014 4,433,125
2,800,000 Paxson Communications Corp., 8.61%
due 1/15/2012 (b)(m) 2,761,500
3,235,000 Sinclair Broadcast Group, Inc. Class A,
4.875% due 7/15/2018 (a)(i) 3,000,463
5,795,000 Sirius Satellite Radio, Inc., 9.625%
due 8/01/2013 5,476,275
5,230,000 TL Acquisitions, Inc., 10.50%
due 1/15/2015 (m) 4,929,275
3,485,000 Umbrella Acquisition, 9.75%
due 3/15/2015 (g)(m) 3,319,463
2,800,000 XM Satellite Radio, Inc., 9.856%
due 5/01/2013 (b) 2,604,000
2,685,000 Young Broadcasting, Inc., 10%
due 3/01/2011 2,416,500
--------------
79,845,463
===============================================================================
Metals & Mining -- 3.5%
2,735,000 Aleris International, Inc., 9%
due 12/15/2014 (g) 2,550,513
4,000,000 Compass Minerals International, Inc.
Series B, 12% due 6/01/2013 (i) 4,020,000
10,360,000 Freeport-McMoRan Copper & Gold, Inc.,
8.564% due 4/01/2015 (b) 10,670,800
2,854,000 Indalex Holding Corp. Series B, 11.50%
due 2/01/2014 2,675,625
4,550,000 RathGibson, Inc., 11.25% due 2/15/2014 4,555,688
--------------
24,472,626
===============================================================================
6 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===============================================================================
Multi-Utilities -- 0.9%
USD 4,142,000 CenterPoint Energy, Inc. Series B, 3.75%
due 5/15/2023 (a) $ 6,052,498
===============================================================================
Oil, Gas & Consumable Fuels -- 1.0%
480,000 Berry Petroleum Co., 8.25% due 11/01/2016 472,800
3,000,000 Chaparral Energy, Inc., 8.50%
due 12/01/2015 2,685,000
2,445,000 Compton Petroleum Finance Corp., 7.625%
due 12/01/2013 2,322,750
1,425,000 Williams Cos., Inc., 8.625% due 6/01/2010 1,486,460
--------------
6,967,010
===============================================================================
Paper & Forest Products -- 9.3%
6,500,000 Abitibi-Consolidated, Inc., 9.194%
due 6/15/2011 (b) 5,590,000
Ainsworth Lumber Co. Ltd. (b):
9,725,000 9.11% due 10/01/2010 7,488,250
8,000,000 9.36% due 4/01/2013 6,080,000
Boise Cascade LLC:
2,150,000 8.235% due 10/15/2012 (b) 2,128,500
900,000 7.125% due 10/15/2014 828,000
7,600,000 Bowater, Inc., 8.694% due 3/15/2010 (b) 6,840,087
3,775,000 Domtar, Inc., 7.125% due 8/15/2015 3,510,750
NewPage Corp.:
8,000,000 11.606% due 5/01/2012 (b) 8,480,000
4,725,000 12% due 5/01/2013 4,937,625
13,625,000 Smurfit Kappa Funding Plc, 7.75%
due 4/01/2015 13,148,125
Verso Paper Holdings LLC Series B:
4,400,000 9.106% due 8/01/2014 (b) 4,378,000
530,000 11.375% due 8/01/2016 540,600
--------------
63,949,937
===============================================================================
Pharmaceuticals -- 1.2%
Elan Finance Plc:
3,525,000 7.75% due 11/15/2011 3,436,875
4,825,000 9.558% due 11/15/2011 (b) 4,728,500
--------------
8,165,375
===============================================================================
Real Estate Investment Trusts (REITs) -- 0.3%
3,500,000 RAIT Financial Trust, 6.875%
due 4/15/2027 (a)(m) 2,209,375
===============================================================================
Real Estate Management & Development -- 2.3%
Realogy Corp. (m):
4,770,000 10.50% due 4/15/2014 4,018,725
7,540,000 11% due 4/15/2014 (g) 6,107,400
7,410,000 12.375% due 4/15/2015 5,455,613
--------------
15,581,738
===============================================================================
Road & Rail -- 0.8%
1,250,000 Atlantic Express Transportation Corp.,
12.609% due 4/15/2012 (b)(g)(m) 1,212,500
790,000 Britannia Bulk Plc, 11% due 12/01/2011 782,100
5,060,000 St. Acquisition Corp., 13.107%
due 5/15/2015 (b)(m) 3,516,700
--------------
5,511,300
===============================================================================
Face
Amount Corporate Bonds Value
===============================================================================
Semiconductors & Semiconductor Equipment -- 3.2%
Amkor Technology, Inc.:
USD 3,000,000 7.125% due 3/15/2011 $ 2,820,000
210,000 7.75% due 5/15/2013 194,775
2,645,000 9.25% due 6/01/2016 2,565,650
Freescale Semiconductor, Inc.:
8,990,000 9.125% due 12/15/2014 (g) 8,046,050
5,470,000 9.569% due 12/15/2014 (b) 5,032,400
3,370,000 Spansion, Inc., 8.746%
due 6/01/2013 (b)(m) 3,201,500
--------------
21,860,375
===============================================================================
Software -- 0.3%
2,416,832 BMS Holdings, Inc., 12.40%
due 2/15/2012 (b)(g)(m) 2,113,534
===============================================================================
Specialty Retail -- 4.1%
2,215,000 Buffets, Inc., 12.50% due 11/01/2014 1,705,550
Claire's Stores, Inc. (m):
500,000 9.25% due 6/01/2015 433,750
610,000 9.625% due 6/01/2015 (g) 476,993
1,110,000 10.50% due 6/01/2017 821,400
General Nutrition Centers, Inc. (g)(m):
5,560,000 10.009% due 3/15/2014 5,026,029
4,480,000 10.75% due 3/15/2015 4,008,533
Michaels Stores, Inc. (m):
3,790,000 10% due 11/01/2014 3,799,475
8,660,000 11.375% due 11/01/2016 8,421,850
8,000,000 Movie Gallery, Inc., 11% due 5/01/2012 (e) 2,000,000
1,380,000 United Auto Group, Inc., 7.75%
due 12/15/2016 1,317,900
--------------
28,011,480
===============================================================================
Wireless Telecommunication Services -- 3.7%
1,905,000 Centennial Communications Corp., 11.11%
due 1/01/2013 (b) 1,952,625
Cricket Communications, Inc.:
5,250,000 9.375% due 11/01/2014 5,145,000
1,000,000 9.375% due 11/01/2014 (m) 980,000
Digicel Group Ltd. (m):
3,560,000 8.875% due 1/15/2015 3,253,128
7,748,000 9.125% due 1/15/2015 (g) 7,080,122
2,150,000 FiberTower Corp., 9% due 11/15/2012 (a)(m) 2,246,750
1,250,000 iPCS, Inc., 7.481% due 5/01/2013 (b)(m) 1,206,250
2,600,000 Nordic Telephone Co. Holdings ApS, 8.875%
due 5/01/2016 (m) 2,691,000
Orascom Telecom Finance SCA:
620,000 7.875% due 2/08/2014 565,754
755,000 7.875% due 2/08/2014 (m) 688,938
--------------
25,809,567
-------------------------------------------------------------------------------
Total Corporate Bonds
(Cost -- $602,872,636) -- 82.6% 569,829,831
===============================================================================
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 7
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
===============================================================================
Aerospace & Defense -- 0.2%
Hawker Beechcraft:
USD 39,007 Letter of Credit, 5.26% due 3/31/2014 $ 37,057
459,840 Term Loan B, 7.36% - 7.508%
due 3/31/2014 436,848
1,145,200 IAP Worldwide Services Inc. Term Loan,
