UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08603
Name of Fund: BlackRock Debt Strategies Fund, Inc. (DSU)
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: Donald C. Burke, 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, Option 4
Date of fiscal year end: 02/29/2008
Date of reporting period: 03/01/2007 - 02/29/2008
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Debt Strategies Fund, Inc. (DSU) BLACKROCK
ANNUAL REPORT | FEBRUARY 29, 2008
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
--------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Annual Report:
Fund Summary ............................................................. 4
The Benefits and Risks of Leveraging ..................................... 5
Swap Agreements .......................................................... 5
Financial Statements:
Schedule of Investments .............................................. 6
Statement of Assets and Liabilities .................................. 15
Statement of Operations .............................................. 15
Statements of Changes in Net Assets .................................. 16
Statement of Cash Flows .............................................. 17
Financial Highlights ..................................................... 18
Notes to Financial Statements ............................................ 19
Report of Independent Registered Public Accounting Firm .................. 24
Important Tax Information (Unaudited) .................................... 24
Automatic Dividend Reinvestment Plan ..................................... 25
Officers and Directors ................................................... 26
Additional Information ................................................... 30
2 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
A Letter to Shareholders
Dear Shareholder
Financial markets weathered intense bouts of volatility in 2007, only to enter
2008 with no relief. January and February proved to be trying months for
equities, but strong ones for some areas of the bond market, as fears of an
economic recession swelled. The Federal Reserve Board (the "Fed"), after cutting
the target federal funds rate 100 basis points (1%) between September 2007 and
year-end, more than matched those cuts in January alone. Responding to a slowing
economy and continued fallout from chaos in the credit markets, the Fed cut
interest rates 75 basis points in a rare unscheduled session on January 22, and
followed with a 50-basis-point cut at its regular meeting on January 30. Another
75-basis-point cut on March 18 brought the target rate to 2.25%.
Reverberations from the U.S. subprime mortgage collapse, and the associated
liquidity and credit crisis, continue to permeate global financial markets. The
S&P 500 Index of U.S. stocks was down in February, marking the fourth
consecutive month of negative returns. International markets, while not
unscathed, generally have outperformed their U.S. counterparts so far in 2008.
Emerging markets, benefiting from stronger economic growth rates, have done
particularly well. In fixed income markets, fears related to the economic
slowdown and related credit crisis have led to a prolonged flight to quality.
Investors have largely shunned bonds associated with the housing and credit
markets in favor of higher-quality government issues. The yield on 10-year
Treasury issues, which touched 5.30% in June 2007 (its highest level in five
years), fell to 4.04% by year-end and to 3.53% by the end of February, while
prices correspondingly rose.
After setting a new-issuance record in 2007, supply in the municipal bond market
has been on the decline for four consecutive months (measured year over year).
The market has struggled with concerns around the creditworthiness of monoline
bond insurers and the failure of auctions for auction rate securities, driving
yields higher and prices lower across the curve. By period-end, municipal bonds
were trading at higher yields than their Treasury counterparts, a very unusual
occurrence by historical standards.
Against this backdrop, the major benchmark indexes posted mixed results for the
current reporting period, generally reflecting heightened investor risk
aversion:
Total Returns as of February 29, 2008 6-month 12-month
===========================================================================================================
U.S. equities (S&P 500 Index) - 8.79% - 3.60%
-----------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) -12.91 -12.44
-----------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) - 4.71 + 0.84
-----------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) + 5.67 + 7.30
-----------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) - 0.60 - 1.17
-----------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Capped Index) - 1.39 - 3.08
-----------------------------------------------------------------------------------------------------------
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 today's volatile markets, we encourage you to review your
investment goals with your financial professional and to make portfolio changes,
as needed. For more up-to-date commentary on the economy and financial markets,
we invite you to visit www.blackrock.com/funds. As always, 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/ Rob Kapito
Rob Kapito
President, BlackRock Advisors, LLC
3
THIS PAGE NOT PART OF YOUR FUND REPORT
Fund Summary as of February 29, 2008
Investment Objective
BlackRock Debt Strategies Fund, Inc. (DSU) 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 (Ba or lower by Moody's Investors
Service, Inc. or BB or lower by Standard & Poor's) or unrated debt instruments
of comparable quality.
Performance
For the year ended February 29, 2008, the Fund returned -17.13% based on market
price, with dividends reinvested. The Fund's return based on net asset value
("NAV") was -11.72%, with dividends reinvested. For the same period, the Lipper
High Current Yield Funds (Leveraged) category posted a return of -16.04% on a
NAV basis. Fund performance was hampered by an overweight investment in
CCC-rated issues, whose spreads widened more than higher-rated securities during
the period. The Fund's large leverage position (approximately 25% of total
assets invested) and the poor performance of bank loans also were significant
detractors from performance.
Fund Information
Symbol on New York Stock Exchange ............................ DSU
Initial Offering Date ........................................ March 27, 1998
Yield on Closing Market Price as of February 29, 2008 ($5.43)* 11.71%
Current Monthly Distribution per share of Common Stock** ..... $.053
Current Annualized Distribution per share of Common Stock** .. $.636
Leverage as of February 29, 2008*** .......................... 25%
--------------------------------------------------------------------------------
* 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.
*** 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:
--------------------------------------------------------------------------------
2/29/08 2/28/07 Change High Low
--------------------------------------------------------------------------------
Market Price ........... $5.43 $7.28 (25.41%) $7.44 $4.72
Net Asset Value ........ $5.57 $7.01 (20.54%) $7.08 $5.50
--------------------------------------------------------------------------------
The following charts show the Fund's portfolio composition and credit quality
allocations of the Fund's long-term investments:
================================================================================
Portfolio Composition
--------------------------------------------------------------------------------
Asset Mix 2/29/08 2/28/07
--------------------------------------------------------------------------------
Corporate Bonds ....................................... 57% 70%
Floating Rate Loan Interests .......................... 39 28
Common Stocks ......................................... 3 2
Preferred Stocks ...................................... 1 --
--------------------------------------------------------------------------------
================================================================================
Credit Quality Allocations*
--------------------------------------------------------------------------------
Credit Rating 2/29/08 2/28/07
--------------------------------------------------------------------------------
BBB/Baa 1% 1%
BB/Ba ................................................. 13 11
B/B ................................................... 50 61
CCC/Caa ............................................... 19 15
CC/Ca ................................................. 3 1
D ..................................................... 1 1
Not Rated ............................................. 9 8
Other** ............................................... 4 2
--------------------------------------------------------------------------------
* Using the higher of Standard & Poor's or Moody's Investors Service
ratings.
** Includes portfolio holdings in common stocks, preferred stocks, warrants
and other interests.
4 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
The Benefits and Risks of Leveraging
BlackRock Debt Strategies Fund, Inc. (the "Fund") utilizes leverage through
borrowings or issuance of short-term debt securities. 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 Common Stock shareholders including the likelihood of
greater NAV and market price volatility. In addition, there is the risk that
fluctuations in interest rates on borrowings may reduce the Common Stock's yield
and negatively impact its NAV 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.
Swap Agreements
The Fund may invest in swap agreements, which are over-the-counter contracts in
which one party agrees to make periodic payments based on the change in market
value of a specified bond, basket of bonds, or index in return for periodic
payments based on a fixed or variable interest rate or the change in market
value of a different bond, basket of bonds or index. Swap agreements may be used
to obtain exposure to a bond or market without owning or taking physical custody
of securities. Swap agreements involve the risk that the party with whom the
Fund has entered into the swap will default on its obligation to pay the Fund
and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 5
Schedule of Investments as of February 29, 2008
(Percentages shown are based on Net Assets)
Par
Corporate Bonds (000) Value
===================================================================================
Aerospace & Defense -- 1.9%
Alliant Techsystems, Inc., 3%
due 8/15/2024 (a)(b) USD 5,000 $ 7,443,750
Vought Aircraft Industries, Inc., 8%
due 7/15/2011 4,447 4,119,034
-------------
11,562,784
===================================================================================
Auto Components -- 1.1%
Allison Transmission, 11.25%
due 11/01/2015 (b)(c) 1,920 1,512,060
The Goodyear Tire & Rubber Co.,
8.625% due 12/01/2011 2 2,080
Lear Corp., 8.75% due 12/01/2016 1,020 879,750
Metaldyne Corp., 11% due 6/15/2012 9,350 3,927,000
Venture Holdings Co. LLC:
12% due 6/01/2009 (d) 4,450 --
Series B, 9.50% due 7/01/2005 (j) 1,800 180
-------------
6,321,070
===================================================================================
Biotechnology -- 0.7%
Angiotech Pharmaceuticals, Inc., 6.826%
due 12/01/2013 (e) 5,000 3,950,000
===================================================================================
Building Products -- 1.5%
CPG International I, Inc.:
11.468% due 7/01/2012 (e) 7,500 6,225,000
10.50% due 7/01/2013 1,300 1,144,000
Masonite International Corp., 11%
due 4/06/2015 2,270 1,566,300
-------------
8,935,300
===================================================================================
Capital Markets -- 1.6%
E*Trade Financial Corp., 12.50%
due 11/30/2017 (b) 10,000 9,525,000
===================================================================================
Chemicals -- 5.8%
American Pacific Corp., 9% due 2/01/2015 1,490 1,445,300
ArCo Chemical Co., 9.80% due 2/01/2020 3,550 2,999,750
GEO Specialty Chemicals, Inc., 13.85%
due 12/31/2009 (a)(b) 9,783 7,325,021
Hanna MT Co., 6.89% due 9/22/2008 (k) 2,500 2,500,000
Hexion U.S. Finance Corp., 7.565%
due 11/15/2014 (e) 3,100 2,774,500
Ineos Group Holdings Plc, 8.50%
due 2/15/2016 (b) 1,760 1,320,000
MacDermid, Inc., 9.50% due 4/15/2017 (b) 6,360 5,596,800
NOVA Chemicals Corp., 7.863%
due 11/15/2013 (e) 12,305 10,459,250
-------------
34,420,621
===================================================================================
Commercial Banks -- 0.5%
Investcorp SA, 7.54% due 10/21/2008 1,500 1,505,077
Preferred Term Securities VI, Ltd., 6.54%
due 7/03/2032 (a)(b) 3,500 1,417,500
-------------
2,922,577
===================================================================================
Commercial Services & Supplies -- 1.7%
PNA Intermediate Holding Corp., 10.065%
due 2/15/2013 (b)(c)(e) 1,090 962,194
Sally Holdings LLC, 10.50%
due 11/15/2016 3,043 2,769,130
US Investigations Services, Inc., 10.50%
due 11/01/2015 (b) 3,400 2,822,000
===================================================================================
West Corp., 11% due 10/15/2016 3,270 2,738,625
The Yankee Candle Company, Inc., 9.75%
due 2/15/2017 920 745,200
-------------
10,037,149
===================================================================================
Computers & Peripherals -- 0.3%
Viasystems, Inc., 10.50% due 1/15/2011 1,600 1,552,000
===================================================================================
Construction Materials -- 0.8%
Nortek, Inc., 8.50% due 9/01/2014 5,850 4,533,750
===================================================================================
Containers & Packaging -- 4.8%
Berry Plastics Holding Corp.:
8.875% due 9/15/2014 665 586,862
8.866% due 9/15/2014 (e) 375 296,250
Graphic Packaging International Corp.,
9.50% due 8/15/2013 705 664,462
Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (b) 6,215 4,909,850
Smurfit Kappa Funding Plc, 7.75%
due 4/01/2015 13,625 12,262,500
Smurfit-Stone Container Enterprises, Inc.:
8.375% due 7/01/2012 1,600 1,504,000
8% due 3/15/2017 2,600 2,301,000
Wise Metals Group LLC, 10.25%
due 5/15/2012 6,325 5,898,062
-------------
28,422,986
===================================================================================
Distributors -- 0.3%
Buhrmann US, Inc., 7.875%
due 3/01/2015 2,000 1,890,000
===================================================================================
Diversified Consumer Services -- 0.6%
NBC Acquisition Corp., 11%
due 3/15/2013 (f) 3,875 3,584,375
===================================================================================
Diversified Financial Services -- 1.1%
Archimedes Funding III Ltd., 5.50%
due 11/29/2011 (b) 5,744 2,871,845
Ford Motor Credit Co. LLC:
5.80% due 1/12/2009 760 734,623
7.127% due 1/13/2012 (e) 2,680 2,108,983
8.708% due 4/15/2012 (e) 750 718,017
-------------
6,433,468
===================================================================================
Diversified Telecommunication
Services -- 0.4%
Qwest Corp., 6.05% due 6/15/2013 (e) 2,675 2,574,687
===================================================================================
Electric Utilities -- 0.9%
NSG Holdings LLC, 7.75%
due 12/15/2025 (b) 5,380 5,211,875
===================================================================================
Electronic Equipment &
Instruments -- 1.0%
Muzak Holdings, LLC, 13%
due 3/15/2010 (f) 2,675 1,337,500
NXP BV, 7.008% due 10/15/2013 (e) 5,520 4,457,400
-------------
5,794,900
===================================================================================
See Notes to Financial Statements.
