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.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Debt Strategies Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 02/28/07
Date of reporting period: 03/01/06 - 02/28/07
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Debt Strategies BLACKROCK
Fund, Inc.
ANNUAL REPORT | FEBRUARY 28, 2007
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Debt Strategies Fund, Inc.
The Benefits and Risks of Leveraging
BlackRock Debt Strategies Fund, Inc. utilizes leveraging through borrowings or
issuance of short-term debt securities or shares of Preferred Stock. The concept
of leveraging is based on the premise that the cost of assets to be obtained
from leverage will be based on short-term interest rates, which normally will be
lower than the income earned by the Fund on its longer-term portfolio
investments. To the extent that the total assets of the Fund (including the
assets obtained from leverage) are invested in higher-yielding portfolio
investments, the Fund's Common Stock shareholders will benefit from the
incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its net asset value and market
price. If the income derived from securities purchased with assets received from
leverage exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased is not sufficient to cover the cost of leverage, the Fund's
net income will be less than if leverage had not been used, and therefore the
amount available for distribution to Common Stock shareholders will be reduced.
Announcement of Annual Stockholders Meeting
The Fund has determined that its annual stockholders meeting originally
scheduled to be held in April 2007 will be postponed and will be held in
September 2007. Proposals of stockholders intended to be presented at the
meeting must be received by the Fund by May 15, 2007 for inclusion in the Fund's
proxy statement and form of proxy for that meeting. The persons named as proxies
in the proxy materials for the Fund's 2007 annual meeting of stockholders may
exercise discretionary authority with respect to any stockholder proposal
presented at such meeting if written notice of such proposal has not been
received by the Fund by July 1, 2007. Written proposals and notices should be
sent to the Secretary of the Fund, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
2 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
A Letter to Shareholders
Dear Shareholder
The new year began on a positive note for most financial markets, continuing the
momentum from the fourth quarter of 2006. At the end of February, however,
global equity markets registered their first significant decline since last
summer. The market jitters were triggered by a significant setback in the
Chinese market and were exacerbated by several concerns, notably a weakening
economy, some disappointing corporate earnings announcements, geopolitical
concerns related to Iran's nuclear program and increasing delinquencies in the
subprime mortgage market. Despite the recent spate of volatility, underlying
stock market fundamentals appear quite sound, supported by a generally good
global economic backdrop, tame inflation, relatively low interest rates and
attractive valuations.
Not unlike the equity market, the bond market also has seen volatility recently
as observers have attempted to interpret mixed economic signals. A bond market
rally late last year reversed early in 2007 as the economic data strengthened.
Prices improved (and yields fell) again in February as equities struggled.
Notably, the Treasury curve remained inverted for much of 2006 and into 2007.
The 30-year Treasury yield stood at 4.68% on February 28, 2007, while the
one-month Treasury offered the highest yield on the curve at 5.24%.
For its part, the Federal Reserve Board (the Fed) has left the target short-term
interest rate on hold at 5.25% since first pausing on August 8, 2006. Although
the central bankers continue to express concern about potential inflationary
pressures, they also have made reference to signs of economic weakness in their
public statements. Most observers expect the Fed to keep interest rates on hold
for now, but acknowledge that the combination of a mild economic slowdown and
moderating inflation could prompt an interest rate cut later in 2007.
Notwithstanding the volatility along the way, most major market indexes managed
to post positive returns for the annual and semi-annual reporting periods ended
February 28, 2007:
Total Returns as of February 28, 2007 6-month 12-month
=================================================================================================
U.S. equities (Standard & Poor's 500 Index) + 8.93% +11.97%
-------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) +10.76 + 9.87
-------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +12.17 +21.07
-------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 3.66 + 5.54
-------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 2.89 + 4.96
-------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 8.62 +12.36
-------------------------------------------------------------------------------------------------
If the recent market movements are any guide, 2007 could be a year of enhanced
market volatility. As you navigate the uncertainties of the financial markets,
we encourage you to review your investment goals with your financial
professional and to make portfolio changes, as needed. We thank you for trusting
BlackRock with your investment assets, and we look forward to continuing to
serve you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Fund President and Director
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 3
A Discussion With Your Fund's Portfolio Managers
The Fund's return outpaced that of its composite benchmark for the fiscal
year, benefiting from both an overweight exposure to lower-tier credits, as well
as its use of leverage.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended February 28, 2007, the Common Stock of BlackRock
Debt Strategies Fund, Inc. had net annualized yields of 9.38% and 9.03%, based
on a year-end per share net asset value of $7.01 and a per share market price of
$7.28, respectively, and $.658 per share income dividends. Over the same period,
the total investment return on the Fund's Common Stock was +15.35%, based on a
change in per share net asset value from $6.69 to $7.01, and assuming
reinvestment of all distributions. The Fund's total return for the period
significantly outpaced the +9.95% return of its benchmark, which is an equal
blend of the Credit Suisse High Yield Index and the Credit Suisse Leveraged Loan
Index.
For the six-month period ended February 28, 2007, the total investment return on
the Fund's Common Stock was +9.55%, based on a change in per share net asset
value from $6.72 to $7.01, and assuming reinvestment of all distributions. The
blended benchmark returned +6.39% for the six-month period.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of distributions, please refer to the Financial Highlights section
of this report. As a closed-end fund, the Fund's shares may trade in the
secondary market at a premium or discount to the Fund's net asset value. As a
result, total investment returns based on changes in the market value of the
Fund's Common Stock can vary significantly from total investment returns based
on changes in the Fund's net asset value.
The leveraged loan market, as measured by the Credit Suisse Leveraged Loan
Index, returned +7.57% for the annual period, while the high yield bond market,
as measured by the Credit Suisse High Yield Index, returned +12.36%. Despite
some volatility late in the reporting period, the non-investment grade markets
continued to post strong results. The leveraged loan market posted positive
returns in all of the past 12 months, while the high yield market saw positive
returns in 11 of the past 12 months. The markets have been aided by the
continuation of historically low default rates and strong inflows into the asset
classes, both of which have helped to support the prices of the underlying
issues.
Support for the leveraged loan market also came from soaring investor demand,
which pushed spreads to new lows. The primary driver of this demand is
collateralized loan obligations (CLOs), which now account for approximately
two-thirds of the leveraged loan market. The cost of funding for these CLOs has
dropped dramatically over the past few years, enabling the structured finance
vehicles to absorb bank loans at increasingly tighter spreads and still achieve
their targeted equity returns. The fact that default rates are at historic lows
also has assisted this trend. To supply the CLO juggernaut, the demand for bank
loans has been so voracious that we've actually seen bond deals migrate to the
loan market, a reversal of historic flows that typically saw deals move from
loans into bonds. This trend has marginally curtailed the supply of high yield
bonds, keeping spreads there tighter than they otherwise would be.
What factors most influenced Fund performance?
The Fund benefited from its overweight exposure to floating rate high yield
bonds and bank loans as opposed to fixed rate high yield issues, in light of the
inverted yield curve. The Fund's overweight to lower-tier credits, particularly
B-rated and CCC-rated issues, aided performance, as these segments of the
non-investment grade market generated the strongest returns. In addition, the
Fund continued to make extensive use of its leverage line, with an average level
of roughly 30% of total assets. This, too, was beneficial to performance. (For a
complete explanation of the benefits and risks of leveraging, refer to page 2 of
this report to shareholders.)
What changes were made to the Fund during the period?
During the period, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. and its affiliates, including Fund Asset Management,
L.P., with BlackRock, Inc. to form a new independent company. While this
resulted in some additions to the portfolio management team, there was no change
in the overall investment philosophy or focus of the Fund.
4 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
The Fund increased allocations to certain lower-quality credit tiers.
Specifically, the portfolio's position in B-rated and CCC-rated credits was
increased to an overweight, reflecting efforts to take advantage of the strong
high yield markets in which lower-tier credits provided the greatest returns.
The most notable shift in sector exposures was in the automotive sector, where
we reduced our underweighting during the period.
How would you characterize the Fund's position at the close of the period?
While volatility picked up at the end of the period, resulting in an investor
flight to quality, fundamental and technical valuations remained favorable for
the leveraged loan and high yield markets. Even with the noise at the end of the
reporting period, the leveraged loan market posted a return of .74% in February,
while the high yield market posted a return of better than 1%. This marked the
seventh month out of eight in which the Credit Suisse High Yield Index posted
monthly returns in excess of 1% and the eighth consecutive month that the Credit
Suisse Leveraged Loan Index posted returns of at least +.50%. Market
fundamentals remain very strong, with default rates near historical lows and a
new-issue calendar that is just beginning to satisfy the non-investment grade
investor. As a result, we remain positioned with an overweight exposure to
lower-tier credits (B and CCC), as we expect these segments of the market to
post the strongest returns.