11.687% due 12/31/2012 983,727
--------------
1,457,632
===============================================================================
Airlines -- 0.7%
1,890,000 Delta Airlines First Lien Term Loan, 7.36%
due 5/15/2012 1,794,319
1,492,500 United Air Lines, Inc. Term Loan B, 7.625%
due 1/30/2014 1,399,529
2,000,000 US Airways Group, Inc. Term Loan B, 7.86%
due 3/22/2014 1,878,750
--------------
5,072,598
===============================================================================
Auto Components -- 1.2%
1,000,000 Delphi Automotive Systems Term Loan B,
7.625% due 12/31/2007 980,000
2,000,000 Goodyear Tire & Rubber Co. First Lien Term
Loan, 7.10% due 4/30/2014 1,880,000
Intermet Corp.:
1,685,185 Letter of Credit, 10.21%
due 11/08/2010 1,617,778
1,162,530 Term Loan B, 10.36% due 11/08/2010 1,116,029
Metaldyne Corp.:
86,538 Letter of Credit, 5.17% - 9.125%
due 1/15/2012 84,375
588,462 Term Loan B, 9.125% due 1/15/2014 573,750
1,000,000 TRW Automotive, Inc. Term Loan B, 6.875%
due 2/09/2014 970,000
1,250,000 Visteon Corp. Term Loan B, 8.38%
due 6/13/2013 1,150,781
--------------
8,372,713
===============================================================================
Beverages -- 0.4%
Culligan International:
1,500,000 Second Lien Term Loan, 7.815%
due 10/24/2012 1,736,868
1,000,000 Term Loan B, 7.61% - 7.815%
due 10/24/2012 910,000
--------------
2,646,868
===============================================================================
Chemicals -- 2.3%
400,000 Arizona Chemical Second Lien Term Loan,
11.01% due 2/28/2014 370,667
2,000,000 Flint Group Term Loan, 7.933%
due 12/20/2014 1,895,500
Huish Detergents, Inc.:
2,000,000 First Lien Term Loan, 7.51%
due 4/15/2014 1,835,000
1,500,000 Second Lien Term Loan, 9.57%
due 10/15/2014 1,372,500
677,316 Huntsman ICI Holdings Term Loan B, 7.25%
due 4/19/2014 662,782
636,000 NuSil Technology Term Loan, 8.07%
due 10/31/2013 623,280
620,000 Rockwood Specialties Group, Inc. Tranche D
Term Loan, 6.857% due 7/30/2012 599,463
10,000,000 Wellman, Inc. Second Lien Term Loan,
12.106% due 2/10/2010 8,700,000
--------------
16,059,192
===============================================================================
Face
Amount Floating Rate Loan Interests** Value
===============================================================================
Commercial Services & Supplies -- 5.7%
Aramark Corp.:
USD 533,316 Letter of Credit, 5.36% due 1/30/2014 $ 513,183
7,580,509 Term Loan B, 7.36% due 1/30/2014 7,294,345
Euramax International Plc:
2,538,314 First Lien Term Loan, 8.375%
due 6/29/2012 2,346,672
6,000,000 Second Lien Term Loan, 13.36%
due 6/29/2013 5,340,000
1,500,000 Jason, Inc. Term Loan B, 8.03% - 9.50%
due 4/30/2010 1,425,000
1,410,788 John Maneely Co. Term Loan B, 8.61%
due 12/15/2013 1,262,067
3,019,996 NES Rentals Holdings, Inc. Term Loan C,
12.125% due 7/12/2013 2,957,081
RiskMetrics Group, Inc.:
250,000 Second Lien Term Loan, 10.86%
due 6/15/2014 242,813
748,125 Term Loan, 7.61% due 1/15/2014 727,552
8,670,000 Service Master Bridge Loan, 9.86%
due 6/19/2008 7,542,900
7,000,359 Waste Services, Inc. Term Loan D,
7.82% due 3/31/2011 6,790,348
2,970,112 West Corp. Term Loan, 7.735% - 7.88%
due 10/31/2013 2,864,920
--------------
39,306,881
===============================================================================
Communications Equipment -- 0.1%
1,000,000 SafeNet, Inc. First Lien Term Loan, 7.86%
due 5/11/2015 930,000
===============================================================================
Computers & Peripherals -- 0.4%
Intergraph Corp. Term Loan:
430,893 7.503% due 5/15/2014 412,041
1,000,000 11.506% due 11/15/2014 956,250
1,500,000 Reynolds and Reynolds Co. Third Lien Term
Loan, 12.86% due 10/31/2014 1,462,500
--------------
2,830,791
===============================================================================
Construction Materials -- 0.3%
2,453,125 Headwaters, Inc. Term Loan B-1, 7.36%
due 4/30/2011 2,391,797
===============================================================================
Containers & Packaging -- 1.6%
2,239,574 Anchor Glass Container Corp. Term Loan B,
7.61% - 7.791% due 5/03/2013 2,172,387
8,590,000 Berry Plastics Corp. Term Loan B, 11.61%
due 6/15/2014 7,387,400
750,000 Consolidated Container Second Lien Term
Loan, 10.86% - 11.065% due 10/15/2014 675,000
495,000 Graham Packaging Term Loan B, 7.625%
due 4/15/2011 480,975
--------------
10,715,762
===============================================================================
Distributors -- 0.2%
1,741,250 Keystone Automotive Operations, Inc. Term
Loan B, 8.828% - 9% due 1/15/2012 1,588,891
===============================================================================
8 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
===============================================================================
Diversified Financial Services -- 0.5%
USD 4,000,000 JG Wentworth Manufacturing Term Loan B,
7.61% due 4/15/2014 $ 3,710,000
===============================================================================
Diversified Telecommunication Services -- 0.9%
995,000 Kentucky Data Link, Inc. Term Loan B,
7.815% due 2/26/2014 957,688
258,716 Transaction Network Services Term Loan B,
7.541% due 5/15/2014 250,954
3,161,871 Winstar Communications Debtor In
Possession, 6.366% due 12/31/2006 (n) 5,051,089
--------------
6,259,731
===============================================================================
Electrical Equipment -- 0.4%
4,000,000 Generac Portable Products, Inc. Second
Lien Term Loan, 11.36% due 5/15/2014 2,663,332
===============================================================================
Electronic Equipment & Instruments -- 0.2%
1,500,000 CoCreate Software, Inc. Second Lien Term
Loan, 12.608% due 5/30/2014 1,440,000
===============================================================================
Energy Equipment & Services -- 0.9%
Dresser, Inc.:
3,000,000 First Lien Term Loan, 8.01% - 8.038%
due 5/15/2014 2,881,875
2,500,000 Second Lien Term Loan, 11.129%
due 5/04/2015 2,362,500
1,234,375 MEG Energy Corp. Term Loan B, 7.36%
due 4/03/2013 1,191,172
--------------
6,435,547
===============================================================================
Food & Staples Retailing -- 1.3%
1,000,000 Bolthouse Farms, Inc. Second Lien Term
Loan, 10.86% due 12/01/2013 967,500
1,000,000 DS Waters LP Term Loan B, 7.61% - 7.753%
due 3/31/2012 940,000
Dole Food Co., Inc.:
323,981 Letter of Credit, 5.23% due 4/12/2013 304,542
719,846 Term Loan B, 7.438% - 9.25%
due 4/12/2013 676,655