6 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Par
Corporate Bonds (000) Value
===================================================================================
Energy Equipment & Services -- 2.3%
Compagnie Generale de Geophysique-Veritas,
due 5/15/2015 USD 245 $ 246,225
Ocean RIG ASA, 8.681% due 4/04/2011 (e) 8,000 7,840,000
SemGroup LP, 8.75% due 11/15/2015 (b) 6,300 5,859,000
-------------
13,945,225
===================================================================================
Food & Staples Retailing -- 0.2%
Rite Aid Corp., 9.375% due 12/15/2015 1,910 1,480,250
===================================================================================
Gas Utilities -- 0.5%
El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (b) 2,900 3,008,237
===================================================================================
Health Care Equipment & Supplies -- 3.1%
LVB Acquisition Merger Sub, Inc. (b):
10% due 10/15/2017 1,200 1,240,500
11.625% due 10/15/2017 1,600 1,574,000
10.375% due 10/15/2017 (c) 1,200 1,169,484
ReAble Therapeutics Finance LLC, 10.875%
due 11/15/2014 (b) 15,000 14,175,000
-------------
18,158,984
===================================================================================
Health Care Providers & Services -- 0.9%
Community Health Systems, Inc. Series WI,
8.875% due 7/15/2015 3,575 3,507,969
Universal Hospital Services, Inc.:
8.288% due 6/01/2015 (e) 930 874,200
8.50% due 6/01/2015 (c) 1,000 978,402
-------------
5,360,571
===================================================================================
Hotels, Restaurants & Leisure -- 8.0%
HRP Myrtle Beach Operations LLC:
9.894% due 4/01/2012 (e) 5,000 4,350,000
12.50% due 4/01/2013 5,000 4,450,000
14.50% due 4/01/2014 (b)(c) 6,418 5,647,718
Harrah's Operating Co., Inc. (b):
10.75% due 2/01/2016 10,731 9,309,142
10.75% due 2/01/2018 (c) 4,260 3,390,299
Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (b) 2,560 2,563,200
Pinnacle Entertainment, Inc., 7.50%
due 6/15/2015 (b) 2,700 2,079,000
Shingle Springs Tribal Gaming Authority,
9.375% due 6/15/2015 (b) 1,370 1,219,300
Snoqualmie Entertainment Authority, 6.936%
due 2/01/2014 (b)(e) 1,015 877,975
Station Casinos, Inc., 7.75%
due 8/15/2016 3,400 2,830,500
Travelport LLC, 7.701% due 9/01/2014 (e) 2,600 2,080,000
Tropicana Entertainment LLC Series WI,
9.625% due 12/15/2014 1,680 806,400
Tunica-Biloxi Gaming Authority, 9%
due 11/15/2015 (b) 3,000 2,970,000
Universal City Florida Holding Co. I, 7.989%
due 5/01/2010 (e) 5,300 5,094,625
-------------
47,668,159
===================================================================================
Household Durables -- 0.5%
Jarden Corp., 7.50% due 5/01/2017 1,910 1,673,637
Stanley-Martin Communities LLC, 9.75%
due 8/15/2015 2,250 1,080,000
-------------
2,753,637
===================================================================================
Independent Power Producers &
Energy Traders -- 0.9%
Energy Future Holding Corp., 11.25%
due 11/01/2017 (b)(c) 3,200 3,046,034
Texas Competitive Electric Holdings Co. LLC,
10.50% due 11/01/2016 (b)(c) 2,400 2,255,238
-------------
5,301,272
===================================================================================
Insurance -- 0.6%
Alliant Holdings I, Inc., 11%
due 5/01/2015 (b) 2,500 2,175,000
USI Holdings Corp., 6.94%
due 11/15/2014 (b)(e) 1,630 1,273,438
-------------
3,448,438
===================================================================================
Leisure Equipment & Products -- 0.2%
True Temper Sports, Inc., 8.375%
due 9/15/2011 2,000 1,020,000
===================================================================================
Machinery -- 1.6%
ESCO Corp., 8.866% due 12/15/2013 (b)(e) 3,070 2,716,950
Invensys Plc, 9.875% due 3/15/2011 (b) 3,815 4,023,848
RBS Global, Inc., 8.875% due 9/01/2016 1,685 1,432,250
Titan International, Inc., 8% due 1/15/2012 1,530 1,476,450
-------------
9,649,498
===================================================================================
Marine -- 0.3%
Navios Maritime Holdings, Inc., 9.50%
due 12/15/2014 567 545,738
Titan Petrochemicals Group Ltd.,
8.50% due 3/18/2012 (b) 1,760 1,425,600
-------------
1,971,338
===================================================================================
Media -- 8.7%
Affinion Group, Inc.:
10.125% due 10/15/2013 280 274,400
11.50% due 10/15/2015 800 736,000
Cablevision Systems Corp. Series B, 9.644%
due 4/01/2009 (e) 5,950 5,950,000
Cadmus Communications Corp., 8.375%
due 6/15/2014 2,000 1,600,000
Canadian Satellite Radio Holdings, Inc.,
12.75% due 2/15/2014 5,000 4,675,000
Charter Communications Holdings LLC:
10% due 4/01/2009 3,750 3,234,375
11.125% due 1/15/2011 1,319 804,590
10% due 5/15/2011 1,978 1,196,690
Intelsat Intermediate Holding Co. Ltd., 9.25%
due 2/01/2015 (f) 10,350 8,668,125
Mediacom LLC, 9.50% due 1/15/2013 3,875 3,390,625
NTL Cable Plc, 8.75% due 4/15/2014 750 641,250
Network Communications, Inc., 10.75%
due 12/01/2013 20 17,600
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 7
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Par
Corporate Bonds (000) Value
===================================================================================
Media (concluded)
Paxson Communications Corp., 7.508%
due 1/15/2012 (b)(e) USD 2,800 $ 2,324,000
Sinclair Broadcast Group, Inc. Class A,
4.875% due 7/15/2018 (a)(f) 3,235 2,988,331
Sirius Satellite Radio, Inc., 9.625%
due 8/01/2013 5,795 4,780,875
TL Acquisitions, Inc., 10.50%
due 1/15/2015 (b) 5,230 4,654,700
Windstream Regatta Holdings, Inc., 11%
due 12/01/2017 (b) 2,665 2,078,700
XM Satellite Radio, Inc., 7.739%
due 5/01/2013 (e) 2,800 2,394,000
Young Broadcasting, Inc., 10%
due 3/01/2011 2,010 1,386,900
-------------
51,796,161
===================================================================================
Metals & Mining -- 2.5%
Aleris International, Inc., 9%
due 12/15/2014 (c) 2,735 1,991,282
Indalex Holding Corp. Series B, 11.50%
due 2/01/2014 2,854 2,254,660
RathGibson, Inc., 11.25% due 2/15/2014 4,550 4,345,250
Ryerson, Inc., 10.614%
due 11/01/2014 (b)(e) 6,720 6,216,000
-------------
14,807,192
===================================================================================
Multi-Utilities -- 0.9%
CenterPoint Energy, Inc. Series B, 3.75%
due 5/15/2023 (a) 4,142 5,451,908
===================================================================================
Oil, Gas & Consumable Fuels -- 0.8%
Chaparral Energy, Inc., 8.50%
due 12/01/2015 3,000 2,550,000
Compton Petroleum Finance Corp., 7.625%
due 12/01/2013 2,220 2,064,600
-------------
4,614,600
===================================================================================
Paper & Forest Products -- 7.5%
Abitibi-Consolidated, Inc., 8.491%
due 6/15/2011 (e) 6,500 3,380,000
Ainsworth Lumber Co. Ltd. (e):
8.58% due 10/01/2010 11,375 8,190,000
8.83% due 4/01/2013 (b) 9,830 6,094,600
Bowater, Inc., 7.991% due 3/15/2010 (e) 7,600 5,510,000
Domtar Corp., 7.125% due 8/15/2015 3,775 3,548,500
NewPage Corp.:
10% due 5/01/2012 (b) 2,930 2,937,325
9.489% due 5/01/2012 (e) 8,000 7,840,000
12% due 5/01/2013 3,325 3,275,125
Verso Paper Holdings LLC Series B, 6.989%
due 8/01/2014 (e) 4,400 3,740,000
-------------
44,515,550
===================================================================================
Pharmaceuticals -- 1.3%
Elan Finance Plc:
7.75% due 11/15/2011 3,525 3,322,313
7.065% due 11/15/2011 (e) 4,825 4,426,938
-------------
7,749,251
===================================================================================
Real Estate Investment Trusts
(REITs) -- 0.3%
RAIT Financial Trust, 6.875%
due 4/15/2027 (a)(b) 3,500 1,806,875
===================================================================================
Real Estate Management &
Development -- 1.8%
Realogy Corp.:
10.50% due 4/15/2014 4,770 3,386,700
11% due 4/15/2014 (c) 7,540 4,825,600
12.375% due 4/15/2015 4,615 2,445,950
-------------
10,658,250
===================================================================================
Road & Rail -- 0.5%
Atlantic Express Transportation Corp.,
12.455% due 4/15/2012 (b)(c)(e) 1,250 812,500
Swift Transportation Co., Inc., 10.815%
due 5/15/2015 (b)(e) 5,060 2,175,800
-------------
2,988,300
===================================================================================
Semiconductors & Semiconductor
Equipment -- 0.6%
Freescale Semiconductor, Inc., 9.125%
due 12/15/2014 (c) 1,780 1,352,800
Spansion, Inc., 6.201%
due 6/01/2013 (b)(e) 3,370 2,460,100
-------------
3,812,900
===================================================================================
Software -- 0.3%
BMS Holdings, Inc., 12.40%
due 2/15/2012 (b)(c)(e) 2,567 1,858,624
===================================================================================
Specialty Retail -- 3.8%
Buffets, Inc., 12.50% due 11/01/2014 (d)(g) 1,440 36,000
General Nutrition Centers, Inc.:
10.009% due 3/15/2014 (c)(e) 5,560 4,434,100
10.75% due 3/15/2015 4,480 3,640,000
Michaels Stores, Inc.:
10% due 11/01/2014 3,790 3,311,513
11.375% due 11/01/2016 5,855 4,845,013
Movie Gallery, Inc., 11% due 5/01/2012 (d)(g) 21,700 5,425,000
United Auto Group, Inc., 7.75%
due 12/15/2016 1,380 1,179,900
-------------
22,871,526
===================================================================================
See Notes to Financial Statements.