By and large, borrowers continue to have access to strong liquidity, another
force keeping default rates low. Moreover, earnings are expected to grow
strongly over the near-term. In our view, with such conditions in place for the
bank loan market, investors appear encouraged and ready to support new deals and
further spread tightening in the sector.
Kevin J. Booth
Vice President and Portfolio Manager
Mark J. Williams
Portfolio Manager
April 3, 2007
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 5
Portfolio Information
As of February 28, 2007
Percent of
Ten Largest Holdings Net Assets
--------------------------------------------------------------------------------
Charter Communications, Inc. Term Loan B,
7.985% due 4/28/2013 ................................................. 2.7%
Nova Chemicals Corp., 8.502%
due 11/15/2013 ....................................................... 1.9
Smurfit Kappa Funding Plc, 7.75%
due 4/01/2015 ........................................................ 1.8
Rainbow National Services LLC, 10.375%
due 9/01/2014 ........................................................ 1.5
Omnova Solutions, Inc., 11.25%
due 6/01/2010 ........................................................ 1.4
Frontier Drilling, Inc. Term Loan B, 8.62% - 8.69%
due 6/21/2013 ........................................................ 1.3
HealthSouth Corp., 11.418% due 6/15/2014 ............................... 1.3
Vought Aircraft Industries, Inc., 8%
due 7/15/2011 ........................................................ 1.3
Metaldyne Corp., 11% due 6/15/2012 ..................................... 1.3
Michaels Stores, Inc., 11.375%
due 11/01/2016 ....................................................... 1.3
--------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
--------------------------------------------------------------------------------
Cable -- U.S. ......................................................... 16.8%
Chemicals ............................................................. 11.3
Information Technology ................................................ 10.9
Paper ................................................................. 10.3
Automotive ............................................................ 8.2
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Quality Ratings by Percent of
S&P/Moody's Total Investments
--------------------------------------------------------------------------------
BBB/Baa ............................................................... 0.7%
BB/Ba ................................................................. 11.3
B/B ................................................................... 61.4
CCC/Caa ............................................................... 15.0
CC/Ca ................................................................. 0.8
D ..................................................................... 0.5
NR (Not Rated) ........................................................ 7.9
Other* ................................................................ 2.4
--------------------------------------------------------------------------------
* Includes portfolio holdings in common stocks, preferred stocks, warrants,
other interests and short-term investments.
6 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Schedule of Investments as of February 28, 2007
Face
Amount Corporate Bonds Value
================================================================================
Aerospace & Defense -- 3.3%
$ 5,000,000 Alliant Techsystems, Inc., 3%
due 8/15/2024 (a)(l) $ 6,356,250
470,000 Argo-Tech Corp., 9.25% due 6/01/2011 509,950
7,500,000 L-3 Communications Corp., 3%
due 8/01/2035 (a)(l) 8,006,250
475,000 TransDigm, Inc., 7.75% due 7/15/2014 (l) 488,063
9,870,000 Vought Aircraft Industries, Inc., 8%
due 7/15/2011 9,623,250
-------------
24,983,763
================================================================================
Airlines -- 0.8%
Delta Air Lines, Inc. (e):
4,200,000 10% due 8/15/2008 2,415,000
5,505,000 8.30% due 12/15/2029 3,275,475
-------------
5,690,475
================================================================================
Automotive -- 3.8%
1,285,000 Delco Remy International, Inc., 9.36%
due 4/15/2009 (b) 1,249,663
925,000 Ford Motor Co., 7.45% due 7/16/2031 742,313
Ford Motor Credit Co.:
760,000 5.80% due 1/12/2009 746,504
4,480,000 8.11% due 1/13/2012 (b) 4,504,174
750,000 9.81% due 4/15/2012 (b) 811,105
The Goodyear Tire & Rubber Co. (l):
4,500,000 9.14% due 12/01/2009 (b) 4,545,000
1,830,000 8.625% due 12/01/2011 1,944,375
1,620,000 Lear Corp., 8.75% due 12/01/2016 1,561,275
10,050,000 Metaldyne Corp., 11% due 6/15/2012 9,396,750
1,530,000 Titan International, Inc., 8% due 1/15/2012 (l) 1,560,600
1,480,000 United Auto Group, Inc., 7.75%
due 12/15/2016 (l) 1,505,900
Venture Holdings Co. LLC:
4,450,000 12% due 6/01/2009 (e) 0
1,800,000 Series B, 9.50% due 7/01/2005 (m) 4,500
-------------
28,572,159
================================================================================
Broadcasting -- 3.1%
5,000,000 Canadian Satellite Radio Holdings, Inc.,
12.75% due 2/15/2014 5,137,500
1,100,000 LIN Television Corp. Series B, 6.50%
due 5/15/2013 1,072,500
2,800,000 Paxson Communications Corp., 8.757%
due 1/15/2012 (b)(l) 2,849,000
3,235,000 Sinclair Broadcast Group, Inc. Class A,
4.875% due 7/15/2018 3,129,863
5,795,000 Sirius Satellite Radio, Inc., 9.625%
due 8/01/2013 5,852,950
2,800,000 XM Satellite Radio, Inc., 9.871%
due 5/01/2013 (b) 2,765,000
2,685,000 Young Broadcasting, Inc., 10% due 3/01/2011 2,664,863
-------------
23,471,676
================================================================================
Cable -- International -- 0.1%
750,000 NTL Cable Plc, 8.75% due 4/15/2014 781,875
================================================================================
Cable -- U.S. -- 9.9%
5,950,000 Cablevision Systems Corp. Series B, 9.87%
due 4/01/2009 (b) 6,336,750
Charter Communications Holdings LLC:
3,750,000 10% due 4/01/2009 3,750,000
2,000,000 11.75% due 1/15/2010 2,000,000
2,000,000 11.125% due 1/15/2011 1,970,000
3,000,000 10% due 5/15/2011 2,955,000
1,289,000 Insight Midwest, LP, 9.75% due 10/01/2009 1,311,541
Intelsat Bermuda Ltd. (b)(l):
8,605,000 11.354% due 6/15/2013 9,228,863
4,890,000 8.872% due 1/15/2015 5,006,138
10,350,000 Intelsat Intermediate Holding Co. Ltd., 9.25%
due 2/01/2015 (h) 8,564,625
Intelsat Subsidiary Holding Co. Ltd.:
3,375,000 8.25% due 1/15/2013 3,518,438
4,800,000 8.625% due 1/15/2015 5,160,000
983,000 Loral Spacecom Corp., 14% due 11/15/2015 1,130,450
3,875,000 Mediacom LLC, 9.50% due 1/15/2013 3,981,563
7,260,000 PanAmSat Corp., 9% due 6/15/2016 (l) 7,967,850
10,000,000 Rainbow National Services LLC, 10.375%
due 9/01/2014 (l) 11,200,000
-------------
74,081,218
================================================================================
Chemicals -- 9.2%
3,550,000 ARCO Chemical Co., 9.80% due 2/01/2020 4,162,375
1,490,000 American Pacific Corp., 9% due 2/01/2015 (l) 1,503,038
4,000,000 Compass Minerals International, Inc. Series B,
12% due 6/01/2013 (h) 3,880,000
9,783,000 GEO Specialty Chemicals, Inc., 13.86%
due 12/31/2009 (a)(l) 8,070,975
1,280,000 Innophos, Inc., 8.875% due 8/15/2014 1,328,000
Lyondell Chemical Co.:
7,650,000 8% due 9/15/2014 8,051,625
1,775,000 8.25% due 9/15/2016 1,908,125
2,400,000 Millennium America, Inc., 7.625%
due 11/15/2026 2,352,000
Momentive Performance Materials, Inc. (l):
1,050,000 10.125% due 12/01/2014 (g) 1,105,125
1,720,000 11.50% due 12/01/2016 1,788,800
14,060,000 Nova Chemicals Corp., 8.502%
due 11/15/2013 (b) 14,060,000
10,000,000 Omnova Solutions, Inc., 11.25% due 6/01/2010 10,687,500