2,399,487 Term Loan C, 7.438% - 9.25%
due 4/04/2013 2,255,517
969,217 Eight O'Clock Coffee Second Lien Term
Loan, 8.125% due 7/21/2012 920,756
497,500 McJunkin Corp. Term Loan B, 7.815%
due 1/30/2014 483,197
Sturm Foods, Inc.:
997,500 First Lien Term Loan,7.875% - 7.938%
due 1/30/2014 927,675
1,250,000 Second Lien Term Loan, 11.438%
due 6/30/2014 1,165,625
--------------
8,641,467
===============================================================================
Food Products -- 0.3%
1,937,500 Jetro Holdings, Inc. Term Loan, 7.82%
due 5/11/2014 1,860,000
===============================================================================
Health Care Providers & Services -- 0.5%
488,011 CCS Medical First Lien Term Loan, 8.82%
due 10/31/2012 471,541
3,147,392 Rotech Healthcare, Inc. Term Loan B,
11.36% due 9/26/2011 2,706,757
--------------
3,178,298
===============================================================================
Face
Amount Floating Rate Loan Interests** Value
===============================================================================
Hotels, Restaurants & Leisure -- 2.8%
USD 1,500,000 Golden Nugget, Inc. Term Loan Second Lien,
8.84% due 11/30/2014 $ 1,402,500
Green Valley Ranch Gaming LLC Term Loan:
480,568 7.36% - 7.565% due 2/16/2014 456,540
750,000 8.791% due 8/30/2014 705,000
3,200,000 Las Vegas Sands Term Loan B, 7.11%
due 5/04/2014 3,036,400
OSI Restaurant Partners, Inc.:
75,188 Revolving Credit, 5.18% due 6/14/2013 71,170
924,812 Term Loan B, 7.625% due 5/15/2014 875,393
6,000,000 QCE LLC Second Lien Term Loan, 11.11%
due 11/05/2013 5,715,000
1,031,315 Tropicana Opco Term Loan B, 7.61%
due 12/15/2011 979,381
Venetian Macau US Finance Co. LLC:
2,500,000 Delay Draw Term Loan, 7.61% - 7.76%
due 5/25/2012 2,414,285
3,500,000 Term Loan B, 7.61% due 5/25/2013 3,379,999
--------------
19,035,668
===============================================================================
Household Durables -- 0.4%
3,000,000 American Residential Services Second Lien
Term Loan, 12% due 4/17/2015 2,970,000
===============================================================================
Household Products -- 0.8%
Spectrum Brands, Inc.:
281,917 Letter of Credit, 5.17% due 4/15/2013 273,225
4,203,182 Term Loan B-1, 9.34% - 9.53%
due 4/15/2013 4,073,585
1,014,901 Term Loan B-2, 9.565% due 4/15/2013 954,007
--------------
5,300,817
===============================================================================
IT Services -- 0.9%
3,686,354 Activant Solutions Term Loan B, 7.375%
due 5/02/2013 3,437,525
1,000,000 Audio Visual Services Corp. Second Lien
Term Loan, 10.86% due 2/28/2014 950,000
894,231 RedPrairie Corp. Term Loan, 8.50% - 10.25%
due 7/31/2012 1,145,021
950,000 Verifone, Inc. Term Loan B, 7.09% - 7.11%
due 10/31/2013 912,000
--------------
6,444,546
===============================================================================
Insurance -- 0.1%
1,000,000 USI Holdings Corp., Term Loan B, 7.95%
due 5/15/2014 935,000
===============================================================================
Machinery -- 1.7%
997,500 Harrington Holdings, Inc. Term Loan, 7.61%
due 1/15/2014 947,625
1,000,000 Maxim Crane Term Loan B, 7.32%
due 6/14/2014 920,000
Navistar International Transportation Corp.:
1,866,667 Revolving Credit, 5.17% - 8.61%
due 1/19/2012 1,792,000
5,133,333 Term Loan, 8.61% due 1/19/2012 4,928,000
1,990,000 OshKosh Truck Corp. Term Loan B, 7.11%
due 11/30/2013 1,908,535
1,093,086 Rexnord Corp. Term Loan,
11.61% due 3/02/2013 (g) 1,032,966
--------------
11,529,126
===============================================================================
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 9
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
===============================================================================
Media -- 8.9%
USD 4,000,000 Affinion Group, Inc. Term Loan, 11.678%
due 3/01/2012 $ 3,693,332
9,055,466 Cequel Communications LLC Second Lien
Term Loan, 9.856% due 3/31/2015 8,738,525
1,593,818 Cequel Communications LLC Term Loan B,
7.36% - 7.505% due 4/04/2013 1,503,060
13,500,000 Charter Communications, Inc. Term Loan B,
7.361% due 4/30/2014 12,751,479
973,460 ClientLogic Holding Corp. Term Loan B,
7.86% - 8.065% due 1/30/2014 934,522
3,808,979 Easton-Bell Sports Inc. Term Loan B,
11.36% due 5/01/2012 3,630,433
6,500,000 Ellis Communications Term Loan, 10%
due 1/15/2008 6,305,000
GateHouse Media, Inc.:
591,667 Delay Draw Term Loan, 7.36% - 7.51%
due 9/15/2014 535,458
2,000,000 Term Loan B, 7.51% due 9/15/2014 1,810,000
Insight Midwest Holdings LLC:
6,750,000 Delay Draw Term Loan, 7.11%
due 4/03/2014 6,559,103
1,250,000 Term Loan B, 7.36% due 4/06/2014 1,214,649
1,000,000 Local TV LLC Term Loan, 7.31% due 5/15/2013 940,000
485,000 Multicultural Radio Broadcasting Inc. Term
Loan, 8.288% due 12/15/2012 470,450
997,498 NEP Supershooters, LP Term Loan B, 7.61%
due 2/13/2014 949,286
992,500 Nielsen Finance LLC Term Loan B, 7.36%
due 8/15/2013 953,076
1,000,000 Penton Media Term Loan, 10.36% due 2/15/2014 937,500
1,500,000 Persona Communications Second Lien
Term Loan, 11.565% due 4/30/2014 1,500,000
ProSiebenSat. 1 Media AG Term Loan B:
EUR 500,000 6.796% due 6/30/2015 620,675
1,000,000 7.039% due 6/30/2016 1,222,194
Riverdeep Group Ltd.:
USD 963,550 Bridge Loan, 11.55% due 12/21/2007 958,732
997,494 Term Loan B, 8.11% due 12/21/2013 976,048
4,697,987 Univision Communications, Inc. Delay Draw
Term Loan, 7.61% due 9/30/2014 4,337,806
--------------
61,541,328
===============================================================================
Multi-Utilities -- 0.6%
Brand Energy Term Loan B:
498,750 7.625% - 7.813% due 2/15/2014 472,981
500,000 11.375% - 11.563% due 2/15/2015 484,167
Coleto Creek:
464,633 Letter of Credit, 8.11% due 7/31/2013 446,048
31,847 Term Loan B, 5.26% due 7/31/2013 30,573
750,000 Energy Transfer Equity LP Term Loan B,
7.106% due 11/01/2012 726,563
750,000 NE Energy Second Lien Term Loan, 9.875%
due 10/31/2014 723,750
1,000,000 USPF Holdings Term Loan, 7.082% - 7.09%
due 4/15/2014 950,000
--------------
3,834,082
===============================================================================
Oil, Gas & Consumable Fuels -- 3.1%
787,500 Big West Oil & Gas Term Loan B, 7.61%
due 5/15/2014 744,188
373,106 Carrizo Oil & Gas, Inc. Second Lien Term
Loan, 10.11% due 7/21/2010 367,509
6,400,000 Frontier Drilling Term Loan B, 9.18%
due 6/21/2013 6,272,000
Face
Amount Floating Rate Loan Interests** Value
===============================================================================