8 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Par
Corporate Bonds (000) Value
===================================================================================
Wireless Telecommunication Services -- 3.5%
Centennial Communications Corp., 10.479%
due 1/01/2013 (e) USD 1,905 $ 1,752,600
Cricket Communications, Inc.:
9.375% due 11/01/2014 2,760 2,456,400
9.375% due 11/01/2014 (b) 920 818,800
Digicel Group Ltd. (b):
8.875% due 1/15/2015 3,560 3,115,000
9.125% due 1/15/2015 (b)(c) 7,248 6,182,305
FiberTower Corp. (a):
9% due 11/15/2012 350 306,688
9% due 11/15/2012 (b) 2,150 1,883,938
iPCS, Inc., 5.364% due 5/01/2013 (e) 1,250 1,000,000
Nordic Telephone Co. Holdings ApS, 8.875%
due 5/01/2016 (b) 2,600 2,561,000
Orascom Telecom Finance SCA, 7.875%
due 2/08/2014 (b) 755 704,944
-------------
20,781,675
-----------------------------------------------------------------------------------
Total Corporate Bonds
(Cost -- $538,499,963) -- 76.4% 455,150,963
===================================================================================
Floating Rate Loan Interests
===================================================================================
Aerospace & Defense -- 0.2%
Hawker Beechcraft Acquisition Co. LLC:
Letter of Credit, 4.73%
due 3/31/2014 39 35,972
Term Loan, 6.83% due 3/31/2014 458 421,934
IAP Worldwide Services, Inc. First Lien Term Loan,
11.125% due 12/31/2012 1,139 939,994
-------------
1,397,900
===================================================================================
Airlines -- 0.7%
Delta Air Lines Credit Linked Deposit:
4.436% due 4/30/2012 110 93,500
6.832% due 4/30/2012 1,890 1,606,500
US Airways Group, Inc. Term Loan, 5.625%
due 3/23/2014 2,000 1,566,250
United Air Lines, Inc. Term Loan B,
5.125% - 7.125% due 1/30/2014 1,068 896,065
-------------
4,162,315
===================================================================================
Auto Components -- 1.7%
Allison Transmission Term Loan,
5.792% - 7.90% due 8/07/2014 3,750 3,301,043
Delphi Corp. Tranche C Term Loan,
7.188% due 7/01/2008 1,000 980,833
Goodyear Tire & Rubber Co., Second Lien
Term Loan, 6.43% due 4/30/2014 2,000 1,817,500
Intermet Corp.:
Letter of Credit, 8.045% due
11/08/2010 1,685 1,499,815
Term Loan B, 10.146%
due 11/08/2010 1,163 1,034,652
Metaldyne Corp.:
DF Loan, 5.17% - 8.25%
due 1/15/2012 87 65,192
Term Loan B, 8.25% due 1/15/2014 588 443,308
TRW Automotive, Inc. Term Loan B,
4.688% - 6.875% due 12/31/2013 995 926,843
-------------
10,069,186
===================================================================================
Beverages -- 0.2%
Culligan International Second Lien
Term Loan, 8.94% - 9.56% due 5/24/2013 EUR 1,500 1,298,011
===================================================================================
Biotechnology -- 0.2%
Talecris Biotherapeutics, Inc. First Lien Term
Loan, 6.57% - 6.63% due 12/06/2013 USD 1,496 1,196,977
===================================================================================
Chemicals -- 1.7%
Arizona Chemical Second Lien Term Loan,
due 2/28/2014 400 230,000
Flint Group Term Loan, 7.393%
due 12/31/2012 2,000 1,716,666
Huish Detergents, Inc.:
Tranche B Term Loan, 6.83%
due 4/15/2014 1,990 1,609,413
Second Lien Term Loan, 9.08%
due 10/15/2014 1,500 1,066,875
Huntsman ICI Holdings Term Loan B, 4.875%
due 8/19/2014 1,636 1,551,488
Rockwood Specialties Group, Inc. Tranche E
Term Loan, 4.744% due 7/30/2012 617 577,755
Wellman, Inc. Second Lien Term Loan,
due 2/10/2010 (d)(g) 10,000 3,166,670
-------------
9,918,867
===================================================================================
Commercial Services & Supplies -- 5.7%
ARAMARK Corp.:
Letter of Credit, 4.22%
due 1/24/2014 474 438,666
Term Loan, 6.705% due 1/24/2014 7,462 6,904,889
Euramax International Plc:
First Lien Term Loan, 7.79%
due 6/29/2012 2,436 2,063,126
Second Lien Term Loan, 12.896%
due 6/29/2013 4,500 3,063,079
Jason, Inc. Term Loan, 5.621%
due 4/30/2010 1,493 1,289,147
John Maneely Co. Term Loan,
6.345% - 7.693% due 12/08/2013 1,348 1,166,724
NES Rentals Holdings, Inc. Second Lien,
due 7/12/2013 3,020 2,627,397
RiskMetrics Group, Inc. Term Loan B, 7.08%
due 1/11/2014 744 705,295
Service Master Bridge Loan, 8.22% - 9.22%
due 7/24/2008 8,670 5,982,300
Waste Services, Inc. Tranche E, 7.40%
due 3/31/2011 7,000 6,510,334
West Corp. Term Loan B-2, 5.465% - 6.093%
due 10/24/2013 3,960 3,359,118
-------------
34,110,075
===================================================================================
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 9
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Par
Floating Rate Loan Interests (000) Value
===================================================================================
Communications Equipment -- 1.2%
Alltel Corp. Term Loan B, 5.866%
due 5/18/2015 USD 7,000 $ 6,345,339
SafeNet, Inc. First Lien Term Loan, 7.126%
due 4/11/2014 995 793,513
-------------
7,138,852
===================================================================================
Computers & Peripherals -- 0.5%
Intergraph Corp. Term Loan:
First Lien, 5.09% - 5.125%
due 5/29/2014 419 375,775
Second Lien, 9.09% due 11/28/2014 1,000 910,000
Reynolds and Reynolds Co. Third Lien Term
Loan, 12.343% due 4/26/2014 1,500 1,365,000
-------------
2,650,775
===================================================================================
Construction Materials -- 0.3%
Headwaters, Inc. Term Loan B-1,
5.17% - 6.89% due 4/30/2011 1,963 1,864,375
===================================================================================
Containers & Packaging -- 1.5%
Anchor Glass Container Corp. Term Loan,
7.08% due 5/03/2013 2,226 2,070,568
Berry Plastics Corp. Term Loan,
due 6/15/2014 8,959 6,271,010
Consolidated Container Co. LLC Second
Lien Term Loan, 8.59% -8.75%
due 10/15/2014 350 187,833
Graham Packaging Co. LP Term Loan,
6.813% - 7.75% due 10/07/2011 493 445,853
-------------
8,975,264
===================================================================================
Distributors -- 0.2%
Keystone Automotive Operations, Inc. Term
Loan, 6.64% - 7.451% due 1/15/2012 1,733 1,365,787
===================================================================================
Diversified Financial Services -- 0.5%
J.G. Wentworth LLC First Lien Term Loan,
7.093% due 4/15/2014 4,000 2,660,000
===================================================================================
Diversified Telecommunication
Services -- 0.8%
Winstar Communications Debtor In
Possession, 6.366% due 12/31/2006 (j) 3,162 4,861,377
===================================================================================
Electrical Equipment -- 0.5%
Generac Power Systems, Inc. Second Lien
Term Loan, 10.703% due 5/15/2014 4,000 2,726,668
===================================================================================
Energy Equipment & Services -- 1.1%
Dresser, Inc.:
Term Loan B, 5.565% - 5.622%
due 5/04/2014 2,946 2,713,093
Second Lien Term Loan, 8.82%
due 5/04/2015 2,500 2,168,750
MEG Energy Corp.:
Delayed Draw Term Loan, 6.73%
due 4/03/2013 410 369,844
Initial Term Loan, 6.83% due 4/03/2013 1,228 1,115,752
-------------
6,367,439
===================================================================================
Food & Staples Retailing -- 1.1%
Bolthouse Farms, Inc. Second Lien Term
Loan, 10.33% due 12/01/2013 1,000 910,000
DSW Holdings Inc. Term Loan, 7.264%
due 11/15/2012 1,000 890,000
Dole Food Co., Inc.:
Letter of Credit, 4.247% due 4/12/2013 324 271,982
Term Loan B, 5.125% - 7.125%
due 4/12/2013 716 601,251
Term Loan C, 5.125% - 7.125%
due 4/04/2013 2,387 2,004,170
Eight O'Clock Coffee, First Lien Term Loan,
7.625% due 7/21/2012 967 927,870
McJunkin Corp. Term Loan, 8.08%
due 1/31/2014 495 466,538
Sturm Foods, Inc.:
First Lien Term Loan, 5.813%
due 1/30/2014 993 731,142
Second Lien Term Loan, 9.313%
due 6/30/2014 1,250 820,834
===================================================================================
Food Products -- 0.4%
Jetro Holdings, Inc. Term Loan, 7.19%
due 5/11/2014 1,938 1,724,375
===================================================================================
Health Care Equipment & Supplies -- 0.9%
Biomet, Inc. Term Loan, 7.858%
due 12/28/2014 2,000 1,911,500
ReAble Therapeutics Finance LLC Term Loan,
7.83% due 5/20/2014 3,500 3,290,000
-------------
5,201,500
===================================================================================
Health Care Providers &Services -- 1.0%
CCS Medical First Lien Term Loan, 8.10%
due 9/30/2012 486 439,408
Community Health Systems, Inc. Term Loan B,
5.335% due 6/18/2014 2,856 2,609,748
Rotech Healthcare, Inc. Term Loan,
10.832% due 9/26/2011 3,328 2,895,724
-------------
5,944,880
===================================================================================
Hotels, Restaurants & Leisure -- 2.9%
Golden Nugget, Inc. Term Loan Second Lien,
6.37% due 11/30/2014 1,500 1,125,000
Green Valley Ranch Gaming LLC Second Lien
Term Loan, 6.335% due 8/16/2014 750 562,500
Harrah's Operating Company, Inc.:
Term Loan B1, 6.244% due 1/28/2015 556 508,632
Term Loan B2, 6.244% due 1/28/2015 700 641,250
Term Loan B3, 6.244% due 1/28/2015 494 453,456
Las Vegas Sands LLC Term Loan B, 6.58%
due 5/04/2014 3,184 2,827,790
OSI Restaurant Partners, Inc.:
Incremental Term Loan, 5.438%
due 6/14/2014 890 722,412
Pre-funded RC Term Loan, 4.878%
due 6/14/2013 75 61,063
QCE LLC Second Lien Term Loan, 10.58%
due 11/05/2013 6,000 5,074,284
See Notes to Financial Statements.
10 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Par
Floating Rate Loan Interests (000) Value
===================================================================================
Hotels, Restaurants & Leisure (concluded)
Venetian Macau US Finance Co. LLC:
Delay Draw Term Loan, 7.08%
due 5/25/2012 USD 2,500 $ 2,258,523
Term Loan B, 7.08% due 5/25/2013 3,500 3,161,932
-------------
17,396,842
===================================================================================
Household Durables -- 0.5%
American Residential Services Second Lien
Term Loan, 12% due 4/17/2015 3,000 2,955,439
===================================================================================
Household Products -- 0.7%
Spectrum Brands, Inc.:
Letter of Credit, 2.994% due 3/30/2013 282 251,893
Term Loan B, 7.065% - 8.62%
due 3/30/2013 4,136 3,695,242
-------------
3,947,135
===================================================================================
IT Services -- 2.9%
Activant Solutions Term Loan,
6.75% - 7.50% due 5/02/2013 3,686 3,114,969
Alliance Data Systems Term Loan, 8.058%
due 12/15/2014 6,500 6,045,000
Audio Visual Services Corp. Second Lien
Term Loan, 8.77% due 2/18/2014 1,000 920,000
First Data Corp.:
Term Loan B1, 7.58% - 7.634%
due 9/24/2014 2,494 2,263,928
Term Loan B2, 7.58% due 9/24/2014 2,000 1,813,888
Term Loan B3, 7.58% due 9/24/2014 2,000 1,814,000
RedPrairie Corp. Term Loan, 6.125% - 8.187%
due 7/31/2012 1,187 1,044,309
-------------
17,016,094
===================================================================================
Independent Power Producers & Energy Traders -- 0.9%
TXU Corp.:
Term Loan B-2, 6.478% - 6.596%
due 10/10/2014 1,995 1,819,606
Term Loan B-3, 6.478% - 6.596%
due 10/10/2014 3,990 3,637,703
-------------
5,457,309
===================================================================================
Insurance -- 0.3%
Alliant Holdings I Inc. Term Loan,
7.83% due 10/23/2014 998 887,775
USI Holdings Corp. Term Loan B, 7.58%
due 5/15/2014 995 880,575
-------------
1,768,350
===================================================================================
Machinery -- 1.8%
Harrington Holdings, Inc. Term Loan, 7.08%
due 1/15/2014 993 873,400
Maxim Crane Term Loan B, 5.144% -7%
due 6/29/2014 995 865,650
Navistar International Transportation Corp.:
Revolving Credit, 4.794% - 6.501%
due 6/30/2012 1,867 1,663,667
Term Loan, 6.501% due 6/30/2012 5,133 4,575,083
OshKosh Truck Corp. Term Loan B, 6.90%
due 12/06/2013 1,975 1,838,808
Rexnord Corp. Term Loan, 12.131%
due 3/02/2013 (c)(g) 1,165 815,243
-------------
10,631,851
===================================================================================
Media -- 11.4%
Affinion Group, Inc. Term Loan, 9.267%
due 3/01/2012 4,000 3,280,000
Cequel Communications LLC:
Second Lien Tranche B, 9.239%
due 3/31/2015 9,578 7,207,522
Term Loan, 5.07% -9.58%
due 11/05/2013 1,586 1,325,609
Charter Communications Operating LLC
Term Loan, 5.26% due 4/30/2014 11,750 10,314,820
ClientLogic Holding Corp. Term Loan,
5.622% - 7.343% due 1/30/2014 973 769,034
Easton-Bell Sports Inc. Term Loan,
10.72% - 10.82% due 5/01/2012 4,030 3,425,616
Ellis Communications Term Loan, 10%
due 12/30/2011 6,500 6,077,500
GateHouse Media Operating, Inc.:
Delay Draw Term Loan, 5.09% - 6.45%
due 8/28/2014 592 418,900
Term Loan, 5.09%
due 8/28/2014 2,000 1,416,000
HMH Publishing:
First Lien Bridge Term Loan, 9.141%
due 5/15/2009 697 666,477
First Lien Tranche A Term Loan, 9.141%
due 11/14/2014 5,053 4,547,727
Mezzanine Term Loan, 13.641%
due 11/14/2014 18,000 15,660,000
Insight Midwest Holdings LLC Term Loan B,
6.73% due 4/07/2014 5,400 4,834,690
Multicultural Radio Broadcasting Inc. Term
Loan, 7.901% due 12/15/2012 445 418,300
NEP II Inc. Term Loan B, 7.108%
due 2/16/2014 992 872,562
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 11
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Par
Floating Rate Loan Interests (000) Value
===================================================================================
Media (concluded)
Penton Media Term Loan, 8.122%
due 2/15/2014 USD 1,000 $ 715,000
ProSiebenSat.1 Media AG Term Loan B:
6.77% due 6/30/2015 EUR 500 609,534
7.02% due 6/30/2016 1,000 1,048,602
Univision Communications, Inc.