3,768,826 PCI Chemicals Canada, Inc., 10% due 12/31/2008 3,872,469
2,500,000 PolyOne Corp., 6.89% due 9/22/2008 2,406,250
2,612,000 Rockwood Specialties Group, Inc., 10.625%
due 5/15/2011 2,755,660
970,000 Terra Capital, Inc., 7% due 2/01/2017 (l) 965,150
-------------
68,897,092
================================================================================
Consumer -- Durables -- 0.8%
6,800,000 Simmons Co., 10.05% due 12/15/2014 (h) 5,644,000
================================================================================
Consumer -- Non-Durables -- 1.8%
9,000,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 7,560,000
5,750,000 Levi Strauss & Co., 10.11% due 4/01/2012 (b) 5,872,188
-------------
13,432,188
================================================================================
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 7
Schedule of Investments (continued)
Face
Amount Corporate Bonds Value
================================================================================
Diversified Media -- 4.2%
Affinion Group, Inc.:
$ 280,000 10.125% due 10/15/2013 $ 302,400
590,000 11.50% due 10/15/2015 640,150
2,000,000 Cadmus Communications Corp., 8.375%
due 6/15/2014 2,025,000
4,250,000 Idearc Inc., 8% due 11/15/2016 (l) 4,366,875
7,500,000 Liberty Media Corp., 0.75% due 3/30/2023 (a) 9,000,000
2,675,000 Muzak Holdings, LLC, 13% due 3/15/2010 692,156
3,875,000 NBC Acquisition Corp., 11% due 3/15/2013 (h) 3,216,250
580,000 Network Communications, Inc., 10.75%
due 12/01/2013 598,850
4,325,000 Nielsen Finance LLC, 8.125% due 8/01/2014 (l) 4,725,063
5,300,000 Universal City Florida Holding Co. I, 10.239%
due 5/01/2010 (b) 5,485,500
-------------
31,052,244
================================================================================
Energy -- Exploration & Production -- 0.9%
480,000 Berry Petroleum Co., 8.25% due 11/01/2016 478,800
3,000,000 Chaparral Energy, Inc., 8.50% due 12/01/2015 2,992,500
2,445,000 Compton Petroleum Finance Corp., 7.625%
due 12/01/2013 2,396,100
960,000 Stone Energy Corp., 8.11% due 7/15/2010 (b)(l) 961,200
-------------
6,828,600
================================================================================
Energy -- Other -- 2.6%
2,735,000 Aleris International, Inc., 9%
due 12/15/2014 (g)(l) 2,899,100
2,045,000 Dresser-Rand Group, Inc., 7.375%
due 11/01/2014 2,075,675
8,000,000 Ocean RIG ASA, 9.36% due 4/04/2011 (b) 8,000,000
6,300,000 SemGroup LP, 8.75% due 11/15/2015 (l) 6,394,500
-------------
19,369,275
================================================================================
Financial -- 1.3%
5,743,690 Archimedes Funding III Ltd., 5.50%
due 11/29/2011 (b)(l) 3,647,243
1,500,000 Investcorp SA, 7.54% due 10/21/2008 1,522,208
930,000 NCO Group, Inc., 10.23% due 11/15/2013 (b)(l) 934,650
2,000,000 Pennant CBO Ltd., 13.43% due 3/14/2011 1,880,000
35,000 PreTSL XXIV, 0% due 7/03/2032 (d)(l) 1,794,450
-------------
9,778,551
================================================================================
Food & Tobacco -- 0.1%
842,946 Archibald Candy Corp., 10% due 11/01/2007 (e) 53,687
600,000 Swift & Co., 12.50% due 1/01/2010 628,500
-------------
682,187
================================================================================
Gaming -- 2.5%
Galaxy Entertainment Finance Co. Ltd. (l):
1,975,000 10.42% due 12/15/2010 (b) 2,093,500
1,250,000 9.875% due 12/15/2012 1,364,063
2,560,000 Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (l) 2,636,800
915,000 Penn National Gaming, Inc., 6.75%
due 3/01/2015 880,688
Snoqualmie Entertainment Authority (l):
1,015,000 9.15% due 2/01/2014 (b) 1,030,225
480,000 9.125% due 2/01/2015 495,600
3,400,000 Station Casinos, Inc., 7.75% due 8/15/2016 3,493,500
3,490,000 Tropicana Entertainment, 7.86%
due 12/15/2014 (l) 3,511,813
3,000,000 Tunica-Biloxi Gaming Authority, 9%
due 11/15/2015 (l) 3,187,500
-------------
18,693,689
================================================================================
Health Care -- 6.5%
5,000,000 Angiotech Pharmaceuticals, Inc., 9.11%
due 12/01/2013 (b)(l) 5,162,500
3,525,000 CDRV Investors, Inc., 9.75% due 1/01/2015 (h) 2,828,813
4,963,829 Cinacalcet Royalty Corp., 8% due 3/30/2017 5,274,068
Elan Finance Plc:
3,525,000 7.75% due 11/15/2011 3,472,125
4,825,000 9.405% due 11/15/2011 (b) 4,909,438
HealthSouth Corp. (l):
9,000,000 11.354% due 6/15/2014 (b) 9,990,000
2,095,000 10.75% due 6/15/2016 2,341,163
5,000,000 Risperdal Consta Pharma, 7% due 1/01/2018 4,487,500
6,000,000 Tenet Healthcare Corp., 7.375% due 2/01/2013 5,610,000
1,400,000 VWR International, Inc., 8% due 4/15/2014 1,421,000
4,100,000 Vanguard Health Holding Co. I, LLC, 11.25%
due 10/01/2015 (h) 3,351,750
-------------
48,848,357
================================================================================
Housing -- 5.8%
1,300,000 CPG International I, Inc., 10.50% due 7/01/2013 1,361,750
3,070,000 Esco Corp., 9.23% due 12/15/2013 (b)(l) 3,192,800
Goodman Global Holding Co., Inc.:
2,319,000 8.329% due 6/15/2012 (b) 2,347,988
8,200,000 7.875% due 12/15/2012 8,364,000
7,175,000 Masonite Corp., 11% due 4/06/2015 (l) 7,157,063
5,850,000 Nortek, Inc., 8.50% due 9/01/2014 5,952,375
5,450,000 Ply Gem Industries, Inc., 9% due 2/15/2012 4,932,250
3,000,000 Scranton Products, Inc., 12.117%
due 7/01/2012 (b) 3,090,000
2,250,000 Stanley-Martin Communities LLC, 9.75%
due 8/15/2015 2,058,750
5,000,000 Technical Olympic USA, Inc., 8.25%
due 4/01/2011 (l) 4,850,000
-------------
43,306,976
================================================================================
Information Technology -- 7.4%
Amkor Technology, Inc.:
6,950,000 9.25% due 2/15/2008 7,089,000
3,000,000 7.125% due 3/15/2011 2,887,500
210,000 7.75% due 5/15/2013 203,700
2,370,000 9.25% due 6/01/2016 2,417,400
2,275,000 BMS Holdings, Inc., 12.40%
due 2/15/2012 (b)(l) 2,252,250
245,000 Compagnie Generale de Geophysique SA,
7.50% due 5/15/2015 249,900
670,000 Compagnie Generale de Geophysique-Veritas,
7.75% due 5/15/2017 693,450
Freescale Semiconductor, Inc. (l):
8,990,000 9.125% due 12/15/2014 (g) 9,113,613
5,470,000 9.23% due 12/15/2014 (b) 5,524,700
630,000 Nortel Networks Ltd., 9.61% due 7/15/2011 (b)(l) 674,100
420,000 Open Solutions, Inc., 9.75% due 2/01/2015 (l) 433,650
SunGard Data Systems, Inc.:
6,300,000 9.125% due 8/15/2013 6,725,250
4,600,000 9.973% due 8/15/2013 (b) 4,807,000
4,818,000 10.25% due 8/15/2015 5,239,575
735,000 Telcordia Technologies, Inc., 10%
due 3/15/2013 (l) 687,225
2,915,026 UGS Capital Corp. II, 10.348%
due 6/01/2011 (g)(l) 2,966,039
3,500,000 Viasystems, Inc., 10.50% due 1/15/2011 3,552,500
-------------
55,516,852
8 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Schedule of Investments (continued)
Face
Amount Corporate Bonds Value
================================================================================
Leisure -- 2.7%
$ 5,565,860 HRP Myrtle Beach Holdings LLC, 14.50%
due 4/01/2014 (g)(l) $ 5,718,921
HRP Myrtle Beach Operations LLC (l):
5,000,000 9.829% due 4/01/2012 (b) 5,050,000
5,000,000 12.50% due 4/01/2013 5,037,500
2,600,000 Travelport, Inc., 9.985% due 9/01/2014 (b)(l) 2,684,500
2,000,000 True Temper Sports, Inc., 8.375% due 9/15/2011 1,790,000
-------------
20,280,921
================================================================================
Manufacturing -- 2.5%
4,000,000 CPI Holdco, Inc., 11.151% due 2/01/2015 (b) 4,130,000
175,000 Fedders North America, Inc., 9.875%
due 3/01/2014 107,625
3,815,000 Invensys Plc, 9.875% due 3/15/2011 (l) 4,101,125
2,660,000 Jarden Corp., 7.50% due 5/01/2017 2,696,575
NXP B.V. (l):
2,200,000 8.11% due 10/15/2013 (b) 2,249,500
2,300,000 9.50% due 10/15/2015 2,374,750
RBS Global, Inc. (l):
1,480,000 9.50% due 8/01/2014 1,561,400
1,685,000 8.875% due 9/01/2016 1,718,700