Oil, Gas & Consumable Fuels (concluded)
USD 2,000,000 Petroleum Geo-Services ASA Term Loan B,
7.11% due 6/30/2015 $ 1,931,666
2,000,000 SandRidge Energy, Inc. Term Loan B, 8.985%
due 3/01/2014 1,975,000
8,000,000 Scorpion Drilling Ltd. Second Lien Term
Loan, 12.86% due 5/05/2015 8,520,000
Western Refining Co. L.P.:
187,500 Delay Draw Term Loan, 7.07%
due 3/15/2014 178,125
1,205,357 Term Loan B, 7.07% due 3/15/2014 1,145,089
--------------
21,133,577
===============================================================================
Paper & Forest Products -- 1.0%
6,695,000 Verso Paper Holdings LLC Term Loan B,
11.606% due 2/01/2013 6,661,525
===============================================================================
Pharmaceuticals -- 0.4%
3,000,000 Pharmaceutical Technologies & Services (PTS)
Term Loan, 7.61% due 4/15/2014 2,737,500
===============================================================================
Real Estate Management & Development -- 0.6%
4,000,000 Enclave First Lien Term Loan, 6.14%
due 3/01/2012 3,788,280
445,174 Yellowstone Club Term Loan B, 7.883%
due 10/15/2010 426,625
--------------
4,214,905
===============================================================================
Road & Rail -- 0.6%
4,418,605 Swift Transportation Co., Inc. Term Loan B,
8.375% due 5/15/2014 3,905,861
===============================================================================
Software -- 1.1%
8,000,000 Aspect Software Second Lien Term Loan,
12.438% due 7/11/2010 7,520,000
===============================================================================
Specialty Retail -- 0.9%
2,000,000 ADESA, Inc. Term Loan B, 7.61%
due 10/30/2013 1,871,250
1,500,000 Burlington Coat Factory Warehouse Corp.
Term Loan B, 7.76% due 4/15/2013 1,404,107
3,500,000 Claire's Stores Term Loan B, 8.11%
due 5/24/2014 3,203,960
--------------
6,479,317
===============================================================================
Textiles, Apparel & Luxury Goods -- 0.3%
997,500 David's Bridal, Inc. Term Loan B, 7.36%
due 1/30/2014 927,675
300,000 Gold Toe Investment Corp. Second Lien Term
Loan, 11.36% due 4/30/2014 291,000
745,733 Renfro Corp. Term Loan B, 8.61% - 8.76%
due 9/30/2013 719,631
--------------
1,938,306
===============================================================================
Wireless Telecommunication Services -- 1.0%
4,750,000 Centennial Cellular Operating Co. Term Loan,
7.36% - 7.541% due 2/09/2011 4,609,875
2,000,000 IPC Systems First Lien Term Loan, 7.61%
due 5/25/2014 1,776,663
609,626 NG Wireless Term Loan, 10% due 7/31/2014 597,433
--------------
6,983,971
-------------------------------------------------------------------------------
Total Floating Rate Loan Interests
(Cost -- $311,584,203) -- 43.3% 298,727,029
===============================================================================
10 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments (continued) (in U.S. dollars)
Shares
Held Common Stocks Value
===============================================================================
Airlines -- 0.5%
221,600 Delta Air Lines, Inc. (d) $ 3,740,608
===============================================================================
Auto Components -- 0.0%
403 GenTek Inc. (d) 12,392
===============================================================================
Chemicals -- 0.1%
339,340 GEO Specialty Chemicals, Inc. (d) 339,340
===============================================================================
Commercial Services & Supplies -- 0.4%
90,876 Outsourcing Solutions Inc. (d) 2,544,521
===============================================================================
Communications Equipment -- 0.9%
150,354 Loral Space & Communications Ltd. (d) 6,026,188
===============================================================================
Containers & Packaging -- 0.2%
1,428,423 Viskase Cos., Inc. (d) 1,685,539
===============================================================================
Diversified Financial Services -- 0.2%
35,000 Preferred Term Securities VI, Ltd. 1,505,000
===============================================================================
Electrical Equipment -- 0.4%
286,757 Medis Technologies Ltd. (d) 3,025,287
===============================================================================
Hotels, Restaurants & Leisure -- 0.1%
5,000 HRP PIK Corp. Class B (m) 50
27,787 Lodgian, Inc. (d) 339,835
--------------
339,885
===============================================================================
Metals & Mining -- 0.1%
144,858 Neenah Enterprises, Inc. (d) 905,364
41,149 Acme Package Corp. Senior Holdings (d)(k) 1,234
--------------
906,598
===============================================================================
Paper & Forest Products -- 0.2%
36,342 Smurfit Kappa Plc (d) 795,575
211,149 Western Forest Products, Inc. Restricted
Shares (d) 453,890
--------------
1,249,465
===============================================================================
Semiconductors & Semiconductor Equipment -- 0.2%
55,172 Cypress Semiconductor Corp. (d) 1,381,507
-------------------------------------------------------------------------------
Total Common Stocks
(Cost -- $29,850,165) -- 3.3% 22,756,330
===============================================================================
Preferred Stocks
===============================================================================
Communications Equipment -- 0.3%
10,732 Loral Spacecom Corp. Series A, 12% (g) 2,189,334
===============================================================================
Oil, Gas & Consumable Fuels -- 1.5%
179 EXCO Resources, Inc., 7% (a) 2,040,600
737 EXCO Resources, Inc., 11% 8,401,800
--------------
10,442,400
-------------------------------------------------------------------------------
Total Preferred Stocks
(Cost -- $11,284,952) -- 1.8% 12,631,734
===============================================================================
Shares
Held Warrants (h) Value
===============================================================================
Auto Components -- 0.0%
471 GenTek Inc. Tranche B (expires 11/10/2008) $ 17,427
231 GenTek Inc. Tranche C (expires 11/10/2010) 7,392
--------------
24,819
===============================================================================
Health Care Providers & Services -- 0.0%
126,761 HealthSouth Corp. (expires 1/16/2014) 101,409
===============================================================================
Media -- 0.0%
15,000 Sirius Satellite Radio, Inc.