Initial Term Loan, 5.375% -5.494%
due 9/30/2014 USD 4,832 4,043,264
-------------
67,651,157
===================================================================================
Multi-Utilities -- 0.5%
Brand Energy & Infrastructure Services, Inc.
Term Loan B, 5.375% -7.125%
due 2/07/2014 496 461,513
Coleto Creek:
First Lien, 7.58% due 7/31/2013 457 399,555
Letter of Credit, 4.73% due 7/31/2013 32 27,866
Energy Transfer Equity LP Term Loan,
4.878% due 11/01/2012 750 700,000
NE Energy Second Lien Term Loan,
due 5/11/2014 750 597,500
USPF Holdings Term Loan, 6.293% - 6.962%
due 4/15/2014 995 885,550
-------------
3,071,984
===================================================================================
Multiline Retail -- 0.6%
Neiman Marcus Group, Inc. Term Loan,
4.931% - 6.90% due 4/06/2013 3,750 3,461,385
===================================================================================
Oil, Gas & Consumable Fuels -- 1.6%
Big West Oil LLC:
Delay Draw Term Loan, 5.375%
due 5/15/2014 219 200,156
Term Loan, 5.50% due 5/15/2014 779 712,556
Carrizo Oil & Gas, Inc. Second Lien Term
Loan, 9.58% due 7/21/2010 371 345,227
Petroleum Geo-Services ASA Term Loan,
6.58% due 6/28/2015 1,990 1,847,383
SandRidge Energy, Inc. Term Loan, 8.354%
due 4/01/2014 2,000 1,810,000
Scorpion Drilling Ltd. Second Lien Term Loan,
12.406% due 5/08/2014 3,500 3,605,000
Western Refining Inc. Term Loan:
due 3/15/2014 184 164,389
4.994% due 3/15/2014 1,202 1,081,688
-------------
9,766,399
===================================================================================
Paper & Forest Products -- 1.5%
Boise Cascade Holdings LLC First Lien Tranche B
Term Loan, 7.50% due 2/22/2014 1,500 1,475,625
Verso Paper Holdings LLC Term Loan,
due 2/01/2013 (c)(g) 8,195 7,252,575
-------------
8,728,200
===================================================================================
Pharmaceuticals -- 0.4%
Cardinal Health 409 Inc. (PTS) Term Loan,
due 4/10/2014 2,985 2,462,625
===================================================================================
Real Estate Management & Development -- 1.2%
Enclave Mortgage B Note Term Loan, 6.14%
due 3/01/2012 4,000 3,548,800
Georgian Towers Term Loan, 6.14%
due 3/01/2012 4,000 3,464,000
Yellowstone Club First Lien, 5.496%
due 10/15/2010 439 390,024
-------------
7,402,824
===================================================================================
Road & Rail -- 0.6%
Swift Transportation Co., Inc. Term Loan,
due 5/10/2014 4,419 3,407,849
===================================================================================
Software -- 1.1%
Aspect Software Second Lien Term Loan,
11.50% due 7/05/2012 8,000 6,800,000
===================================================================================
Specialty Retail -- 0.6%
ADESA, Inc. Term Loan, 7.08%
due 10/18/2013 1,990 1,778,065
Burlington Coat Factory Warehouse Corp.
Term Loan, 5.34% due 4/15/2013 981 821,924
Claire's Stores Term Loan B, 5.994% - 7.58%
due 5/24/2014 1,488 1,165,466
-------------
3,765,455
===================================================================================
Textiles, Apparel & Luxury Goods -- 0.3%
David's Bridal, Inc. Term Loan B, 6.58%
due 1/31/2014 993 858,513
Renfro Corp. Term Loan B, 6.34% - 8.08%
due 10/04/2013 742 645,544
-------------
1,504,057
===================================================================================
Wireless Telecommunication Services -- 1.1%
Centennial Cellular Operating Co. Term
Loan, 5.085% - 6.83% due 2/09/2011 4,750 4,498,250
IPC Systems Tranche B1 Term Loan, 7.093%
due 5/25/2014 1,990 1,568,783
NG Wireless Term Loan, 5.87% - 7.59%
due 7/31/2014 610 579,144
-------------
6,646,177
-----------------------------------------------------------------------------------
Total Floating Rate Loan Interests
(Cost -- $350,918,793) -- 51.3% 305,099,542
===================================================================================
Common Stocks Shares
===================================================================================
Airlines --0.5%
Delta Air Lines, Inc. (g) 221,600 2,958,360
===================================================================================
Building Products -- 0.1%
Neenah Enterprises Inc. (g) 144,858 405,602
===================================================================================
Capital Markets -- 0.3%
E*Trade Financial Corp. (b)(g) 484,043 2,066,864
===================================================================================
Chemicals -- 0.1%
GEO Specialty Chemicals, Inc. (b)(g) 339,340 339,340
GenTek Inc. (b)(g) 403 11,083
-------------
350,423
===================================================================================
See Notes to Financial Statements.
12 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
Common Stocks Shares Value
===================================================================================
Commercial Services & Supplies -- 0.6%
New Outsourcing Solutions Inc. (g) 90,876 $ 3,635,030
===================================================================================
Communications Equipment -- 0.6%
Loral Space & Communications Ltd. (g) 150,354 3,647,588
===================================================================================
Containers & Packaging -- 0.4%
Smurfit Kappa Plc 36,342 522,412
Viskase Cos., Inc. (g) 1,428,423 1,628,402
-------------
2,150,814
===================================================================================
Electrical Equipment -- 0.5%
Medis Technologies Ltd. (g) 286,757 3,105,578
===================================================================================
Hotels, Restaurants & Leisure -- 0.0%
HRP Corp. Class B (b) 5,000 50
Lodgian, Inc. (g) 27,787 248,693
-------------
248,743
===================================================================================
Paper & Forest Products -- 0.1%
Western Forest Products, Inc.
Restricted Shares (b)(g) 211,149 351,826
===================================================================================
Semiconductors & Semiconductor
Equipment -- 0.2%
Cypress Semiconductor Corp. (g) 48,000 1,043,520
-----------------------------------------------------------------------------------
Total Common Stocks
(Cost -- $28,401,758) -- 3.6% 19,964,348
===================================================================================
Preferred Stocks
===================================================================================
Oil, Gas & Consumable Fuels -- 1.7%
EXCO Resources Inc., 7% (a)(b) 179 1,969,000
EXCO Resources, Inc., 11% (b) 737 8,107,000
-----------------------------------------------------------------------------------
Total Preferred Stocks
(Cost -- $9,160,000) -- 1.7% 10,076,000
===================================================================================
Warrants (h)
===================================================================================
Building Products -- 0.1%
Neenah Enterprises Inc.
(expires 9/30/2013) 130,547 359,004
===================================================================================
Chemicals -- 0.0%
GenTek Inc. Tranche B
(expires 11/10/2008) 471 7,159
GenTek Inc. Tranche C
(expires 11/10/2010) 231 2,772
-------------
9,931
===================================================================================
Health Care Providers & Services -- 0.0%
HealthSouth Corp. (expires 1/16/2014) 126,761 31,690
===================================================================================
Media -- 0.0%
Sirius Satellite Radio, Inc.
(expires 5/15/2009) 15,000 300
===================================================================================
Wireless Telecommunication
Services -- 0.1%
American Tower Corp.
(expires 8/01/2008) 1,325 715,500
-----------------------------------------------------------------------------------
Total Warrants
(Cost -- $870,754) -- 0.2% 1,116,425
===================================================================================
Beneficial
Other Interests (i) Interest
===================================================================================
Airlines -- 0.1%
Delta Air Lines, Inc.:
8.33% Escrow USD 5,505,000 289,013
10% Escrow 4,200,000 210,000
-------------
499,013
===================================================================================
Auto Components -- 0.0%
Cambridge Industries, Inc. (Litigation Trust
Certificates) 3,614,601 36
===================================================================================
Media -- 0.0%
Adelphia C.V.U.:
Escrow 7,500,000 750
Preferred Escrow 5,000 1
Recovery Trust 9,406,019 37,624
Adelphia Recovery Trust Series ACC-6B INT 500,000 50
-------------
38,425
-----------------------------------------------------------------------------------
Total Other Interests
(Cost -- $30,801) -- 0.1% 537,474
===================================================================================
Total Investments (Cost -- $927,882,069*) -- 133.3% 791,944,752
Liabilities in Excess of Other Assets -- (33.3%) (197,740,445)
-------------
Net Assets -- 100.0% $ 594,204,307
=============
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 13
Schedule of Investments (concluded)
* The cost and unrealized appreciation (depreciation) of investments as of
February 29, 2008, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $ 928,318,442
=============
Gross unrealized appreciation .......................... $ 15,821,772
Gross unrealized depreciation .......................... (152,195,462)
-------------
Net unrealized depreciation ............................ $(136,373,690)
=============
(a) Convertible security.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(d) Issuer filed for bankruptcy or is in default of interest payments.
(e) Floating rate note. Rate is as of report date.
(f) Represents a step bond; the interest rate shown reflects the effective
yield at the time of purchase.
(g) Non-income producing security.
(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) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(j) 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.
(k) All or a portion of security held as collateral in connection with open
swaps.
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. These industry classifications are unaudited.
o 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 $(1,914,750) $315,622
--------------------------------------------------------------------------
o Forward foreign exchange contracts as of February 29, 2008 were as
follows:
--------------------------------------------------------------------------
Currency Currency Settlement Unrealized
Purchased Sold Date Depreciation
--------------------------------------------------------------------------
USD 4,760,835 EUR 3,247,500 4/23/2008 $(160,426)
--------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts $(160,426)
==========
o Swaps outstanding as of February 29, 2008 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
(000) (Depreciation)
--------------------------------------------------------------------------
Sold credit default protection on D.R. Horton, Inc.
and receive 4.65%
Broker, Lehman Brothers Special Finance
Expires March 2009 USD 4,000 $ (9,452)
Sold credit default protection on Ford Motor Co.
and receive 3.80%
Broker, Lehman Brothers Special Finance
Expires March 2010 USD 10,000 (1,041,640)
Sold credit default protection on BAA Ferovial
Junior Term Loan and receive 2.0%
Broker, Deutsche Bank AG London
Expires June 2012 GBP 900 (157,226)
Sold credit default protection on LCDX Index
and receive 2.25%
Broker, UBS Warburg
Expires December 2012 USD 3,500 19,222
Sold credit default protection on LCDX Index
Index and receive 2.25%
Broker, JPMorgan Chase
Expires December 2012 USD 3,500 (38,528)
--------------------------------------------------------------------------
Total $(1,227,624)
============
o Currency Abbreviations:
EUR Euro
GBP British Pound
USD U.S. Dollar
See Notes to Financial Statements.