-------------
18,939,675
================================================================================
Metal -- Other -- 2.3%
Indalex Holding Corp.:
1,500,000 11.50% due 2/01/2014 1,612,500
5,000,000 11.50% due 2/01/2014 (l) 5,350,000
6,350,000 James River Coal Co., 9.375% due 6/01/2012 5,461,000
4,550,000 RathGibson, Inc., 11.25% due 2/15/2014 4,823,000
-------------
17,246,500
================================================================================
Packaging -- 2.0%
Berry Plastics Holding Corp.:
665,000 8.875% due 9/15/2014 688,275
375,000 9.23% due 9/15/2014 (b) 387,188
1,100,000 Graham Packing Co., Inc., 9.875%
due 10/15/2014 1,133,000
6,215,000 Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (l) 6,525,750
6,325,000 Wise Metals Group LLC, 10.25% due 5/15/2012 6,103,625
-------------
14,837,838
================================================================================
Paper -- 9.5%
6,500,000 Abitibi-Consolidated, Inc., 8.855%
due 6/15/2011 (b) 6,532,500
Ainsworth Lumber Co. Ltd (b):
9,725,000 9.249% due 10/01/2010 8,217,625
8,000,000 9.364% due 4/01/2013 6,240,000
Boise Cascade LLC:
2,150,000 8.382% due 10/15/2012 (b) 2,150,000
900,000 7.125% due 10/15/2014 882,000
7,600,000 Bowater, Inc., 8.355% due 3/15/2010 (b) 7,676,000
3,775,000 Domtar, Inc., 7.125% due 8/15/2015 3,789,156
705,000 Graphic Packaging International Corp.,
9.50% due 8/15/2013 751,706
NewPage Corp.:
8,000,000 11.739% due 5/01/2012 (b) 8,720,000
4,725,000 12% due 5/01/2013 5,150,250
13,625,000 Smurfit Kappa Funding Plc, 7.75%
due 4/01/2015 13,761,250
1,600,000 Smurfit-Stone Container Enterprises, Inc.,
8.375% due 7/01/2012 1,632,000
Verso Paper Holdings LLC (l):
4,400,000 9.11% due 8/01/2014 (b) 4,532,000
530,000 11.375% due 8/01/2016 569,750
-------------
70,604,237
================================================================================
Retail -- 3.7%
2,815,000 Buffets, Inc., 12.50% due 11/01/2014 2,955,750
Michaels Stores, Inc. (l):
3,790,000 10% due 11/01/2014 4,055,300
8,660,000 11.375% due 11/01/2016 9,396,100
The Neiman Marcus Group, Inc.:
4,800,000 9% due 10/15/2015 (g) 5,280,000
5,000,000 10.375% due 10/15/2015 5,600,000
-------------
27,287,150
================================================================================
Service -- 1.8%
2,000,000 Buhrmann US, Inc., 7.875% due 3/01/2015 2,005,000
3,000,000 Neff Rental LLC, 11.25% due 6/15/2012 3,337,500
1,090,000 PNA Intermediate Holding Corp., 12.36%
due 2/15/2013 (b)(l) 1,095,450
4,280,000 Sally Holdings LLC, 10.50% due 11/15/2016 (l) 4,429,800
145,000 Seitel Acquisition Corp., 9.75% due 2/15/2014 (l) 147,175
Yankee Acquisition Corp. (l):
810,000 8.50% due 2/15/2015 828,225
1,395,000 9.75% due 2/15/2017 1,429,875
-------------
13,273,025
================================================================================
Telecommunications -- 4.1%
5,000,000 ADC Telecommunications, Inc., 5.729%
due 6/15/2013 (a)(b) 4,818,750
Cincinnati Bell, Inc.:
4,905,000 7.25% due 7/15/2013 5,088,938
195,000 8.375% due 1/15/2014 200,119
2,600,000 Nordic Telephone Co. Holdings ApS, 8.875%
due 5/01/2016 (l) 2,801,500
7,900,000 Qwest Communications International, Inc.,
8.86% due 2/15/2009 (b) 7,979,000
2,675,000 Qwest Corp., 8.605% due 6/15/2013 (b) 2,919,094
6,000,000 Time Warner Telecom Holdings, Inc., 9.25%
due 2/15/2014 6,435,000
-------------
30,242,401
================================================================================
Transportation -- 0.5%
790,000 Britannia Bulk Plc, 11% due 12/01/2011 (l) 769,263
1,500,000 Navios Maritime Holdings, Inc., 9.50%
due 12/15/2014 (l) 1,541,250
1,760,000 Titan Petrochemicals Group Ltd., 8.50%
due 3/18/2012 (l) 1,584,000
-------------
3,894,513
================================================================================
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 9
Schedule of Investments (continued)
Face
Amount Corporate Bonds Value
================================================================================
Utility -- 1.9%
$ 4,142,000 CenterPoint Energy, Inc. Series B, 3.75%
due 5/15/2023 (a) $ 6,528,828
1,150,000 Conexant Systems, Inc., 9.11%
due 11/15/2010 (b)(l) 1,184,500
4,000,000 El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (l) 4,250,000
440,000 Reliant Energy, Inc., 9.50% due 7/15/2013 476,850
1,425,000 Williams Cos., Inc., 8.625% due 6/01/2010 1,505,156
-------------
13,945,334
================================================================================
Wireless Communications -- 3.7%
1,905,000 Centennial Communications Corp., 11.11%
due 1/01/2013 (b) 2,009,775
5,250,000 Cricket Communications, Inc., 9.375%
due 11/01/2014 (l) 5,538,750
Digicel Group Ltd. (l):
3,560,000 8.875% due 1/15/2015 3,475,450
7,120,000 9.125% due 1/15/2015 (g) 6,933,100
2,150,000 FiberTower Corp., 9% due 11/15/2012 (a)(l) 2,464,438
2,500,000 iPCS Escrow Co., 11.50% due 5/01/2012 2,762,500
620,000 Orascom Telecom Finance SCA, 7.875%
due 2/08/2014 616,900
3,270,000 West Corp., 11% due 10/15/2016 (l) 3,539,775
-------------
27,340,688
================================================================================
Total Corporate Bonds
(Cost -- $730,260,727) -- 98.8% 737,523,459
================================================================================
================================================================================
Floating Rate Loan Interests**
================================================================================
Aerospace & Defense -- 0.4%
750,000 IAP Worldwide Services Inc. Term Loan,
9.688% due 12/31/2012 751,406
2,000,000 MRO Acquisitions Corp. First Lien Term Loan,
7.86% due 9/15/2010 2,018,750
-------------
2,770,156
================================================================================
Airlines -- 1.0%
Delta Air Lines:
3,000,000 Term Loan B, 10.11% due 3/16/2008 3,013,749
3,000,000 Term Loan C, 12.86% due 3/16/2008 3,018,282
1,500,000 United Air Lines, Inc. Term Loan B, 7.375%
due 1/30/2014 1,506,095
-------------
7,538,126
================================================================================
Automotive -- 4.4%
1,000,000 Delphi Automotive Systems Term Loan,
7.625% due 12/31/2007 1,005,625
Intermet Corp.:
1,685,185 Letter of Credit, 10.20% due 11/08/2010 1,407,130
4,814,815 Term Loan B, 10.351% due 11/08/2010 4,020,370
JL French Corp.:
3,980,000 First Lien Term Loan B, 8.375% due 6/05/2011 3,878,013
2,000,000 Second Lien Term Loan, 10.875%
due 6/05/2012 1,833,334
1,750,000 Keystone Automotive Operations Inc. Term
Loan B, 8.82% due 1/15/2012 1,763,125
Metaldyne Corp.:
86,538 Letter of Credit, 8.92% - 9.125%
due 1/15/2012 87,476
627,404 Term Loan, 9.125% due 1/15/2014 634,201
Navistar International Transportation Corp.:
1,866,667 Revolving Credit, 5.22% - 8.61%
due 6/30/2012 1,897,467
5,133,333 Term Loan, 8.61% due 6/30/2012 5,218,033
2,000,000 OshKosh Truck Corp. Term Loan B, 7.35%
due 11/30/2013 2,015,714
Tenneco Automotive, Inc.:
2,185,236 Term Loan B, 7.31% due 12/12/2010 2,192,884
959,936 Tranche B-1 Credit Linked Deposit, 7.32%
due 12/12/2010 963,295
5,750,000 Visteon Corp. Term Loan B, 8.38% due 6/13/2013 5,804,625
-------------
32,721,292
================================================================================
Broadcasting -- 1.3%
6,500,000 Ellis Communications Term Loan, 10%
due 12/30/2011 6,483,750
500,000 Multicultural Radio Broadcasting Inc. Term Loan,
8.098% due 12/15/2012 501,250
1,000,000 NEP Supershooters, LP Term Loan B, 7.595%
due 2/13/2014 1,009,688
1,500,000 Persona Communications Second Lien Term
Loan, 11.32% due 4/30/2014 1,513,125
-------------
9,507,813
================================================================================
Cable -- U.S. -- 5.7%
Cebridge Connections:
8,317,962 Second Lien Term Loan, 11.49%
due 5/04/2014 8,520,712
4,610,344 Term Loan B, 7.61% due 11/05/2013 4,654,285
20,000,000 Charter Communications, Inc. Term Loan,
7.985% due 4/28/2013 20,128,760
9,000,000 Insight Midwest Holdings LLC Term Loan B,
5.32% - 7.572% due 4/03/2014 9,083,251
-------------
42,387,008
================================================================================
Chemicals -- 2.0%
2,177,316 Huntsman ICI Holdings Term Loan B, 7.07%
due 8/16/2012 2,189,291
717,000 NuSil Technology Term Loan, 8.07%
due 10/31/2013 720,585
3,136,000 Rockwood Specialties Group, Inc. Tranche E
Term Loan, 7.36% due 12/10/2012 3,160,696
10,000,000 Wellman, Inc. Second Lien Term Loan, 12.11%
due 2/10/2010 8,620,000
-------------
14,690,572
================================================================================
10 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
================================================================================
Consumer -- Non-Durables -- 0.1%
$ 300,000 Gold Toe Investment Corp. Second Lien Term
Loan, 11.36% due 4/30/2014 $ 304,875
660,646 Renfro Corp. Term Loan B, 8.60%
due 9/30/2013 665,601
-------------
970,476
================================================================================
Diversified Media -- 2.0%
4,000,000 Affinion Group Term Loan, 11.66%
due 3/01/2012 3,956,668
7,000,000 Idearc, Inc. Term Loan, 7.32% due 11/15/2014 7,056,875
997,500 Nielsen Finance LLC Term Loan, 8.125%
due 8/15/2013 1,006,487
1,000,000 Penton Media Term Loan, 10.345%
due 2/15/2014 1,018,125
1,750,000 Riverdeep Group Ltd. Bridge Loan, 11.066%
due 12/21/2007 1,745,625
-------------
14,783,780
================================================================================
Energy -- Exploration & Production -- 1.7%
375,000 Carrizo Oil & Gas, Inc. Second Lien Term Loan,
10.114% due 7/21/2010 380,625
750,000 Energy Transfer Equity LP Term Loan B, 7.095%
due 11/01/2012 756,563
10,000,000 Frontier Drilling Term Loan B, 8.62% - 8.69%
due 6/21/2013 10,000,000
500,000 Longyear Global Holdings, Inc. Second Lien
Term Loan, 10.32% due 10/31/2013 505,000
1,240,625 MEG Energy Corp. Term Loan, 7.375%
due 4/03/2013 1,248,572
-------------
12,890,760
================================================================================
Energy -- Other -- 1.3%
Coleto Creek:
466,980 Letter of Credit, 8.128% due 7/31/2013 468,536
31,847 Term Loan B, 8.128% due 7/31/2013 31,953
1,000,000 Exco Resources, Inc. Second Lien Term Loan,
11.32% - 11.375% due 10/31/2011 1,008,750
8,000,000 Scorpion Drilling Ltd. Second Lien Term Loan,
13.61% due 5/05/2015 8,240,000
-------------
9,749,239
================================================================================
Financial -- 0.9%
6,000,000 JG Wentworth Manufacturing Term Loan,
8.864% due 4/12/2011 6,060,000
250,000 Kyle Acquisition Term Loan B, 8.875%
due 7/20/2009 253,281
-------------
6,313,281
================================================================================
Food & Tobacco -- 3.8%
Aramark Corp.:
592,573 Letter of Credit, 7.445% due 1/30/2014 598,425
8,407,427 Term Loan, 7.47% due 1/30/2014 8,490,450
1,000,000 Bolthouse Farms, Inc. Second Lien Term Loan,
10.864% due 12/01/2013 1,010,833
2,764,573 Commonwealth Brands Term Loan,
7.625% due 12/22/2012 2,774,941
Dole Food Co., Inc.:
1,041,279 Term Loan B, 7.438% - 9.25%
due 4/12/2013 1,041,800
3,470,930 Term Loan C, 7.438% - 9.25%
due 4/04/2013 3,472,666
465,116 Tranche D, 5.23% due 4/12/2013 465,349
997,494 Eight O'Clock Coffee Second Lien Term Loan,
8.125% due 7/21/2012 997,494
6,000,000 QCE LLC Second Lien Term Loan, 11.114%
due 11/05/2013 6,024,168
2,070,000 S&C Holdco 2, Inc. Term Loan, 8% due 3/19/2010 1,945,800
1,750,000 Sturm Foods Inc. Term Loan, 7.875%
due 1/30/2014 1,759,844
-------------
28,581,770
================================================================================
Gaming -- 1.3%
2,250,000 Edge-Star Partners LLC First Lien Term Loan,
9.36% due 11/18/2007 2,250,000
Green Valley Ranch Gaming LLC Term Loan:
481,818 7.36% due 2/16/2014 487,038
500,000 8.61% due 8/30/2014 508,000
1,500,000 Tropicana Opco Term Loan B, 7.86%
due 12/15/2011 1,515,834
5,000,000 Venetian Macau U.S. Finance Co. LLC Term
Loan B, 8.12% due 5/25/2013 5,050,626
-------------
9,811,498
================================================================================
Health Care -- 0.7%
2,000,000 DaVita, Inc. Term Loan B, 6.82% due 7/30/2012 2,010,500
3,500,000 Health Management Associates, Inc. Term
Loan B, 7.07% due 1/15/2014 3,525,158
-------------
5,535,658
================================================================================
Housing -- 0.6%
2,953,125 Headwaters, Inc. Term Loan,
7.32% due 4/30/2011 2,958,662
997,500 Ply Gem Industries, Inc. First Lien Term Loan,
8.37% due 10/31/2011 1,008,722
500,000 Yellowstone Club Term Loan B, 7.695%
due 10/15/2010 499,375
-------------
4,466,759
================================================================================
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 11
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
================================================================================
Information Technology -- 3.4%
$ 3,686,354 Activant Solutions Term Loan B,
7.375% due 5/02/2013 $ 3,688,658
886,494 Advanced Micro Devices, Inc. Term Loan B,
7.57% due 10/31/2013 894,452
8,000,000 Aspect Software Second Lien Term Loan,
12.438% due 7/05/2012 8,013,336
1,000,000 ClientLogic Holding Corp. Term Loan B,
7.82% - 7.86% due 1/30/2014 1,005,417
Intergraph Corp. Term Loan:
500,000 7.87% due 5/15/2014 503,438
1,000,000 11.36% due 11/15/2014 1,006,875
449,571 Nuance Communications, Inc. Term Loan B,
6.82% due 12/29/2013 450,133
RedPrairie Corp. Term Loan:
300,000 8.375% due 7/31/2012 300,000
898,747 8.375% - 10.25% due 7/31/2012 898,747
3,500,000 The Reynolds and Reynolds Company Third
Lien Term Loan, 12.845% due 4/26/2014 3,583,125
3,315,938 Telcordia Technologies, Inc. Term Loan, -
8.11% due 9/15/2012 3,275,526
2,000,000 Verifone, Inc. Term Loan B, 7.10% - 7.11%
due 2/28/2013 2,005,000
-------------
25,624,707
================================================================================
Leisure -- 0.8%
3,620,000 Easton-Bell Sports Inc. Term Loan B,
11.39% due 5/01/2012 3,529,500
2,250,000 National Cinemedia LLC Term Loan B,
7.09% due 2/28/2015 2,266,875
-------------
5,796,375
================================================================================
Manufacturing -- 0.5%
500,000 Baldor Electric Co. Term Loan B, 7.063%
due 2/15/2014 504,250
1,000,000 Brand Energy Term Loan B, 7.625%
due 2/15/2014 1,011,250
1,000,000 Harrington Holdings, Inc. Term Loan, 7.82%
due 1/15/2014 1,007,500
1,488,327 John Maneely Co. Term Loan B, 8.595% - 10.50%
due 12/15/2013 1,504,761
-------------
4,027,761
================================================================================
Metal -- Other -- 1.2%
Euramax International Plc:
6,000,000 Second Lien Term Loan, 12.36%
due 6/29/2013 6,022,500
2,551,265 Tranche 3 Term Loan B, 7.875%
due 6/29/2012 2,558,919
-------------
8,581,419
================================================================================
Packaging -- 0.8%
3,645,813 Anchor Glass Container Corp. Term Loan B,
7.61% - 7.614% due 5/03/2013 3,636,698
2,000,000 Graham Packaging Co. LP Second Lien Term
Loan, 9.625% due 4/07/2012 2,018,000
-------------
5,654,698
================================================================================
Paper -- 0.7%
5,000,000 Verso Paper Holdings LLC Term Loan B,
11.57% due 2/01/2013 5,018,750
================================================================================
Retail -- 0.4%
1,500,000 Burlington Coat Factory Warehouse Corp.