(expires 5/15/2009) 6,750
===============================================================================
Metals & Mining -- 0.1%
652,739 ACP Holding Co. (expires 9/30/2013) 783,287
===============================================================================
Wireless Telecommunication Services -- 0.1%
1,325 American Tower Corp. (expires 8/01/2008) 722,125
-------------------------------------------------------------------------------
Total Warrants
(Cost -- $870,754) -- 0.2% 1,638,390
===============================================================================
Beneficial
Interest Other Interests (f)
===============================================================================
Airlines -- 0.1%
USD 5,505,000 Delta Air Default, 8.33% Escrow 302,775
4,200,000 Delta Air Default, 10% Escrow 220,500
--------------
523,275
===============================================================================
Auto Components -- 0.0%
3,614,601 Cambridge Industries, Inc. (Litigation
Trust Certificates) 0
===============================================================================
Media -- 0.0%
Adelphia C.V.U.:
7,500,000 Escrow 750
5,000 Preferred Escrow 0
9,406,019 Recovery Trust 941
500,000 Adelphia Recovery Trust Series ACC-6B INT 0
--------------
1,691
===============================================================================
Paper & Forest Products -- 0.0%
18 Cellu Tissue Holdings, Inc. (Escrow Shares) 0
-------------------------------------------------------------------------------
Total Other Interests
(Cost -- $30,749) -- 0.1% 524,966
===============================================================================
Short-Term Securities
===============================================================================
USD 1,880,140 BlackRock Liquidity Series, LLC
Cash Sweep Series, 5.33% (c)(j) 1,880,140
-------------------------------------------------------------------------------
Total Short-Term Investments
(Cost -- $1,880,140) -- 0.3% 1,880,140
===============================================================================
Total Investments (Cost -- $958,373,599*) -- 131.6% 907,988,420
Liabilities in Excess of Other Assets -- (31.6%) (218,136,266)
--------------
Net Assets -- 100.0% $ 689,852,154
==============
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 11
Schedule of Investments (concluded) (in U.S. dollars)
* The cost and unrealized appreciation (depreciation) of investments as of
August 31, 2007, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................... $959,704,946
============
Gross unrealized appreciation ............................ $ 21,112,967
Gross unrealized depreciation ............................ (72,829,493)
------------
Net unrealized depreciation .............................. $(51,716,526)
============
** Floating rate loan interests in which the Fund invests generally pay
interest at rates that are periodically determined by reference to a base
lending rate plus a premium. The base lending rates are generally (i) the
lending rate offered by one or more European banks, such as LIBOR (London
InterBank Offered Rate), (ii) the prime rate offered by one or more U.S.
banks or (iii) the certificates of deposit rate.
(a) Convertible security.
(b) Floating rate security.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series $(34,610) $227,539
--------------------------------------------------------------------------
(d) Non-income producing security.
(e) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(f) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(g) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(h) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(i) Represents a step bond; the interest rate shown is the effective yield at
the time of purchase.
(j) Represents the current yield as of August 31, 2007.
(k) Restricted security as to resale, representing 0.0% of net assets, were as
follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Acme Package Corp.
Senior Holdings 11/25/2002 -- $1,234
--------------------------------------------------------------------------
(l) Subject to principal paydowns.
(m) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(n) As a result of bankruptcy proceedings, the company did not repay the
principal amount of the security upon maturity. The security is non-income
producing.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
o Forward foreign exchange contracts of August 31, 2007 were as follows:
--------------------------------------------------------------------------
Foreign Settlement Unrealized
Currency Sold Date Appreciation
--------------------------------------------------------------------------
EUR 3,000,000 October 2007 $ 36,284
==========================================================================
Total Unrealized Appreciation on Forward Foreign Exchange
Contracts (USD Commitment -- $4,131,197) $ 36,284
============
o Swaps outstanding as of August 31, 2007 were as follows:
--------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
--------------------------------------------------------------------------------
Sold credit default protection on Novelis Inc.
and receive 1.40%
Broker, JPMorgan Chase
Expires January 2008 USD 4,000,000 $ 3,608
Sold credit default protection on Ford Motor
Company and receive 3.80%
Broker, Lehman Brothers Special Finance
Expires March 2010 USD 10,000,000 (674,890)
Sold credit default protection on BAA Ferovial
Junior Term Loan and receive 2.00%
Broker, Deutsche Bank AG London
Expires June 2012 USD 900,000 (25,866)
Bought credit default protection on LCDX
Index and pay 1.20%
Broker, JPMorgan Chase
Expires June 2012 USD 4,500,000 (51,302)
Bought credit default protection on LCDX
Index and pay 1.20%
Broker, Morgan Stanley
Expires June 2012 USD 4,500,000 (51,302)
Sold credit default protection on LCDX
Index and receive 1.20%
Broker, Morgan Stanley
Expires June 2012 USD 4,500,000 96,602
Sold credit default protection on Dow Jones
CDX North America High Yield Series 8
and receive 2.75%
Broker, JPMorgan Chase
Expires June 2012 USD 5,950,000 (18,340)
Sold credit default protection on Dow Jones
CDX North America High Yield Index Series 8
and receive 2.75%
Broker, JPMorgan Chase
Expires June 2012 USD 5,950,000 (14,621)
Bought credit default protection on Frontier
Drilling and pay 3.45%
Broker, Lehman Brothers Special Finance
Expires September 2012 USD 2,250,000 63,029
Bought credit default protection on Frontier
Drilling ASA and pay 4.00%
Broker, Lehman Brothers Special Finance
Expires September 2012 USD 2,500,000 30,858
-------------------------------------------------------------------------------
Total $ (642,224)
==========
o Currency Abbreviations:
EUR Euro
USD U.S. Dollar
See Notes to Financial Statements.