14 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Statement of Assets and Liabilities
As of February 29, 2008
===============================================================================
Assets
-------------------------------------------------------------------------------
Investments at value -- unaffiliated (cost -- $927,882,069) .. $ 791,944,752
Cash ......................................................... 4,645,176
Foreign currency at value (cost -- $143,019) ................. 146,971
Unrealized appreciation on swaps ............................. 19,222
Interest receivable .......................................... 16,564,747
Investments sold receivable .................................. 5,481,356
Swaps receivable ............................................. 138,388
Dividends receivable ......................................... 56,101
Commitment fees receivable ................................... 5,637
Prepaid expenses and other assets ............................ 282,978
-------------
Total assets ................................................. 819,285,328
-------------
===============================================================================
Liabilities
-------------------------------------------------------------------------------
Loan payable ................................................. 199,000,000
Unrealized depreciation on forward foreign exchange contracts 160,426
Unrealized depreciation on swaps ............................. 1,246,846
Swap premiums received ....................................... 550,603
Unrealized depreciation on unfunded loan commitments ......... 281,096
Investments purchased payable ................................ 22,623,136
Income dividends payable ..................................... 415,586
Investment advisory fees payable ............................. 411,247
Interest on loans payable .................................... 158,711
Directors payable ............................................ 8,401
Swaps payable ................................................ 8,545
Other affiliates payable ..................................... 4,628
Deferred income .............................................. 13,886
Other accrued expenses payable ............................... 197,910
-------------
Total liabilities ............................................ 225,081,021
-------------
===============================================================================
Net Assets
-------------------------------------------------------------------------------
Net Assets ................................................... $ 594,204,307
=============
===============================================================================
Net Assets Consist of
-------------------------------------------------------------------------------
Par value $.10 per share (106,735,758 shares issued
and outstanding) ........................................... $ 10,673,576
Paid-in capital in excess of par ............................. 981,171,129
Undistributed net investment income .......................... 6,656,691
Accumulated net realized loss ................................ (266,705,881)
Net unrealized depreciation .................................. (137,591,208)
-------------
Net Assets, $5.57 net asset value per share of Common Stock .. $ 594,204,307
=============
Statement of Operations
For the Year Ended February 29, 2008
===============================================================================
Investment Income
-------------------------------------------------------------------------------
Interest (including $315,622 from affiliates) ................ $ 90,520,499
Dividends .................................................... 859,955
Facility and other fees ...................................... 587,736
-------------
Total income ................................................. 91,968,190
-------------
===============================================================================
Expenses
-------------------------------------------------------------------------------
Investment advisory .......................................... 5,868,680
Borrowing costs .............................................. 391,789
Accounting services .......................................... 224,681
Professional fees ............................................ 162,606
Printing ..................................................... 92,124
Custodian .................................................... 59,839
Directors .................................................... 45,427
Registration ................................................. 39,027
Miscellaneous ................................................ 72,913
-------------
Total expenses excluding interest expense .................... 6,957,086
Interest expense ............................................. 15,121,886
-------------
Total expenses ............................................... 22,078,972
-------------
Net investment income ........................................ 69,889,218
-------------
===============================================================================
Realized and Unrealized Gain (Loss)
-------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................ (4,796,024)
Swaps ...................................................... 1,075,067
Foreign currency ........................................... (419,022)
-------------
(4,139,979)
-------------
Net change in unrealized appreciation/depreciation on:
Investments ................................................ (147,129,470)
Swaps ...................................................... (1,178,758)
Foreign currency ........................................... (153,137)
Unfunded loan commitments .................................. (295,237)
-------------
(148,756,602)
-------------
Total realized and unrealized loss ........................... (152,896,581)
-------------
Net Decrease in Net Assets Resulting from Operations ......... $ (83,007,363)
=============
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 15
Statements of Changes in Net Assets
For the For the
Year Ended Year Ended
February 29, February 28,
Increase (Decrease) in Net Assets: 2008 2007
======================================================================================================
Operations
------------------------------------------------------------------------------------------------------
Net investment income ............................................. $ 69,889,218 $ 71,630,035
Net realized loss ................................................. (4,139,979) (6,186,913)
Net change in unrealized appreciation/depreciation ................ (148,756,602) 37,848,881
-------------------------------
Net increase (decrease) in net assets resulting from operations ... (83,007,363) 103,292,003
-------------------------------
======================================================================================================
Dividends to Shareholders from
------------------------------------------------------------------------------------------------------
Net investment income ............................................. (71,016,850) (69,729,202)
-------------------------------
======================================================================================================
Capital Share Transactions
------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from reinvestment of dividends 2,284,457 3,970,321
-------------------------------
======================================================================================================
Net Assets
------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ........................... (151,739,756) 37,533,122
Beginning of year ................................................. 745,944,063 708,410,941
-------------------------------
End of year ....................................................... $ 594,204,307 $ 745,944,063
===============================
End of year undistributed net investment income ................... $ 6,656,691 $ 6,894,099
===============================
See Notes to Financial Statements.
16 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Statement of Cash Flows
For the Year Ended February 29, 2008
==========================================================================================================
Cash Provided by Operating Activities
----------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations .................................... $ (83,007,363)
Adjustments to reconcile net decrease in net assets resulting from operations
to net cash provided by operating activities:
Decrease in receivables ................................................................. 619,619
Increase in prepaid expenses and other assets ........................................... (272,062)
Decrease in other liabilities ........................................................... (114,191)
Paid-in-kind income ..................................................................... (3,461,944)
Swap premium paid ....................................................................... (882,222)
Swap premium received ................................................................... 1,445,817
Net realized and unrealized loss ........................................................ 155,435,529
Amortization of premium and discount on investments ..................................... (2,587,931)
Proceeds from sales and paydowns of long-term securities ................................ 617,391,609
Purchases of long-term securities ....................................................... (514,045,947)
Net proceeds from sales of short-term investments ....................................... 1,914,750
-------------
Net cash provided by operating activities ............................................... 172,435,664
-------------
==========================================================================================================
Cash Used for Financing Activities
----------------------------------------------------------------------------------------------------------
Cash receipts from loan ................................................................. 315,000,000
Cash payments from loan ................................................................. (414,600,000)
Cash dividends paid ..................................................................... (68,316,807)
-------------
Net cash used for financing activities .................................................. (167,916,807)
-------------
==========================================================================================================
Cash Impact from Foreign Exchange Fluctuations
----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ................................................. 3,952
-------------
==========================================================================================================
Cash
----------------------------------------------------------------------------------------------------------
Net increase in cash .................................................................... 4,522,809
Cash at beginning of year ............................................................... 269,338
-------------
Cash and foreign currency at end of year ................................................ $ 4,792,147
=============
==========================================================================================================
Cash Flow Information
----------------------------------------------------------------------------------------------------------
Cash paid for interest .................................................................. $ 15,148,306
=============
==========================================================================================================
Non-Cash Financing Activities
----------------------------------------------------------------------------------------------------------
Capital shares issued in reinvestment of dividends paid to shareholders ................. $ 2,284,457
=============
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 17
Financial Highlights
For the For the Year Ended For the
Year Ended February 28, Year Ended
February 29, ---------------------------------- February 29,
2008 2007 2006 2005 2004
====================================================================================================================================
Per Share Operating Performance
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ............................... $ 7.01 $ 6.69 $ 7.06 $ 6.71 $ 5.35
---------------------------------------------------------------
Net investment income 1 .......................................... .66 .68 .63 .67 .75
Net realized and unrealized gain (loss) .......................... (1.43) .28 (.35) .34 1.40
---------------------------------------------------------------
Net increase (decrease) from investment operations ............... (.77) .96 .28 1.01 2.15
---------------------------------------------------------------
Dividends from net investment income ............................. (.67) (.64) (.65) (.66) (.79)
---------------------------------------------------------------
Recovery of previously expensed offering costs (capital write-off)
resulting from the issuance of Common Stock .................... -- -- -- -- -- 2
---------------------------------------------------------------
Net asset value, end of year ..................................... $ 5.57 $ 7.01 $ 6.69 $ 7.06 $ 6.71
===============================================================
Market price, end of year ........................................ $ 5.43 $ 7.28 $ 6.77 $ 6.71 $ 6.69
===============================================================
====================================================================================================================================
Total Investment Return 3
------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ......................................... (11.72%) 15.35% 4.57% 15.95% 41.84%
===============================================================
Based on market price ............................................ (17.13%) 18.37% 11.34% 10.53% 26.31%
===============================================================
====================================================================================================================================
Ratios to Average Net Assets
------------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding interest expense ....................... .99% .99% 1.02% 1.02% 1.00%
===============================================================
Total expenses ................................................... 3.13% 3.16% 2.63% 1.83% 1.53%
===============================================================
Net investment income ............................................ 9.90% 9.97% 9.55% 9.84% 12.22%
===============================================================
====================================================================================================================================
Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) .................................... $594,204 $745,944 $708,411 $745,256 $706,261
===============================================================
Portfolio turnover ............................................... 51% 65% 46% 60% 70%
===============================================================
Amount of loan outstanding, end of year (000) .................... $199,000 $298,600 $259,900 $298,400 $269,075
===============================================================
Average amount of loan outstanding during the year (000) ......... $272,846 $283,906 $294,371 $304,549 $239,315
===============================================================
Asset coverage, end of year, per $1,000 of loan outstanding ...... $ 3,986 $ 3,498 $ 3,726 $ 3,498 $ 3,625
===============================================================
1 Based on average shares outstanding.
2 Amount is less than $.01 per share.
3 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 effect of sales charges.
See Notes to Financial Statements.
18 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Notes to Financial Statements
1. Significant Accounting Policies:
BlackRock Debt Strategies Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
closed-end management investment company. The Fund's financial statements are
prepared in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. The Fund determines
and makes available for publication the net asset value of its Common Stock on a
daily basis.
The following is a summary of significant accounting policies followed by the
Fund:
Valuation of Investments: The Fund values most of its corporate bond investments
on the basis of last available bid price or current market quotations provided
by dealers or pricing services selected under the supervision of the Fund's
Board of Directors (the "Board"). In determining the value of a particular
investment, pricing services may use certain information with respect to
transactions in such investments, quotations from dealers, market transactions
in comparable investments, various relationships observed in the market between
investments, and calculated yield measures based on valuation technology
commonly employed in the market for such investments.
Floating rate loans are valued in accordance with guidelines established by the
Board. 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 ("LPC"). For the limited number of floating rate loans for
which no reliable price quotes are available, such floating rate loans may be
valued by LPC 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 "Advisor"), an indirect, wholly owned subsidiary of
BlackRock, Inc., will value the floating rate loans at fair value, which is
intended to approximate market value.
Equity investments traded on a national securities exchange or on the NASDAQ
Global Market System are valued at the last reported sale price that day or the
NASDAQ official closing price, if applicable. Equity investments traded on a
national securities exchange for which there were no sales on that day and
equity investments traded on other over-the-counter ("OTC") markets for which
market quotations are readily available are valued at the last available bid
price. Effective September 4, 2007, exchanged-traded options are valued at the
mean between the last bid and ask prices at the close of the options market in
which the options trade and previously were valued at the last sales price as of
the close of the options trading on applicable exchanges. OTC options quotations
are provided by dealers or pricing services selected under the supervision of
the Board. Considerations utilized by dealers or pricing services in valuing OTC
options include, but are not limited to, volatility factors of the underlying
security, price movement of the underlying security in relation to the strike
price and the time left until expiration of the option. Swap agreements are
valued by quoted fair values received daily by the Fund's pricing service.
Short-term securities may be valued at amortized cost.
In the event that application of these methods of valuation results in a price
for an investment which is deemed not to be representative of the market value
of such investment, the investment will be valued by, under the direction of, or
in accordance with, a method approved by the Board as reflecting fair value
("Fair Value Assets"). When determining the price for Fair Value Assets, the
Advisor and/or sub-advisor seeks to determine the price that the Fund might
reasonably expect to receive from the current sale of that asset in an
arm's-length transaction. Fair value determinations shall be based upon all
available factors that the Advisor and/or sub-advisor deems relevant. The
pricing of all Fair Value Assets is subsequently reported to the Board or a
committee thereof.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Fund are determined as of such times. Foreign currency exchange rates will be
determined as of the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange 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 assets. 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 Board or by the Advisor using a pricing service
and/or procedures approved by the Board.
Floating Rate Loans: The Fund invests in floating rate loans, which are
generally non-investment grade, made by banks, other financial institutions and
privately and publicly offered corporations. Floating rate loans 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 certificate of deposit rate. The Fund considers these investments
to be investments in debt securities for purposes of its investment policies.
The Fund earns and/or pays facility and other fees on floating rate loans. Other
fees earned/paid include commitment, amendment, consent, commissions and
prepayment penalty fees. Facility, amendment and consent fees are typically
amortized as premium and/or accreted as discount over the term of the loan.
Commitment, commission and various other fees are recorded as income. Prepayment
penalty fees are recorded as gains or losses. When the Fund buys a floating rate
loan it may receive a facility fee and when it sells a floating rate loan it may
pay a facility fee. On an
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 19
Notes to Financial Statements (continued)
ongoing basis, the Fund may receive a commitment fee based on the undrawn
portion of the underlying line of credit portion of a floating rate loan. In
certain circumstances, the Fund may receive a prepayment penalty fee upon the
prepayment of a floating rate loan by a borrower. Other fees received by the
Fund may include covenant waiver fees and covenant modification fees.
The Fund may invest in multiple series or tranches of a loan. A different series
or tranche may have varying terms and carry different associated risks.
Floating rate loans are usually freely callable at the issuer's option. The Fund
may invest in such loans in the form of participations in loans
("Participations") and assignments of all or a portion of loans from third
parties. Participations typically will result in the Fund having a contractual
relationship only with the lender, not with the borrower. The Fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the lender selling the Participation and only upon receipt by
the lender of the payments from the borrower.
In connection with purchasing Participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the loans, nor any rights of offset against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased the Participation.
As a result, the Fund will assume the credit risk of both the borrower and the
lender that is selling the Participation. The Fund's investments in loan
participation interests involve the risk of insolvency of the financial
intermediaries who are parties to the transactions. In the event of the
insolvency of the lender selling the Participation, the Fund may be treated as a
general creditor of the lender and may not benefit from any offset between the
lender and the borrower.
Preferred Stock: The Fund may invest in preferred stocks. Preferred stock has a
preference over common stock in liquidation (and generally in receiving
dividends as well) but is subordinated to the liabilities of the issuer in all
respects. As a general rule, the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates and
perceived credit risk, while the market price of convertible preferred stock
generally also reflects some element of conversion value. Because preferred
stock is junior to debt securities and other obligations of the issuer,
deterioration in the credit quality of the issuer will cause greater changes in
the value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.
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 if the value of the contract decreases due to an
unfavorable change in the price of the underlying security, or if the
counterparty does not perform under the contract.
o Credit default swaps -- The Fund may invest in credit default swaps, which
are OTC contracts in which one party pays fixed periodic payments to a
counterparty in consideration for a guarantee from the counterparty to
make a specific payment should a negative credit event take place. 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 arise from the
possible inability of the counterparties to meet the terms of their
contracts. The Fund is exposed to credit loss in the event of
non-performance by the other party to the swap.