Term Loan B, 7.61% due 4/15/2013 1,500,626
1,000,000 David's Bridal Inc. Term Loan B, 7.40%
due 1/30/2014 1,002,708
650,000 Petco Animal Supplies, Inc. Term Loan,
8.07% - 8.10% due 10/31/2012 657,177
-------------
3,160,511
================================================================================
Service -- 1.9%
750,000 Brickman Group, Inc. Term Loan, 7.36% - 7.399%
due 1/30/2014 753,281
750,000 Brock Holdings Term Loan, 7.32% due 2/28/2014 757,266
3,500,000 NES Rentals Holdings, Inc. Term Loan C,
12.125% due 7/12/2013 3,521,875
750,000 Pearson Government Solutions Term Loan B,
7.61% due 2/28/2013 759,375
RiskMetrics Group Holdings LLC:
750,000 First Lien Term Loan, 7.595% due 1/15/2014 757,500
250,000 Second Lien Term Loan, 10.845% due 7/11/2014 252,500
7,549,200 Waste Services, Inc. Term Loan D,
8.07% due 3/31/2011 7,634,129
-------------
14,435,926
================================================================================
Steel -- 0.1%
500,000 McJunkin Corp. Term Loan B, 7.595%
due 1/30/2014 505,000
================================================================================
Telecommunications -- 0.8%
1,000,000 Kentucky Data Link Inc. Term Loan B, 8.75%
due 2/28/2015 1,007,500
500,000 Time Warner Telecom Term Loan, 7.32%
due 1/07/2013 498,907
3,161,871 Winstar Communications Debtor In Possession,
6.366% due 12/31/2006 (m) 4,252,717
-------------
5,759,124
================================================================================
Utility -- 1.0%
2,000,000 Calpine Corp. Second Priority Debtor in Possession,
9.364% due 12/20/2007 2,016,666
4,000,000 Generac Portable Products, Inc. Second Lien
Term Loan, 11.375% due 5/15/2014 3,990,000
MACH Gen LLC:
70,312 Letter of Credit, 7.323% due 2/22/2014 70,664
679,687 Term Loan, 7.36% due 2/22/2014 682,576
750,000 NE Energy Second Lien Term Loan, 7.82%
due 10/31/2014 760,313
-------------
7,520,219
================================================================================
12 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
================================================================================
Wireless Communications -- 1.0%
$ 4,750,000 Centennial Cellular Operating Co. Term Loan,
7.614% due 2/09/2011 $ 4,791,563
3,000,000 West Corp. Term Loan, 7.735% - 7.763%
due 10/31/2013 3,024,582
-------------
7,816,145
================================================================================
Total Floating Rate Loan Interests
(Cost -- $292,951,116) -- 39.8% 296,618,823
================================================================================
================================================================================
Shares
Held Common Stocks
================================================================================
Cable -- U.S. -- 0.9%
150,084 Loral Space & Communications Ltd. (d) 6,986,410
================================================================================
Chemicals -- 0.1%
339,340 GEO Specialty Chemicals, Inc. (d) 339,340
================================================================================
Food & Tobacco -- 0.3%
1,428,423 Viskase Cos., Inc. (d) 2,385,466
================================================================================
Information Technology -- 0.1%
55,172 Cypress Semiconductor Corp. (d) 1,048,267
================================================================================
Leisure -- 0.1%
5,000 HRP PIK Corp. Class B (l) 50
27,787 Lodgian, Inc. (d) 371,790
-------------
371,840
================================================================================
Manufacturing -- 0.8%
724,291 ACP Holding Co. (d) 1,050,222
403 GenTek Inc. (d) 13,859
286,757 Medis Technologies Ltd. (d) 4,926,485
-------------
5,990,566
================================================================================
Paper -- 0.1%
211,149 Western Forest Products, Inc. Restricted Shares (d) 380,920
================================================================================
Service -- 0.2%
90,876 Outsourcing Solutions Inc. (d) 1,635,764
================================================================================
Steel -- 0.0%
41,149 Acme Package Corp. Senior Holdings (d)(k) 0
================================================================================
Total Common Stocks
(Cost -- $19,958,803) -- 2.6% 19,138,573
================================================================================
================================================================================
Preferred Stocks
================================================================================
Cable -- U.S. -- 0.3%
10,159 Loral Spacecom Corp. Series A, 12% (d)(g) 2,052,118
================================================================================
Total Preferred Stocks
(Cost -- $2,008,180) -- 0.3% 2,052,118
================================================================================
Shares
Held Warrants (i) Value
================================================================================
Broadcasting -- 0.0%
15,000 Sirius Satellite Radio, Inc.
(expires 5/15/2009) $ 6,750
================================================================================
Health Care -- 0.0%
126,761 HealthSouth Corp. (expires 1/16/2014) 101,409
================================================================================
Manufacturing -- 0.1%
652,739 ACP Holding Co. (expires 9/30/2013) 913,835
GenTek Inc.:
471 Tranche B (expires 11/10/2008) 23,550
231 Tranche C (expires 11/10/2010) 10,626
-------------
948,011
================================================================================
Paper -- 0.0%
18 Cellu Tissue Holdings, Inc. (expires 5/08/2007) 0
7,000 MDP Acquisitions Plc (expires 10/01/2013) 140,000
-------------
140,000
================================================================================
Wireless Communications -- 0.1%
1,325 American Tower Corp. (expires 8/01/2008) 720,522
================================================================================
Total Warrants
(Cost -- $870,754) -- 0.2% 1,916,692
================================================================================
================================================================================
Beneficial
Interest Other Interests (f)
================================================================================
Automotive -- 0.0%
$ 3,614,601 Cambridge Industries, Inc. (Litigation Trust
Certificates) 0
================================================================================
Cable -- U.S. -- 0.0%
Adelphia C.V.U.:
5,000 Preferred Escrow 0
7,500,000 Series ACC-4 30,086
500,000 Series ACC-6B 0
-------------
30,086
================================================================================
Total Other Interests
(Cost -- $30,051) -- 0.0% 30,086
================================================================================
===============================================================================
Short-Term Securities
================================================================================
$ 1,914,750 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33% (c)(j) 1,914,750
================================================================================
Total Short-Term Securities
(Cost -- $1,914,750) -- 0.3% 1,914,750
================================================================================
Total Investments (Cost -- $1,047,994,381*) -- 142.0% 1,059,194,501
Liabilities in Excess of Other Assets -- (42.0%) (313,250,438)
--------------
Net Assets -- 100.0% $ 745,944,063
==============
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 13
Schedule of Investments (concluded)
* The cost and unrealized appreciation (depreciation) of investments as of
February 28, 2007, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $1,049,269,104
==============
Gross unrealized appreciation .......................... $ 41,713,553
Gross unrealized depreciation .......................... (31,788,156)
--------------
Net unrealized appreciation ............................ $ 9,925,397
==============
** Floating rate loan interests in which the Fund invests generally pay
interest at rates that are periodically redetermined 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.