12 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Statement of Assets, Liabilities and Capital
As of August 31, 2007 (Unaudited)
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $956,493,459) ... $ 906,108,280
Investments in affiliated securities, at value (identified cost -- $1,880,140) ....... 1,880,140
Cash ................................................................................. 1,639,787
Foreign cash (cost -- $3,393) ........................................................ 3,406
Unrealized appreciation on forward foreign exchange contracts ........................ 36,284
Swap premiums paid ................................................................... 543,282
Unrealized appreciation on swaps ..................................................... 194,097
Receivables:
Interest ....................................................................... $ 18,120,615
Securities sold ................................................................ 10,501,367
Swaps .......................................................................... 171,348
Dividends ...................................................................... 56,100
Commitment fees ................................................................ 19,129
Principal paydowns ............................................................. 4,492 28,873,051
--------------
Prepaid expenses and other assets .................................................... 12,573
---------------
Total assets ......................................................................... 939,290,900
---------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Loans ................................................................................ 242,000,000
Unrealized depreciation on swaps ..................................................... 836,321
Swap premiums received ............................................................... 860,377
Unfunded loan commitment ............................................................. 172,956
Payables:
Securities purchased ........................................................... 3,756,675
Investment adviser ............................................................. 528,886
Dividends to shareholders ...................................................... 417,091
Interest on loans .............................................................. 384,880
Swaps .......................................................................... 48,835
Other affiliates ............................................................... 5,928 5,142,295
--------------
Accrued expenses and other liabilities ............................................... 426,797
---------------
Total liabilities .................................................................... 249,438,746
---------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets ........................................................................... $ 689,852,154
===============
===================================================================================================================================
Capital
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share, 200,000,000 shares authorized (106,629,991
shares issued and outstanding) .................................................... $ 10,662,999
Paid-in capital in excess of par ..................................................... 1,031,571,951
Undistributed investment income -- net ............................................... $ 8,971,210
Accumulated realized capital losses -- net ........................................... (310,188,228)
Unrealized depreciation -- net ....................................................... (51,165,778)
--------------
Total accumulated losses -- net ...................................................... (352,382,796)
---------------
Total capital -- Equivalent to $6.47 net asset value per
share of Common Stock (market price -- $6.41) ..................................... $ 689,852,154
===============
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 13
Statement of Operations
For the Six Months Ended August 31, 2007 (Unaudited)
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest (including $227,539 from affiliates) ........................................... $ 47,294,181
Dividends ............................................................................... 883,319
Facility and other fees ................................................................. 206,950
-------------
Total income ............................................................................ 48,384,450
-------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Loan interest expense ................................................................... $ 8,696,741
Investment advisory fees ................................................................ 3,176,273
Borrowing costs ......................................................................... 206,396
Accounting services ..................................................................... 122,892
Professional fees ....................................................................... 54,700
Custodian fees .......................................................................... 31,518
Printing and shareholder reports ........................................................ 30,129
Transfer agent fees ..................................................................... 29,030
Listing fees ............................................................................ 20,584
Directors' fees and expenses ............................................................ 20,178
Pricing services ........................................................................ 17,450
Other ................................................................................... 23,270
-------------
Total expenses .......................................................................... 12,429,161
-------------
Investment income -- net ................................................................ 35,955,289
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net ................................................................... 2,211,707
Swaps -- net ......................................................................... 441,649
Foreign currency transactions -- net ................................................. (84,408) 2,568,948
-------------
Change in unrealized appreciation/depreciation on:
Investments -- net ................................................................... (61,585,299)
Swaps -- net ......................................................................... (593,358)
Unfunded corporate loans -- net ...................................................... (187,096)
Foreign currency transactions -- net ................................................. 34,581 (62,331,172)
----------------------------
Total realized and unrealized loss -- net ............................................... (59,762,224)
-------------
Net Decrease in Net Assets Resulting from Operations .................................... $ (23,806,935)
=============
See Notes to Financial Statements.
14 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Statements of Changes in Net Assets
For the Six
Months Ended For the
August 31, Year Ended
2007 February 28,
Increase (Decrease) in Net Assets: (Unaudited) 2007
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ................................................................ $ 35,955,289 $ 71,630,035
Realized gain (loss) -- net ............................................................. 2,568,948 (6,186,913)
Change in unrealized appreciation/depreciation -- net ................................... (62,331,172) 37,848,881
----------------------------
Net increase (decrease) in net assets resulting from operations ......................... (23,806,935) 103,292,003
----------------------------
===================================================================================================================================
Dividends to Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from investment income -- net ................................. (33,878,178) (69,729,202)
----------------------------
===================================================================================================================================
Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends ........ 1,593,204 3,970,321
----------------------------
Net increase in net assets resulting from stock transactions ............................ 1,593,204 3,970,321
----------------------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ................................................. (56,091,909) 37,533,122
Beginning of period ..................................................................... 745,944,063 708,410,941
----------------------------
End of period* .......................................................................... $ 689,852,154 $ 745,944,063
============================
* Undistributed investment income -- net ............................................. $ 8,971,210 $ 6,894,099
============================
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 15
Statement of Cash Flows
For the Six Months Ended August 31, 2007 (Unaudited)
===================================================================================================================================
Cash Provided by Operating Activities
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations .................................................. $ (23,806,935)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash
provided by operating activities:
Increase in other receivables and prepaid expenses .............................................. (879,715)
Increase in other liabilities ................................................................... 449,614
Paid-in-kind income ............................................................................. (1,721,148)
Realized and unrealized loss -- net ............................................................. 61,451,786
Realized loss on foreign currency transactions -- net ........................................... (84,408)
Amortization of premium and discount ............................................................ (1,433,842)
Proceeds from sales and paydowns of long-term securities .............................................. 405,686,464
Purchases of long-term securities ..................................................................... (349,854,688)
Net sales of short-term investments ................................................................... 34,610
--------------
Cash provided by operating activities ................................................................. 89,841,738
--------------
===================================================================================================================================
Cash Used for Financing Activities
-----------------------------------------------------------------------------------------------------------------------------------
Cash receipts from borrowings ......................................................................... 168,000,000
Cash payments from borrowings ......................................................................... (224,600,000)
Dividends paid to shareholders ........................................................................ (31,867,883)
--------------
Net cash used for financing activities ................................................................ (88,467,883)
--------------
===================================================================================================================================
Cash
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash .................................................................................. 1,373,855
Cash at beginning of period ........................................................................... 269,338
--------------
Cash at end of period ................................................................................. $ 1,643,193
==============
===================================================================================================================================
Cash Flow Information
-----------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest ................................................................................ $ 8,496,992
==============
===================================================================================================================================
Non-Cash Financing Activities
-----------------------------------------------------------------------------------------------------------------------------------
Value of capital shares issued in reinvestment of dividends to shareholders ........................... $ 1,593,204
==============
See Notes to Financial Statements.