The Fund may utilize credit default swaps for the purpose of reducing the
interest rate sensitivity of the portfolio and decreasing the Fund's
exposure to interest rate risk.
o Forward foreign exchange contracts -- The Fund may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. Forward currency contracts, when used by the Fund,
help manage the overall exposure to the foreign backing some of the
investments help by the Fund. 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.
Foreign Currency Transactions: Foreign currency amounts are translated into
United States dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the current rate of exchange; and (ii)
purchases and sales of investment securities, income and expenses at the rates
of exchange prevailing on the respective dates of such transactions.
The Fund reports foreign currency related transactions as components of realized
gains for financial reporting purposes, whereas such components are treated as
ordinary income for federal income tax purposes.
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 laws, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
20 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Notes to Financial Statements (continued)
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. The Advisor has evaluated
the application of FIN 48 to the Fund, and has determined that the adoption of
FIN 48 did not have a material impact on the Fund's financial statements. The
Fund files U.S. federal and various state and local tax returns. No income tax
returns are currently under examination. The statute of limitations on the
Fund's U.S. federal tax returns remain open for the years ended February 28,
2005 through February 28, 2007. The statutes of limitations on the Fund's state
and local tax returns may remain open for an additional year depending upon the
jurisdiction.
Investment Transactions and Investment Income: Investment transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are deter-mined 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.
Dividends and Distributions: Dividends from net investment income are declared
and paid monthly. Distributions of capital gains are recorded on the ex-dividend
dates.
Recent Accounting Pronouncements: 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. The impact on the Fund's financial
statement disclosures, if any, is currently being assessed.
In addition, in February 2007, 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. 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. The impact on the Fund's financial statement disclosure, if any, is
currently being assessed.
Segregation: In cases in which the 1940 Act and the interpretive positions of
the Securities and Exchange Commission ("SEC") require that the Fund segregate
assets in connection with certain investments (e.g., swaps), the Fund will,
consistent with certain interpretive letters issued by the SEC, designate on its
books and records cash or other liquid debt securities having a market value at
least equal to the amount that would otherwise be required to be physically
segregated.
Deferred Compensation and BlackRock Closed-End Share Equivalent Investment Plan:
Under the deferred compensation plan approved by the Fund's Board,
non-interested Directors ("Independent Directors") defer a portion of their
annual complex-wide compensation. Deferred amounts earn an approximate return as
though equivalent dollar amounts had been invested in common shares of other
certain BlackRock Closed-End Funds selected by the Independent Directors. This
has approximately the same economic effect for the Independent Directors as if
the Independent Directors had invested the deferred amounts directly in other
certain BlackRock Closed-End Funds.
The deferred compensation plan is not funded and obligations thereunder
represent general unsecured claims against the general assets of the Fund. Each
Fund may, however, elect to invest in common shares of other certain BlackRock
Closed-End Funds selected by the Independent Directors in order to match its
deferred compensation obligations. Investments to cover the Fund's deferred
compensation liability are included in other assets on the Statement of Assets
and Liabilities.
Other: Expenses that are directly related to one of the Funds are charged to
that Fund. Other operating expenses are pro-rated to certain Funds on the basis
of relative net assets.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with the Advisor to
provide investment advisory and administration services. Merrill Lynch & Co.,
Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. are principal
owners of BlackRock, Inc.
The Advisor 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 the Advisor a monthly fee at an annual rate of 0.60% of the average daily
value of the Fund's net assets plus the proceeds of any outstanding borrowings
used for leverage. In addition, the Advisor has entered into a sub-advisory
agreement with BlackRock Financial Management, Inc. ("BFM"), an affiliate of the
Advisor, under which the Advisor pays BFM for services it provides a monthly fee
that is a percentage of the management fee paid by the Fund to the Advisor. For
the year ended February 29, 2008, the Fund reimbursed the Advisor $12,728 for
certain accounting services, which are included in accounting services expenses
in the Statement of Operations.
Certain officers and/or directors of the Fund are officers and/or directors of
BlackRock, Inc. or its affiliates.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 21
Notes to Financial Statements (continued)
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended February 29, 2008 were $496,066,365 and
$613,647,072, respectively.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$0.10, all of which were initially classified as Common Stock. The Board 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 years ended February 29, 2008 and
February 28, 2007 increased by 332,989 and 579,550, respectively, as a result of
dividend reinvestment.
5. Commitments:
The Fund may invest in floating rate loans. In connection with these
investments, the Fund may, with its Advisor, also enter into unfunded corporate
loans ("commitments"). Commitments may obligate the Fund to furnish temporary
financing to a borrower until permanent financing can be arranged. At February
29, 2008, the Fund had outstanding commitments of approximately $2,835,000. In
connection with these commitments, the Fund earns a commitment fee, typically
set as a percentage of the commitment amount. Such fee income, which is
classified in the Statement of Operations as facility and other fees, is
recognized ratably over the commitment period. As of February 29, 2008, the Fund
had the following unfunded loan commitments:
--------------------------------------------------------------------------------
Value of
Unfunded Underlying
Commitment Loans
Borrower (000) (000)
--------------------------------------------------------------------------------
Big West Oil ......................................... $744 $681
Community Health ..................................... $144 $132
Las Vegas Sands ...................................... $800 $711
MEG Energy Corp. ..................................... $839 $757
NG Wireless .......................................... $140 $133
Univision Communications, Inc. ....................... $168 $140
--------------------------------------------------------------------------------
6. Short-Term Borrowings:
The Fund is a party to a 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"). On May 16, 2007, the
agreement was renewed for one year and has a maximum limit of $370,000,000.
Under the Citicorp administered program, the conduits will fund advances to the
Fund through highly rated commercial paper. The Fund has granted a security
interest in substantially all of its assets to, and in favor of, the Lenders as
security for its obligations to the Lender. The interest rate on the Fund's
borrowings is based on the interest rate carried by the commercial paper plus a
program fee. In addition the Fund pays a liquidity fee to the secondary backstop
lenders and the agent. The weighted average annual interest rate was 5.54% for
the year ended February 29, 2008.
22 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Notes to Financial Statements (concluded)
7. Distribution to Shareholders:
No provision is made for U.S. federal income taxes as it is the Fund's intention
to continue to qualify for and elect the tax treatment applicable to regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended, and to make the requisite distributions to their respective
shareholders, which will be sufficient to relieve them from federal income and
excise taxes.
Reclassifications: U.S. generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, during the current year,
$51,081,498 has been reclassified between paid-in capital in excess of par and
accumulated net realized capital losses, and $890,224 has been reclassified
between accumulated net realized capital losses and undistributed net investment
income as a result of permanent differences attributable to expiration of
capital loss carryforwards, amortization methods on fixed income securities,
foreign currency transactions, and swap agreements. These reclassifications have
no effect on net assets or net asset values per share.
The tax character of distributions paid during the fiscal years ended February
29, 2008 and February 28, 2007 was as follows:
--------------------------------------------------------------------------------
2/29/2008 2/28/2007
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $71,016,850 $69,729,202
------------------------------
Total taxable distributions .............. $71,016,850 $69,729,202
==============================
As of February 29, 2008, the components of accumulated losses on a tax basis
were as follows:
-----------------------------------------------------------------------------
Undistributed net ordinary income .......................... $ 6,446,869
Undistributed net long-term capital gains .................. --
-------------
Total undistributed net earnings ........................... 6,446,869
Capital loss carryforward .................................. (259,454,191)*
Net unrealized losses ...................................... (144,633,076)**
-------------
Total net accumulated losses ............................... $(397,640,398)
=============
* On February 29, 2008, the Fund had a net capital loss carryforward of
$259,454,191, of which $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 $3,578,574
expires in 2015. This amount will be available to offset like amounts of
any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities, book/tax differences in the accrual
of income on securities in default, the deferral of post-October capital
losses for tax purposes, the realization for tax purposes of unrealized
gains (losses) on certain foreign currency contracts, the accounting for
swap agreements and book/tax differences on investments in passive foreign
investment companies.
8. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $0.053000 per share
on March 31, 2008 to shareholders of record on March 14, 2008.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 23
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
BlackRock Debt Strategies Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
BlackRock Debt Strategies Fund, Inc. (the "Fund") including the schedule of
investments, as of February 29, 2008, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of February 29, 2008, by correspondence with the
custodian and financial intermediaries; where replies were not received from
financial intermediaries, we performed other auditing procedures. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Debt Strategies Fund, Inc. as of February 29, 2008, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
April 29, 2008
Important Tax Information (Unaudited)
The following information is provided with respect to the ordinary income
distributions paid by BlackRock Debt Strategies Fund, Inc. for the fiscal year
ended February 29, 2008:
--------------------------------------------------------------------------------
Interest-Related Dividends for Non-U.S. Residents*
--------------------------------------------------------------------------------
Month(s) Paid: March 2007 ............................................ 73.18%
April 2007 ............................................ 80.75%
May 2007 - January 2008 ............................... 86.27%
February 2008 ......................................... 78.96%
--------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
24 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by The Bank of New York
Mellon (the "Plan Agent"). Under the Plan, whenever the Fund declares a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares. If the Fund's net asset value per share is greater than the market price
per share (a condition often referred to as a "market discount"), the Plan Agent
will invest the dividend amount by purchasing on the open market additional
shares. If the Plan Agent is unable to invest the full dividend amount in open
market purchases, or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will invest any uninvested portion in newly
issued shares. The shares acquired are credited to each shareholder's account.
The amount credited is determined by dividing the dollar amount of the dividend
by either (i) when the shares are newly issued, the net asset value per share on
the date the shares are issued or (ii) when shares are purchased in the open
market, the average purchase price per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. Participation in the Plan generally will not affect the tax-exempt status
of exempt interest dividends paid by the Fund. If, when the Fund's shares are
trading at a market premium, the Fund issues shares pursuant to the Plan that
have a greater fair market value than the amount of cash reinvested, it is
possible that all or a portion of the discount from the market value (which may
not exceed 5% of the fair market value of the Fund's shares) could be viewed as
a taxable distribution. If the discount is viewed as a taxable distribution, it
is also possible that the taxable character of this discount would be allocable
to all the shareholders, including shareholders who do not participate in the
Plan. Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at The Bank of
New York Mellon, One Wall Street, New York, NY 10286, Telephone: (800) 432-8224.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 25
Officers and Directors
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios Public
and Year of Birth Fund Director** During Past 5 Years Overseen Directorships
====================================================================================================================================
Non-Interested Directors*
------------------------------------------------------------------------------------------------------------------------------------
G. Nicholas Beckwith, III Director Since 2007 Chairman and Chief Executive Officer, 112 Funds None
40 East 52nd Street Arch Street Management, LLC (Beckwith 109 Portfolios
New York, NY 10022 Family Foundation) and various
1945 Beckwith property companies since
2005; Chairman of the Board of
Directors, University of Pittsburgh
Medical Center since 2002; Board of
Directors, Shady Side Hospital
Foundation since 1977; Board of
Directors, Beckwith Institute for
Innovation In Patient Care since 1991;
Member, Advisory Council on Biology
and Medicine, Brown University since
2002; Trustee, Claude Worthington
Benedum Foundation (charitable
foundation) since 1989; Board of
Trustees, Chatham College since 1981;
Board of Trustees, University of
Pittsburgh since 2002; Emeritus
Trustee, Shady Side Academy since
1977; Formerly Chairman and Manager,
Penn West Industrial Trucks LLC
(sales, rental and servicing of
material handling equipment) from 2005
to 2007; Formerly Chairman, President
and Chief Executive Officer, Beckwith
Machinery Company (sales, rental and
servicing of construction and
equipment) from 1985 to 2005; Formerly
Board of Directors, National Retail
Properties (REIT) from 2006 to 2007.
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Cavanagh Director and Since 2007 Trustee, Aircraft Finance Trust since 113 Funds Arch Chemical
40 East 52nd Street Chairman 1999; Director, The Guardian Life 110 Portfolios (chemical and allied
New York, NY 10022 of the Board Insurance Company of America since products)
1946 of Directors 1998; Chairman and Trustee,
Educational Testing Service since
1997; Director, The Fremont Group
since 1996; Formerly President and
Chief Executive Officer of The
Conference Board, Inc. (global
business research organization) from
1995 to 2007.
------------------------------------------------------------------------------------------------------------------------------------
Kent Dixon Director and Since 2007 Consultant/Investor since 1988. 113 Funds None
40 East 52nd Street Member of 110 Portfolios
New York, NY 10022 the Audit
1937 Committee
------------------------------------------------------------------------------------------------------------------------------------
Frank J. Fabozzi Director and Since 2007 Consultant/Editor of The Journal of 113 Funds None
40 East 52nd Street Member of Portfolio Management since 2006; 110 Portfolios
New York, NY 10022 the Audit Professor in the Practice of Finance
1948 Committee and Becton Fellow, Yale University,
School of Management, since 2006;
Formerly Adjunct Professor of Finance
and Becton Fellow, Yale University
from 1994 to 2006.