(a) Convertible security.
(b) Floating rate security.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net
Affiliate Activity Interest
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series $1,914,750 $329,962
--------------------------------------------------------------------------
(d) Non-income producing security.
(e) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(f) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(g) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(h) Represents a step bond; the interest rate shown reflects the effective
yield at the time of purchase.
(i) 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. See Notes to Financial Statements.
(j) Represents the current yield as of February 28, 2007.
(k) Restricted security as to resale, representing 0.0% of net assets, were as
follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Acme Package Corp.
Senior Holdings 11/25/2002 -- --
--------------------------------------------------------------------------
(l) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(m) As a result of bankruptcy proceedings, the company did not repay the
principal amount of the security upon maturity and is non-income
producing.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
o Swaps outstanding as of February 28, 2007 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount
--------------------------------------------------------------------------
Sold credit default protection on Novelis Inc.
and receive 1.40%
Broker, JPMorgan Chase
Expires January 2008 $ 4,000,000 $ (5,632)
Sold credit default protection on Ford Motor
Company and receive 3.80%
Broker, Lehman Brothers Special Finance
Expires March 2010 $10,000,000 (41,310)
Bought credit default protection on Smithfield
Foods, Inc. and pay 1.52%
Broker, Credit Suisse First Boston
Expires March 2012 $ 4,000,000 (1,924)
--------------------------------------------------------------------------
Total $(48,866)
=========
14 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Statement of Assets, Liabilities and Capital
As of February 28, 2007
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $1,046,079,631) ..... $1,057,279,751
Investments in affiliated securities, at value (identified cost -- $1,914,750) ........... 1,914,750
Cash ..................................................................................... 269,338
Unfunded loan commitment ................................................................. 14,140
Receivables:
Interest ............................................................................. $ 17,301,720
Securities sold ...................................................................... 9,225,893
Swaps ................................................................................ 66,706
Commitment fees ...................................................................... 16,066 26,610,385
-------------
Prepaid expenses and other assets ........................................................ 10,916
--------------
Total assets ............................................................................. 1,086,099,280
--------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Loans .................................................................................... 298,600,000
Unrealized depreciation on swaps ......................................................... 48,866
Payables:
Securities purchased ................................................................. 40,602,718
Investment adviser ................................................................... 489,994
Interest on loans .................................................................... 185,131
Swaps ................................................................................ 6,756
Other affiliates ..................................................................... 5,700 41,290,299
-------------
Accrued expenses ......................................................................... 216,052
--------------
Total liabilities ........................................................................ 340,155,217
--------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................................... $ 745,944,063
==============
===================================================================================================================================
Capital
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share, 200,000,000 shares authorized (106,402,769
shares issued and outstanding) ......................................................... $ 10,640,277
Paid-in capital in excess of par ......................................................... 1,030,001,469
Undistributed investment income -- net ................................................... $ 6,894,099
Accumulated realized capital losses -- net ............................................... (312,757,176)
Unrealized appreciation -- net ........................................................... 11,165,394
-------------
Total accumulated losses -- net .......................................................... (294,697,683)
--------------
Total capital -- Equivalent to $7.01 net asset value
per share of Common Stock (market price -- $7.28) ...................................... $ 745,944,063
==============
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 15
Statement of Operations
For the Year Ended February 28, 2007
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest (including $329,962 from affiliates) ............................................. $ 90,955,253
Facility and other fees ................................................................... 1,818,402
Dividends ................................................................................. 1,568,751
--------------
Total income .............................................................................. 94,342,406
--------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Loan interest expense ..................................................................... $ 15,560,471
Investment advisory fees .................................................................. 6,016,162
Borrowing costs ........................................................................... 412,589
Accounting services ....................................................................... 216,744
Transfer agent fees ....................................................................... 116,604
Professional fees ......................................................................... 91,078
Listing fees .............................................................................. 65,683
Printing and shareholder reports .......................................................... 62,932
Custodian fees ............................................................................ 55,834
Directors' fees and expenses .............................................................. 43,695
Pricing services .......................................................................... 28,297
Other ..................................................................................... 42,282
------------
Total expenses ............................................................................ 22,712,371
--------------
Investment income -- net .................................................................. 71,630,035
--------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net .................................................................... (7,701,438)
Swaps -- net .......................................................................... 1,514,534
Foreign currency transactions -- net .................................................. (9) (6,186,913)
------------
Change in unrealized appreciation/depreciation on:
Investments -- net .................................................................... 37,788,905
Swaps -- net .......................................................................... 59,898
Unfunded corporate loans -- net ....................................................... 78 37,848,881
------------------------------
Total realized and unrealized gain -- net ................................................. 31,661,968
--------------
Net Increase in Net Assets Resulting from Operations ...................................... $ 103,292,003
==============
See Notes to Financial Statements.
16 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Statements of Changes in Net Assets
For the Year Ended
February 28,
----------------------------
Increase (Decrease) in Net Assets: 2007 2006
=================================================================================================================================
Operations
---------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .................................................................. $ 71,630,035 $ 67,036,658
Realized loss -- net ...................................................................... (6,186,913) (4,220,616)
Change in unrealized appreciation/depreciation -- net ..................................... 37,848,881 (33,146,904)
----------------------------
Net increase in net assets resulting from operations ...................................... 103,292,003 29,669,138
----------------------------
=================================================================================================================================
Dividends to Shareholders
---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from investment income -- net ................................... (69,729,202) (68,179,612)
----------------------------
=================================================================================================================================
Stock Transactions
---------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends .......... 3,970,321 1,665,334
----------------------------
Net increase in net assets resulting from stock transactions .............................. 3,970,321 1,665,334
----------------------------
=================================================================================================================================
Net Assets
---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ................................................... 37,533,122 (36,845,140)
Beginning of year ......................................................................... 708,410,941 745,256,081
----------------------------
End of year* .............................................................................. $745,944,063 $708,410,941
----------------------------
* Undistributed investment income -- net .............................................. $ 6,894,099 $ 5,020,714
============================
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 17
Statement of Cash Flows
For the Year Ended February 28, 2007
===================================================================================================================
Cash Provided by Operating Activities
-------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ...................................... $ 103,292,003
Adjustments to reconcile net increase in net assets resulting from operations to net cash
used for operating activities:
Increase in other receivables ......................................................... (1,793,523)
Decrease in prepaid expenses and other assets ......................................... 42,357
Increase in other liabilities ......................................................... 247,361
Realized and unrealized gain -- net ................................................... (28,053.409)
Amortization of premium and discount .................................................. (4,227,595)
Paid-in-kind income ................................................................... (985,823)
Proceeds from sales and paydowns of long-term securities .................................. 640,405,126
Purchases of long-term securities ......................................................... (672,637,568)
Net purchases of short-term investments ................................................... (1,913,243)
--------------
Cash provided by operating activities ..................................................... 34,375,686
--------------
===================================================================================================================
Cash Used for Financing Activities
-------------------------------------------------------------------------------------------------------------------
Cash receipts from borrowings ............................................................. 353,200,000
Cash payments from borrowings ............................................................. (314,500,000)
Dividends paid to shareholders ............................................................ (65,758,882)
Decrease in bank overdraft ................................................................ (7,047,466)
--------------
Cash used for financing activities ........................................................ (34,106,348)
--------------
===================================================================================================================
Cash
-------------------------------------------------------------------------------------------------------------------
Net increase in cash ...................................................................... 269,338
Cash at beginning of year ................................................................. 0
--------------
Cash at end of year ....................................................................... $ 269,338
==============
===================================================================================================================
Cash Flow Information
-------------------------------------------------------------------------------------------------------------------
Cash paid for interest .................................................................... $ 15,516,700
==============
===================================================================================================================
Non-Cash Financing Activities
-------------------------------------------------------------------------------------------------------------------
Value of capital shares issued on reinvestment of dividends to shareholders ............... $ 3,970,320
==============
See Notes to Financial Statements.