16 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Financial Highlights
For the Six
Months Ended For the Year Ended For the For the
The following per share data and ratios have August 31, February 28, Year Ended Year Ended
been derived from information provided in the 2007 ------------------------------ February 29, February 28,
financial statements. (Unaudited) 2007 2006 2005 2004 2003
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period .......................... $ 7.01 $ 6.69 $ 7.06 $ 6.71 $ 5.35 $ 6.03
-------------------------------------------------------------------------------
Investment income -- net*** ......... .34 .68 .63 .67 .75 .79
Realized and unrealized gain
(loss) -- net .................... (.56) .28 (.35) .34 1.40 (.68)
-------------------------------------------------------------------------------
Total from investment operations .... (.22) .96 .28 1.01 2.15 .11
-------------------------------------------------------------------------------
Less dividends from investment
income -- net .................... (.32) (.64) (.65) (.66) (.79) (.79)
-------------------------------------------------------------------------------
Recovery of previously expensed
offering costs (capital
write-off) resulting from the
issuance of Common Stock ......... -- -- -- -- --+ --
-------------------------------------------------------------------------------
Net asset value, end of period ...... $ 6.47 $ 7.01 $ 6.69 $ 7.06 $ 6.71 $ 5.35
===============================================================================
Market price per share, end of
period ........................... $ 6.41 $ 7.28 $ 6.77 $ 6.71 $ 6.69 $ 5.99
===============================================================================
===================================================================================================================================
Total Investment Return**
-----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .. (3.29%)+++ 15.35% 4.57% 15.95% 41.84% 2.04%
===============================================================================
Based on market price per share ..... (7.74%)+++ 18.37% 11.34% 10.53% 26.31% 4.85%
===============================================================================
===================================================================================================================================
Ratios to Average Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest
expense .......................... .99%* .99% 1.02% 1.02% 1.00% 1.07%
===============================================================================
Expenses ............................ 3.30%* 3.16% 2.63% 1.83% 1.53% 1.91%
===============================================================================
Investment income -- net ............ 9.56%* 9.97% 9.55% 9.84% 12.22% 14.32%
===============================================================================
===================================================================================================================================
Leverage
-----------------------------------------------------------------------------------------------------------------------------------
Amount of borrowings, end of
period (in thousands) ............ $ 242,000 $298,600 $259,900 $298,400 $ 269,075 $ 245,900
===============================================================================
Average amount of borrowings
outstanding during the period
(in thousands) ................... $ 302,039 $283,906 $294,371 $304,549 $ 239,315 $ 238,863
===============================================================================
Average amount of borrowings
outstanding per share during
the period*** .................... $ 2.84 $ 2.68 $ 2.79 $ 2.89 $ 2.29 $ 2.31
===============================================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................... $ 689,852 $745,944 $708,411 $745,256 $ 706,261 $ 557,068
===============================================================================
Portfolio turnover .................. 31% 65% 46% 60% 70% 65%
===============================================================================
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Based on average shares outstanding.
+ Amount is less than $.01 per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 17
Notes to Financial Statements (Unaudited)
1. Significant Accounting Policies:
BlackRock Debt Strategies Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period. All such adjustments are of a normal,
recurring nature. The Fund determines and makes available for publication the
net asset value of its Common Stock on a daily basis. The Fund's Common Stock
shares are listed on the New York Stock Exchange ("NYSE") under the symbol DSU.
(a) Corporate debt obligations -- The Fund invests principally in debt
obligations of companies, including floating rate loans made by banks and other
financial institutions and both privately and publicly offered corporate bonds
and notes. The Fund's investments in loan participation interests involve the
risk of insolvency of the financial intermediaries who are parties to the
transactions.
(b) Valuation of investments -- Floating rate loans are valued in accordance
with guidelines established by the Fund's Board of Directors. Floating rate loan
interests are valued at the mean between the last available bid prices from one
or more brokers or dealers as obtained from Loan Pricing Corporation. For the
limited number of floating rate loans for which no reliable price quotes are
available, such floating rate loans will be valued by Loan Pricing Corporation
through the use of pricing matrixes to determine valuations. If the pricing
service does not provide a value for floating rate loans, BlackRock Advisors,
LLC (the "Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc.,
will value the floating rate loans at fair value, which is intended to
approximate market value.
Debt securities are traded primarily in the over-the-counter ("OTC") market and
are valued at the last available bid price in the OTC market or on the basis of
values obtained by a pricing service. Pricing services use valuation matrixes
that incorporate both dealer-supplied valuations and valuation models. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general direction of the Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Securities held by the Fund that are traded on stock exchanges or the NASDAQ
Global Market are valued at the last sale price or official close price on the
exchange on which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last available
bid price for long positions, and at the last available asked price for short
positions. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated as the primary market by or
under the authority of the Board of Directors of the Fund. Long positions in
securities traded in the OTC market, NASDAQ Capital Market or Bulletin Board are
valued at the last available bid price or yield equivalent obtained from one or
more dealers or pricing services approved by the Board of Directors of the Fund.
Short positions in securities traded in the OTC market are valued at the last
available asked price. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based on the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by the Fund are valued at their
last sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Swap agreements are valued
based upon quoted fair valuations received daily by the Fund from a pricing
service or counterparty. Other investments, including futures contracts and
related options, are stated at market value. Obligations with remaining
maturities of 60 days or less are valued at amortized cost unless the Manager
believes that this method no longer produces fair valuations. Valuation of other
short-term investment vehicles is generally based on the net asset value of the
underlying investment vehicle or amortized cost. Repurchase agreements will be
valued at cost plus accrued interest.
Generally, trading in foreign securities, as well as U.S. government securities,
money market instruments and certain fixed income securities, is substantially
completed each day at various times prior to the close of business on the NYSE.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
will generally be determined as of the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
18 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Notes to Financial Statements (continued)
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities will be valued
at their fair value as determined in good faith by the Fund's Board of Directors
or by the Manager using a pricing service and/or procedures approved by the
Fund's Board of Directors.
(c) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits, and maintains as
collateral, such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
o Options -- The Fund may write covered call and put options and purchase
call and put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss on
the option to the extent of the premiums received or paid (or gain or loss
to the extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
o Swaps -- The Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a predetermined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
o Forward foreign exchange contracts -- The Fund may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. The contract is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or
loss. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value at the time it was opened
and the value at the time it was closed.