------------------------------------------------------------------------------------------------------------------------------------
Kathleen F. Feldstein Director Since 2007 President of Economics Studies, Inc. 113 Funds The McClatchy
40 East 52nd Street (private economic consulting firm) 110 Portfolios Company
New York, NY 10022 since 1987; Chair, Board of Trustees, (publishing)
1941 McLean Hospital since 2000; Member of
the Board of Partners Community
Healthcare, Inc. since 2005; Member of
the Board of Partners HealthCare since
1995; Member of the Board of Sherrill
House (health care) since 1990;
Trustee, Museum of Fine Arts, Boston
since 1992; Member of the Visiting
Committee to the Harvard University
Art Museum since 2003; Trustee, The
Committee for Economic Development
(research organization) since 1990;
Member of the Advisory Board to the
International School of Business,
Brandeis University since 2002;
Formerly Director of Bell South
(communications) from 1998 to 2006;
Formerly Director of Ionics (water
purification) from 1992 to 2005;
Formerly Director of John Hancock
Financial Services from 1994 to 2003;
Formerly Director of Knight Ridder
(media) from 1998 to 2006.
------------------------------------------------------------------------------------------------------------------------------------
James T. Flynn Director and Since 2007 Formerly Chief Financial Officer of JP 112 Funds None
40 East 52nd Street Member of Morgan & Co., Inc. from 1990 to 1995. 109 Portfolios
New York, NY 10022 the Audit
1939 Committee
------------------------------------------------------------------------------------------------------------------------------------
26 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Officers and Directors (continued)
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios Public
and Year of Birth Fund Director** During Past 5 Years Overseen Directorships
====================================================================================================================================
Non-Interested Directors* (concluded)
------------------------------------------------------------------------------------------------------------------------------------
Jerrold B. Harris Director Since 2007 Trustee, Ursinus College since 2000; 112 Funds BlackRock-Kelso
40 East 52nd Street Director, Troemner LLC (scientific 109 Portfolios Capital Corp.
New York, NY 10022 equipment) since 2000.
1942
------------------------------------------------------------------------------------------------------------------------------------
R. Glenn Hubbard Director Since 2007 Dean of Columbia Business School since 113 Funds ADP (data and
40 East 52nd Street 2004; Columbia faculty member since 110 Portfolios information services);
New York, NY 10022 1988; Formerly Co-Director of Columbia KKR Financial
1958 Business School's Entrepreneurship Corporation (finance);
Program from 1997 to 2004; Visiting Duke Realty (real
Professor at the John F. Kennedy estate); Metropolitan
School of Government at Harvard Life Insurance
University and the Harvard Business Company (insurance);
School since 1985 and at the Information Services
University of Chicago since 1994; Group (media/
Formerly Chairman of the U.S. Council technology)
of Economic Advisers under the
President of the United States from
2001 to 2003.
------------------------------------------------------------------------------------------------------------------------------------
W. Carl Kester Director and Since 2007 Mizuho Financial Group Professor of 112 Funds None
40 East 52nd Street Member of Finance, Harvard Business School. 109 Portfolios
New York, NY 10022 the Audit Deputy Dean for Academic Affairs since
1951 Committee 2006; Unit Head, Finance, Harvard
Business School from 2005 to 2006;
Senior Associate Dean and Chairman of
the MBA Program of Harvard Business
School from 1999 to 2005; Member of
the faculty of Harvard Business School
since 1981; Independent Consultant
since 1978.
------------------------------------------------------------------------------------------------------------------------------------
Karen P. Robards Director and Since 2007 Partner of Robards & Company, LLC 112 Funds AtriCure, Inc.
40 East 52nd Street Chairperson (financial advisory firm) since 1987; 109 Portfolios (medical devices);
New York, NY 10022 of the Audit Co-founder and Director of the Cooke Care Investment Trust,
1950 Committee Center for Learning and Development Inc. (health care
(a not-for-profit organization) since REIT)
1987; Formerly Director of Enable
Medical Corp. from 1996 to 2005;
Formerly an investment banker at
Morgan Stanley from 1976 to 1987.
------------------------------------------------------------------------------------------------------------------------------------
Robert S. Salomon, Jr. Director and Since 2007 Formerly Principal of STI Management 112 Funds None
40 East 52nd Street Member of LLC (investment adviser) from 1994 to 109 Portfolios
New York, NY 10022 the Audit 2005.
1936 Committee
---------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in
which they turn 72.
** Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock, Inc.
("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were
realigned and consolidated into three new Fund boards in 2007. As a result, although the chart
shows certain directors as joining the Fund's board in 2007, those directors first became a member
of the board of directors of other legacy MLIM or legacy BlackRock Funds as follows: G. Nicholas
Beckwith, III since 1999; Richard E. Cavanagh since 1994; Kent Dixon since 1988; Frank J. Fabozzi
since 1988; Kathleen F. Feldstein since 2005; James T. Flynn since 1996; Jerrold B. Harris since
1999; R. Glenn Hubbard since 2004; W. Carl Kester since 1998; Karen P. Robards since 1998 and
Robert S. Salomon, Jr. since 1996.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 27
Officers and Directors (continued)
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios Public
and Year of Birth Fund Director During Past 5 Years Overseen Directorships
====================================================================================================================================
Interested Directors*
------------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis Director Since 2007 Managing Director, BlackRock, Inc. 185 Funds None
40 East 52nd Street since 2005; Formerly Chief Executive 292 Portfolios
New York, NY 10022 Officer, State Street Research and
1945 Management Company from 2000 to 2005;
Formerly Chairman of the Board of
Trustees, State Street Research Mutual
Funds from 2000 to 2005; Formerly
Chairman, SSR Realty from 2000 to
2004.
------------------------------------------------------------------------------------------------------------------------------------
Henry Gabbay Director Since 2007 Consultant, BlackRock, Inc. since 184 Funds None
40 East 52nd Street 2007; Formerly Managing Director, 291 Portfolios
New York, NY 10022 BlackRock, Inc. from 1989 to 2007;
1947 Formerly Chief Administrative Officer,
BlackRock Advisors, LLC from 1998 to
2007; Formerly President of BlackRock
Funds and BlackRock Bond Allocation
Target Shares from 2005 to 2007;
Formerly Treasurer of certain
closed-end funds in the BlackRock fund
complex from 1989 to 2006.
---------------------------------------------------------------------------------------------------------
* Messrs. Davis and Gabbay are both "interested persons," as defined in the Investment Company Act of
1940, of the Fund based on their positions with BlackRock, Inc. and its affiliates. Directors serve
until their resignation, removal or death, or until December 31 of the year in which they turn 72.
28 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Officers and Directors (concluded)
Position(s) Length of
Name, Address Held with Time
and Year of Birth Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke Vice Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of
40 East 52nd Street President Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management,
New York, NY 10022 and L.P. ("FAM") in 2006; First Vice President thereof from 1997 to 2005;
1960 Treasurer Treasurer thereof from 1999 to 2006 and Vice President thereof from 1990 to
1997.
------------------------------------------------------------------------------------------------------------------------------------
Anne F. Ackerley Vice Since 2007 Managing Director of BlackRock, Inc. since 2000 and First Vice President and
40 East 52nd Street President Chief Operating Officer of Mergers and Acquisitions Group from 1997 to 2000;
New York, NY 10022 First Vice President and Chief Operating Officer of Public Finance Group
1962 thereof from 1995 to 1997; First Vice President of Emerging Markets Fixed
Income Research of Merrill Lynch & Co., Inc. from 1994 to 1995.
------------------------------------------------------------------------------------------------------------------------------------
Neal J. Andrews Chief Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice
40 East 52nd Street Financial President and Line of Business Head of Fund Accounting and Administration at
New York, NY 10022 Officer PFPC Inc. from 1992 to 2006.
1966
------------------------------------------------------------------------------------------------------------------------------------
Jay M. Fife Treasurer Since 2007 Managing Director of BlackRock, Inc. since 2007 and Director in 2006; Formerly
40 East 52nd Street Assistant Treasurer of the MLIM/FAM advised funds from 2005 to 2006; Director
New York, NY 10022 of MLIM Fund Services Group from 2001 to 2006.
1970
------------------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Chief Since 2007 Chief Compliance Officer of the Funds since 2007; Managing Director and Senior
40 East 52nd Street Compliance Counsel thereof since 2005; Director and Senior Counsel of BlackRock Advisors,
New York, NY 10022 Officer Inc. from 2001 to 2004 and Vice President and Senior Counsel thereof from 1998
1959 to 2000; Senior Counsel of The PNC Bank Corp. from 1995 to 1998.
------------------------------------------------------------------------------------------------------------------------------------
Howard Surloff Secretary Since 2007 Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at
40 East 52nd Street BlackRock, Inc. since 2006; Formerly General Counsel (U.S.) of Goldman Sachs
New York, NY 10022 Asset Management, L.P. from 1993 to 2006.
1965
---------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York Mellon
New York, NY 10286
Transfer Agent
The Bank of New York Mellon
New York, NY 10286
Accounting Agent
State Street Bank and
Trust Company
Princeton, NJ 08540
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Princeton, NJ 08540
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom LLP
New York, NY 10036
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 29
Additional Information
Fund Certification
The Fund listed for trading on the New York Stock Exchange ("NYSE") has filed
with the NYSE its annual chief executive officer certification regarding
compliance with the NYSE's listing standards. The Fund filed with the Securities
and Exchange Commission ("SEC") the certification of its chief executive officer
and chief financial officer required by section 302 of the Sarbanes-Oxley Act.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the 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 website at http://www.sec.gov and 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 (800) SEC-0330. The Fund's Forms N-Q may also be obtained upon request
and without charge by calling (800) 441-7762.
Electronic Delivery
Electronic copies of most financial reports are available on the Fund's website
or shareholders can sign up for e-mail notifications of quarterly statements,
annual and semi-annual reports by enrolling in the Fund's electronic delivery
program.
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisors, banks or brokerages may offer this service.
General Information
The Fund does not make available copies of its Statements of Additional
Information because the Fund's shares are not continuously offered, which means
that the Statement of Additional Information of the Fund has not been updated
after completion of the Fund's offering and the information contained in the
Fund's Statement of Additional Information may have become outdated.
During the period, there were no material changes in the Fund's investment
objective or policies or to the Fund's character or by-laws that were not
approved by the shareholders or in the principal risk factors associated with
investment in the Fund. There have been no changes in the persons who are
primarily responsible for the day-to-day management of the Fund's portfolio.
The Fund will mail only one copy of shareholder documents, including annual and
semi-annual reports and proxy statements, to shareholders with multiple accounts
at the same address. This practice is commonly called "householding" and it is
intended to reduce expenses and eliminate duplicate mailings of shareholder
documents. Mailings of your shareholder documents may be householded
indefinitely unless you instruct us otherwise. If you do not want the mailing of
these documents to be combined with those for other members of your household,
please contact the Fund at (800) 441-7762.
Quarterly performance, semi-annual and annual reports and other information
regarding the Fund may be found on BlackRock's website, which can be accessed at
http://www.blackrock.com. This reference to BlackRock's website is intended to
allow investors public access to information regarding the Fund and does not,
and is not intended to, incorporate BlackRock's website into this report.
30 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008
Additional Information (concluded)
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 websites.
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.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 29, 2008 31
This report is transmitted to shareholders only. 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, which
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 (800) 441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's website
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 upon request and without charge (1) at
www.blackrock.com or by calling (800) 441-7762 and (2) on the Securities and
Exchange Commission's website at http://www.sec.gov.
BlackRock Debt Strategies Fund, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
BLACKROCK
#DEBT-2/08
Item 2 - Code of Ethics - The registrant (or the "Fund") has adopted a code
of ethics, as of the end of the period covered by this report,
applicable to the registrant's principal executive officer,
principal financial officer and principal accounting officer, or
persons performing similar functions. During the period covered by
this report, there have been no amendments to or waivers granted
under the code of ethics. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors or trustees, as applicable (the "board of directors") has
determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent:
Kent Dixon (term began effective November 1, 2007)
Frank J. Fabozzi (term began effective November 1, 2007)
James T. Flynn (term began effective November 1, 2007)
Ronald W. Forbes (term ended effective November 1, 2007)
W. Carl Kester (term began effective November 1, 2007)
Karen P. Robards (term began effective November 1, 2007)
Robert S. Salomon, Jr. (term began effective November 1, 2007)
Richard R. West (term ended effective November 1, 2007)
The registrant's board of directors has determined that W. Carl
Kester and Karen P. Robards qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Prof.
Kester has been involved in providing valuation and other financial
consulting services to corporate clients since 1978. Prof. Kester's
financial consulting services present a breadth and level of
complexity of accounting issues that are generally comparable to the
breadth and complexity of issues that can reasonably be expected to
be raised by the registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Ms.
Robards has been President of Robards & Company, a financial
advisory firm, since 1987. Ms. Robards was formerly an investment
banker for more than 10 years where she was responsible for
evaluating and assessing the performance of companies based on their
financial results. Ms. Robards has over 30 years of experience
analyzing financial statements. She also is a member of the audit
committee of one publicly held company and a non-profit
organization.