(d) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 19
Notes to Financial Statements (continued)
(e) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(f) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities. The Fund earns facility and other
fees on loan participation interests. Other fees earned include amendment,
consent and prepayment fees.
(g) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(h) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Recent accounting pronouncements -- Effective August 31, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended February 28, 2004 through February 28, 2007.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, FASB issued Statement of Financial Accounting
Standards No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities" ("FAS 159"), was issued and is effective for fiscal years beginning
after November 15, 2007. Early adoption is permitted as of the beginning of a
fiscal year that begins on or before November 15, 2007, provided the entity
also elects to apply the provisions of FAS 157. FAS 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with the Manager.
Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services
Group, Inc. are principal owners of BlackRock, Inc.
20 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
Notes to Financial Statements (concluded)
The Manager is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays a monthly fee at an annual rate of .60% of the Fund's average daily net
assets plus the proceeds of any outstanding borrowings used for leverage. In
addition, the Manager has entered into a Sub-Advisory Agreement with BlackRock
Financial Management, LLC ("BFM"), an affiliate of the Manager, under which the
Manager pays BFM for services it provides a monthly fee at an annual rate that
is a percentage of the management fee paid by the Fund to the Manager.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, or its
affiliates. Pursuant to that order, the Fund has retained BlackRock Investment
Management, LLC ("BIM"), an affiliate of the Manager, as the securities lending
agent for a fee based on a share of the returns on investment of cash
collateral. BIM may, on behalf of the Fund, invest cash collateral received by
the Fund for such loans, among other things, in a private investment company
managed by the Manager or in registered money market funds advised by the
Manager or its affiliates.
For the six months ended August 31, 2007, the Fund reimbursed the Manager
$7,641 for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales ( including paydowns) of investments, excluding short-term
securities, for the six months ended August 31, 2007 were $313,008,645 and
$406,966,430, respectively.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10 per share, all of which were initially classified as Common Stock. The
Board of Directors is authorized, however, to classify and reclassify any
unissued shares of capital stock without approval of the holders of Common
Stock.
Shares issued and outstanding during the six months ended August 31, 2007 and
the year ended February 28, 2007 increased by 227,222 and 579,550, respectively,
as a result of dividend reinvestment.
5. Unfunded Loan Commitments:
As of August 31, 2007, the Fund had unfunded loan commitments of approximately
$3,455,000, which would be extended at the option of the borrower, pursuant to
the following loan agreements:
(in Thousands)
--------------------------------------------------------------------------------
Value of
Unfunded Underlying
Borrower Commitment Loan
--------------------------------------------------------------------------------
Big West Oil ......................................... $ 963 $ 909
Las Vegas Sands ...................................... $ 800 $ 760
MEG Energy Corp. ..................................... $ 1,250 $ 1,196
NG Wireless .......................................... $ 140 $ 138
Univision Communications, Inc. ....................... $ 302 $ 279
--------------------------------------------------------------------------------
6. Short-Term Borrowings:
On May 16, 2007, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The agreement
was renewed for one year and has a maximum limit of $370,000,000. Under the
Citicorp program, the conduits will fund advances to the Fund through the
issuance of highly rated commercial paper. As security for its obligations to
the Lenders under the revolving securitization facility, the Fund has granted a
security interest in substantially all of its assets to and in favor of the
Lenders. The interest rate on the Fund's borrowings is based on the interest
rate carried by the commercial paper plus a program fee. The Fund pays
additional borrowing costs including a backstop commitment fee.
The weighted average annual interest rate was 5.62% and the average borrowing
was approximately $302,039,000 for the six months ended August 31, 2007.
7. Capital Loss Carryforward:
On February 28, 2007, the Fund had a net capital loss carry-forward of
$310,688,248, of which $51,234,056 expires in 2008, $21,442,332 expires in 2009,
$90,564,493 expires in 2010, $85,285,305 expires in 2011, $17,223,475 expires in
2012, $21,126,025 expires in 2013, $20,233,987 expires in 2014 and $3,578,575
expires in 2015. This amount will be available to offset like amounts of any
future taxable gains.
8. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $.053000 per share on
September 28, 2007 to shareholders of record on September 14, 2007.
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 21
Officers and Directors
Robert C. Doll, Jr., President and Director
Ronald Forbes, Director
Cynthia A. Montgomery, Director
Jean Margo Reid, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Donald C. Burke, Vice President and Treasurer
Karen Clark, Fund Chief Compliance Officer
Alice A. Pellegrino, Fund Secretary
Howard Surloff, Fund Secretary
(Effective November 1, 2007)
Custodian
The Bank of New York
100 Church Street New
York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
22 BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law
or as is necessary to respond to regulatory requests or to service Client
accounts. These non-affiliated third parties are required to protect the
confidentiality and security of this information and to use it only for its
intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
Shareholders Who Hold Accounts with Investment Advisers, Banks or
Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisers, banks or brokerages may offer this service.
BLACKROCK DEBT STRATEGIES FUND, INC. AUGUST 31, 2007 23
GO
[PAPERLESS LOGO]
It's Fast, Convenient, & Timely!
BlackRock Debt Strategies Fund, Inc. seeks to provide current income by
investing primarily in a diversified portfolio of U.S. companies' debt
instruments, including corporate loans, that are rated in the lower rating
categories of the established rating services (Baa or lower by Moody's Investors
Service, Inc. or BBB or lower by Standard & Poor's) or unrated debt instruments
of comparable quality.
This report, including the financial information herein, is transmitted to
shareholders of BlackRock Debt Strategies Fund, Inc. for their information. It
is not a prospectus. Past performance results shown in this report should not be
considered a representation of future performance. The Fund leverages its Common
Stock to provide Common Stock shareholders with a potentially higher rate of
return. Leverage creates risk for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price of Common
Stock shares, and the risk that fluctuations in short-term interest rates may
reduce the Common Stock's yield. Statements and other information herein are as
dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Debt Strategies Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#DEBT-8/07
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item
1 of this form.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this
semi-annual report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable to this semi-annual report
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send
nominations which include biographical information and set forth
the qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded
that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940,
as amended (the "1940 Act")) are effective as of a date within 90
days of the filing of this report based on the evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940
Act and Rule 13a-15(b) under the Securities and Exchange Act of
1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the second fiscal quarter of the period
covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Debt Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
----------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer (principal executive officer) of
BlackRock Debt Strategies Fund, Inc.
Date: October 22, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
----------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer (principal executive officer) of
BlackRock Debt Strategies Fund, Inc.
Date: October 22, 2007
By: /s/ Donald C. Burke
----------------------------------------
Donald C. Burke,
Chief Financial Officer (principal financial officer) of
BlackRock Debt Strategies Fund, Inc.
Date: October 22, 2007