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
------------------------------------------------------------------------------------------------------------------------------------
(a) Audit Fees (b) Audit-Related Fees(1) (c) Tax Fees(2) (d) All Other Fees(3)
------------------------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Entity Name End End End End End End End End
------------------------------------------------------------------------------------------------------------------------------------
BlackRock Debt $46,300 $45,500 $0 $8,000 $6,100 $6,100 $1,049 $0
Strategies Fund, Inc.
------------------------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
2 The nature of the services include tax compliance, tax advice and
tax planning.
3 The nature of the services include a review of compliance procedures
and attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). The term of any general pre-approval is 12 months
from the date of the pre-approval, unless the Committee provides for
a different period. Tax or other non-audit services provided to the
registrant which have a direct impact on the operation or financial
reporting of the registrant will only be deemed pre-approved
provided that any individual project does not exceed $10,000
attributable to the registrant or $50,000 for all of the registrants
the Committee oversees. For this purpose, multiple projects will be
aggregated to determine if they exceed the previously mentioned cost
levels.
Any proposed services exceeding the pre-approved cost levels
will require specific pre-approval by the Committee, as will any
other services not subject to general pre-approval (e.g.,
unanticipated but permissible services). The Committee is informed
of each service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting. At this meeting, an
analysis of such services is presented to the Committee for
ratification. The Committee may delegate to one or more of its
members the authority to approve the provision of and fees for any
specific engagement of permitted non-audit services, including
services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
---------------------------------------------------------------------------------------------
Entity Name Current Fiscal Year End Previous Fiscal Year End
---------------------------------------------------------------------------------------------
BlackRock Debt Strategies Fund, Inc. $294,649 $3,047,017
---------------------------------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $287,500, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Kent Dixon (term began effective November 1, 2007)
Frank J. Fabozzi (term began effective November 1, 2007)
James T. Flynn (term began effective November 1, 2007)
Ronald W. Forbes (term ended effective November 1, 2007)
W. Carl Kester (term began effective November 1, 2007)
Cynthia A. Montgomery (term ended effective November 1, 2007)
Jean Margo Reid (term ended effective November 1, 2007)
Karen P. Robards (term began effective November 1, 2007)
Robert S. Salomon, Jr. (term began effective November 1, 2007)
Roscoe S. Suddarth (not reappointed to audit committee effective
November 1, 2007; retired effective December 31, 2007)
Richard R. West (term ended effective November 1, 2007)
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 - The registrant has delegated the
voting of proxies relating to Fund portfolio securities to its
investment adviser, BlackRock Advisors, LLC and its sub-adviser, as
applicable. The Proxy Voting Policies and Procedures of the adviser
and sub-adviser are attached hereto as Exhibit 99.PROXYPOL.
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 without charge (1) at www.blackrock.com
and (2) on the Commission's web site at http://www.sec.gov.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of February 29, 2008.
(a)(1) BlackRock Debt Strategies Fund, Inc. is managed by a team of
investment professionals comprised of Mark J. Williams, Managing
Director at BlackRock and Kevin J. Booth, CFA, Managing Director at
BlackRock. Each is a member of BlackRock's fixed income portfolio
management group. Mr. Williams is responsible for setting overall
investment strategy and overseeing management of the Fund. Mr. Booth
is responsible for the day-to-day management of the Fund's portfolio
and the selection of its investments. Mr. Williams has been a member
of the Fund's management team since 2006. Mr. Booth has been a
member of the Fund's management team since 2005.
Mr. Williams is the head of BlackRock's bank loan group and a member
of the Investment Strategy Group. His primary responsibility is
originating and evaluating bank loan investments for the firm's
collateralized bond obligations. He is also involved in the
evaluation and sourcing of mezzanine investments. Prior to joining
BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged
Finance Group. In that capacity he was responsible for structuring
proprietary middle market leveraged deals and sourcing and
evaluating broadly syndicated leveraged loans in the primary and
secondary markets for PNC Bank's investment portfolio. From 1984
until 1990, Mr. Williams worked in PNC Bank's Philadelphia office in
a variety of marketing and corporate finance positions.
Kevin Booth is co-head of the high yield team within BlackRock's
Fixed Income Portfolio Management Group. His primary
responsibilities are managing portfolios and directing investment
strategy. He specializes in hybrid high yield portfolios, consisting
of leveraged bank loans, high yield bonds, and distressed
obligations. Prior to joining BlackRock, Mr. Booth was a Managing
Director (Global Fixed Income) of Merrill Lynch Investment Managers
("MLIM") in 2006, a Director from 1998 to 2006 and was a Vice
President of MLIM from 1991 to 1998. He has been a portfolio manager
with BlackRock or MLIM since 1992, and was a member of MLIM's bank
loan group from 2000 to 2006.
(a)(2) As of February 29, 2008:
------------------------------------------------------------------------------------------------------------------------
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
------------------------------------------------------------------------------------------------------------------------
Other Other
Registered Other Pooled Registered Other Pooled
(i) Name of Investment Investment Other Investment Investment Other
Portfolio Manager Companies Vehicles Accounts Companies Vehicles Accounts
------------------------------------------------------------------------------------------------------------------------
Mark Williams 10 18 1 0 13 0
------------------------------------------------------------------------------------------------------------------------
$3.43 Billion $6.39 Billion $142.6 Million $0 $5.04 Billion $0
------------------------------------------------------------------------------------------------------------------------
Kevin Booth 24 11 8 0 4 3
------------------------------------------------------------------------------------------------------------------------
$9.89 Billion $4.11 Billion $1.94 Billion $0 $2.14 Billion $408.7 Million
------------------------------------------------------------------------------------------------------------------------
(iv) Potential Material Conflicts of Interest
BlackRock, Inc. and its affiliates (collectively, herein
"BlackRock") has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address
the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have
performance or higher fees paid to BlackRock, or in which portfolio
managers have a personal interest in the receipt of such fees),
which may be the same as or different from those made to the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the
securities whose purchase and sale BlackRock recommends to the Fund.
BlackRock, or any of its affiliates, or any officer, director,
stockholder, employee or any member of their families may take
different actions than those recommended to the Fund by BlackRock
with respect to the same securities. Moreover, BlackRock may refrain
from rendering any advice or services concerning securities of
companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors
and employees of any of them has any substantial economic interest
or possesses material non-public information. Each portfolio manager
also may manage accounts whose investment strategies may at times be
opposed to the strategy utilized for the Fund. In this connection,
it should be noted that certain portfolio managers, including
Messrs. Booth and Williams, currently manage certain accounts that
are subject to performance fees. In addition, certain portfolio
managers may assist in managing certain hedge funds and may be
entitled to receive a portion of any incentive fees earned on such
funds and a portion of such incentive fees may be voluntarily or
involuntarily deferred. Additional portfolio managers may in the
future manage other such accounts or funds and may be entitled to
receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock attempts
to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve
reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that
is consistent with the particular investment discipline and client
base.
(a)(3) As of February 29, 2008:
Portfolio Manager Compensation Overview
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a performance-based
discretionary bonus, participation in various benefits programs and
one or more of the incentive compensation programs established by
BlackRock such as its Long-Term Retention and Incentive Plan and
Restricted Stock Program.
Base compensation. Generally, portfolio managers receive base
compensation based on their seniority and/or their position with the
firm. Senior portfolio managers who perform additional management
functions within the portfolio management group or within BlackRock
may receive additional compensation for serving in these other
capacities.
Discretionary Incentive Compensation
Discretionary incentive compensation is a function of several
components: the performance of BlackRock, Inc., the performance of
the portfolio manager's group within BlackRock, the investment
performance, including risk-adjusted returns, of the firm's assets
under management or supervision by that portfolio manager relative
to predetermined benchmarks, and the individual's seniority, role
within the portfolio management team, teamwork and contribution to
the overall performance of these portfolios and BlackRock. In most
cases, including for the portfolio managers of the Fund, these
benchmarks are the same as the benchmark or benchmarks against which
the performance of the Fund or other accounts managed by the
portfolio managers are measured. BlackRock's Chief Investment
Officers determine the benchmarks against which the performance of
funds and other accounts managed by each portfolio manager is
compared and the period of time over which performance is evaluated.
With respect to the portfolio managers, such benchmarks include the
following:
--------------------------------------------------------------------
Portfolio Manager Applicable Benchmarks
--------------------------------------------------------------------
Kevin Booth A combination of market-based indices (e.g., The
Lehman Brothers U.S. Corporate High Yield 2%
Issuer Cap Index), certain customized indices
and certain fund industry peer groups.
--------------------------------------------------------------------
Mark Williams A combination of market-based indices (e.g.,
Credit Suisse Leveraged Loan Index, LIBOR),
certain customized indices and certain fund
industry peer groups.
--------------------------------------------------------------------
BlackRock's Chief Investment Officers make a subjective
determination with respect to the portfolio managers' compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks noted
above. Performance is measured on both a pre-tax and after-tax basis
over various time periods including 1, 3, 5 and 10-year periods, as
applicable.
Distribution of Discretionary Incentive Compensation
Discretionary incentive compensation is distributed to portfolio
managers in a combination of cash and BlackRock, Inc. restricted
stock units which vest ratably over a number of years. The
BlackRock, Inc. restricted stock units, if properly vested, will be
settled in BlackRock, Inc. common stock. Typically, the cash bonus,
when combined with base salary, represents more than 60% of total
compensation for the portfolio managers. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for
a given year "at risk" based on the Company's ability to sustain and
improve its performance over future periods.
Other compensation benefits. In addition to base compensation and
discretionary incentive compensation, portfolio managers may be
eligible to receive or participate in one or more of the following:
Long-Term Retention and Incentive Plan ("LTIP") --The LTIP is
a long-term incentive plan that seeks to reward certain key
employees. Prior to 2006, the plan provided for the grant of awards
that were expressed as an amount of cash that, if properly vested
and subject to the attainment of certain performance goals, will be
settled in cash and/or in BlackRock, Inc. common stock. Beginning in
2006, awards are granted under the LTIP in the form of BlackRock,
Inc. restricted stock units that, if properly vested and subject to
the attainment of certain performance goals, will be settled in
BlackRock, Inc. common stock. Each portfolio manager has received
awards under the LTIP.
Deferred Compensation Program --A portion of the compensation
paid to eligible BlackRock employees may be voluntarily deferred
into an account that tracks the performance of certain of the firm's
investment products. Each participant in the deferred compensation
program is permitted to allocate his deferred amounts among various
options, including to certain of the firm's hedge funds and other
proprietary mutual funds. Each portfolio manager has participated in
the deferred compensation program.
Options and Restricted Stock Awards -- A portion of the annual
compensation of certain employees is mandatorily deferred into
BlackRock restricted stock units. Prior to the mandatory deferral
into restricted stock units, the Company granted stock options to
key employees, including certain portfolio managers who may still
hold unexercised or unvested options. BlackRock, Inc. also granted
restricted stock awards designed to reward certain key employees as
an incentive to contribute to the long-term success of BlackRock.
These awards vest over a period of years. Mr. Williams has been
granted stock options and/or restricted stock in prior years.
Incentive Savings Plans -- BlackRock, Inc. has created a
variety of incentive savings plans in which BlackRock employees are
eligible to participate, including a 401(k) plan, the BlackRock
Retirement Savings Plan (RSP), and the BlackRock Employee Stock
Purchase Plan (ESPP). The employer contribution components of the
RSP include a company match equal to 50% of the first 6% of eligible
pay contributed to the plan capped at $4,000 per year, and a company
retirement contribution equal to 3% of eligible compensation, plus
an additional contribution of 2% for any year in which BlackRock has
positive net operating income. The RSP offers a range of investment
options, including registered investment companies managed by the
firm. Company contributions follow the investment direction set by
participants for their own contributions or, absent employee
investment direction, are invested into a balanced portfolio. The
ESPP allows for investment in BlackRock common stock at a 5%
discount on the fair market value of the stock on the purchase date.
Annual participation in the ESPP is limited to the purchase of 1,000
shares or a dollar value of $25,000. Each portfolio manager is
eligible to participate in these plans.
(a)(4) Beneficial Ownership of Securities. As of February 29, 2008,
the portfolio managers beneficially owned stock issued by the
Fund in the ranges set forth below:
-----------------------------------------
Portfolio Manager Dollar Range
-----------------------------------------
Kevin Booth None
-----------------------------------------
Mark Williams None
-----------------------------------------
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable due to no such
purchases during the period covered by this report.
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating and Governance 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 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 - See Item 2
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/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer of
BlackRock Debt Strategies Fund, Inc.
Date: April 23, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer (principal executive officer) of
BlackRock Debt Strategies Fund, Inc.
Date: April 23, 2008
By: /s/ Neal J. Andrews
-----------------------------------
Neal J. Andrews
Chief Financial Officer (principal financial officer) of
BlackRock Debt Strategies Fund, Inc.
Date: April 23, 2008