18 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Financial Highlights
For the Year Ended For the For the
February 28, Year Ended Year Ended
The following per share data and ratios have been derived ------------------------------ Feb. 29, Feb. 28,
from information provided in the financial statements. 2007 2006 2005 2004 2003
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..................................... $ 6.69 $ 7.06 $ 6.71 $ 5.35 $ 6.03
----------------------------------------------------
Investment income -- net** ............................................. .68 .63 .67 .75 .79
Realized and unrealized gain (loss) -- net ............................. .28 (.35) .34 1.40 (.68)
----------------------------------------------------
Total from investment operations ....................................... .96 .28 1.01 2.15 .11
----------------------------------------------------
Less dividends from investment income -- net ........................... (.64) (.65) (.66) (.79) (.79)
----------------------------------------------------
Recovery of previously expensed offering costs (capital write-off)
resulting from the issuance of Common Stock .......................... -- -- -- --+ --
----------------------------------------------------
Net asset value, end of year ........................................... $ 7.01 $ 6.69 $ 7.06 $ 6.71 $ 5.35
====================================================
Market price per share, end of year .................................... $ 7.28 $ 6.77 $ 6.71 $ 6.69 $ 5.99
====================================================
===================================================================================================================================
Total Investment Return*
-----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ............................................... 15.35% 4.57% 15.95% 41.84% 2.04%
====================================================
Based on market price per .............................................. 18.37% 11.34% 10.53% 26.31% 4.85%
====================================================
===================================================================================================================================
Ratios to Average Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest expense ................................... .99% 1.02% 1.02% 1.00% 1.07%
====================================================
Expenses ............................................................... 3.16% 2.63% 1.83% 1.53% 1.91%
====================================================
Investment income -- net ............................................... 9.97% 9.55% 9.84% 12.22% 14.32%
====================================================
===================================================================================================================================
Leverage
-----------------------------------------------------------------------------------------------------------------------------------
Amount of borrowings, end of year (in thousands) ....................... $298,600 $259,900 $298,400 $269,075 $245,900
====================================================
Average amount of borrowings outstanding during the year
(in thousands) ....................................................... $283,906 $294,371 $304,549 $239,315 $238,863
====================================================
Average amount of borrowings outstanding per share during
the year** ........................................................... $ 2.68 $ 2.79 $ 2.89 $ 2.29 $ 2.31
====================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ................................. $745,944 $708,411 $745,256 $706,261 $557,068
====================================================
Portfolio turnover ..................................................... 64.91% 45.67% 60.11% 70.43% 64.54%
====================================================
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
** Based on average shares outstanding.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 19
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Debt Strategies Fund, Inc. was renamed BlackRock Debt
Strategies Fund, Inc. (the "Fund"). The Fund is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management
investment company. The Fund's financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The Fund determines and makes available for publication the net asset
value of its Common Stock on a daily basis. The Fund's Common Stock shares are
listed on the New York Stock Exchange ("NYSE") under the symbol DSU.
(a) Corporate debt obligations -- The Fund invests principally in debt
obligations of companies, including floating rate loans made by banks and other
financial institutions and both privately and publicly offered corporate bonds
and notes. Because agents and intermediaries are primarily commercial banks and
other financial institutions, the Fund's investment in floating rate loans could
be considered concentrated in financial institutions.
(b) Valuation of investments -- Floating rate loans are valued in accordance
with guidelines established by the Fund's Board of Directors. As of October 2,
2006, 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. Previously floating rate loan interests were valued at the
mean between the last available bid and asked prices as obtained from the same
pricing source. This change had no significant effect on the valuation of these
loans. For the limited number of floating rate loans for which no reliable price
quotes are available, such floating rate loans will be valued by Loan Pricing
Corporation through the use of pricing matrixes to determine valuations. If the
pricing service does not provide a value for floating rate loans, BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., will value the floating rate loans at fair value, which is
intended to approximate market value.
Debt securities are traded primarily in the over-the-counter ("OTC") market and
are valued at the last available bid price in the OTC market or on the basis of
values obtained by a pricing service. Pricing services use valuation matrixes
that incorporate both dealer-supplied valuations and valuation models. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general direction of the Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Securities held by the Fund that are traded on stock exchanges or the NASDAQ
Global Market are valued at the last sale price or official close price on the
exchange on which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last available
bid price for long positions, and at the last available asked price for short
positions. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated as the primary market by or
under the authority of the Board of Directors of the Fund. Long positions in
securities traded in the OTC market, NASDAQ Capital Market or Bulletin Board are
valued at the last available bid price or yield equivalent obtained from one or
more dealers or pricing services approved by the Board of Directors of the Fund.
Short positions in securities traded in the OTC market are valued at the last
available asked price. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based on the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by the Fund are valued at their
last sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Swap agreements are valued
based upon quoted fair valuations received daily by the Fund from a pricing
service or counterparty. Other investments, including futures contracts and
related options, are stated at market value. Obligations with remaining
maturities of 60 days or less are valued at amortized cost unless the Manager
believes that this method no longer produces fair valuations. Valuation of other
short-term investment vehicles is generally based on the net asset value of the
underlying investment vehicle or amortized cost. Repurchase agreements will be
valued at cost plus accrued interest.
Generally, trading in foreign securities, as well as U.S. government securities,
money market instruments and certain fixed income securities, is substantially
completed each day at various times prior to the close of business on the NYSE.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
will generally be determined as of the close of business on the NYSE.
Occasionally, events
20 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Notes to Financial Statements (continued)
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 asset value.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities will be valued at their fair value as
determined in good faith by the Fund's Board of Directors or by the Manager
using a pricing service and/or procedures approved by the Fund's Board of
Directors.
(c) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits, and maintains as
collateral, such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
o Forward foreign exchange contracts -- The Fund may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. The contract is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or
loss. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value at the time it was opened
and the value at the time it was closed.
o Options -- The Fund may write covered call and put options and purchase
call and put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss on
the option to the extent of the premiums received or paid (or gain or loss
to the extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
o Swaps -- The Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a predetermined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(d) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(e) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to reg-
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 21
Notes to Financial Statements (continued)
ulated investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax may be imposed
on interest, dividends and capital gains at various rates.
(f) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
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 mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, FASB issued "Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities" ("FAS 159"), which is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
(g) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(h) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(i) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(j) 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, $27,376,921 has been reclassified between paid-in capital in excess of par
and accumulated net realized capital losses, and $27,448 has been reclassified
between undistributed net investment income and accumulated net realized capital
losses as a result of permanent differences attributable to expiration of
capital loss carryforwards, amortization methods on fixed income securities,
securities in default, and foreign currency transactions. These
reclassifications have no effect on net assets or net asset values per share.
22 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Notes to Financial Statements (continued)
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset
Management, L.P. ("), with BlackRock, Inc. to create a new independent company.
Merrill Lynch has a 49.8% economic interest and a 45% voting interest in the
combined company and The PNC Financial Services Group, Inc., has approximately a
34% economic and voting interest. The new company operates under the BlackRock
name and is governed by a board of directors with a majority of independent
members.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. which was reorganized into a limited
liability company and renamed BlackRock Advisors, LLC. The new Investment
Advisory Agreement between the Fund and the Manager became effective on
September 29, 2006. Prior to September 29, 2006, FAM was the Fund's Manager. The
general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly
owned subsidiary of Merrill Lynch, which is the limited partner.
The Manager is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays a monthly fee at an annual rate of .60% of the Fund's average daily net
assets plus the proceeds of any outstanding borrowings used for leverage. In
addition, the Manager has entered into a Sub-Advisory Agreement with BlackRock
Financial Management, Inc., an affiliate of the Manager, under which the Manager
pays the Sub-Adviser for services it provides a monthly fee that is a percentage
of the management fee paid by the Fund to the Manager.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of the Manager, or its affiliates.
Pursuant to that order, the Fund has retained BlackRock Investment Management,
LLC ("BIM"), an affiliate of the Manager, as the securities lending agent for a
fee based on a share of the returns on investment of cash collateral. Prior to
September 29, 2006, BIM was organized as Merrill Lynch Investment Managers, LLC
("MLIM, LLC"), an affiliate of FAM, and MLIM, LLC was the securities lending
agent. BIM may, on behalf of the Fund, invest cash collateral received by the
Fund for such loans, among other things, in a private investment company managed
by the Manager or in registered money market funds advised by the Manager or its
affiliates.
For the year ended February 28, 2007, the Fund reimbursed FAM and the Manager
$9,090 and $5,700, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or directors of the Fund were
officers and/or directors of FAM, PSI, MLIM, Merrill Lynch, and/or MLIM, LLC.
Commencing September 29, 2006, certain officers and/or directors of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended February 28, 2007 were $696,506,938 and
$646,993,553, respectively.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10 per share, all of which were initially classified as Common Stock. The
Board of Directors is authorized, however, to classify and reclassify any
unissued shares of capital stock without approval of the holders of Common
Stock.
Shares issued and outstanding during the years ended February 28, 2007 and
February 28, 2006 increased by 579,550 and 252,856, respectively, as a result of
dividend reinvestment.
5. Unfunded Loan Commitments:
As of February 28, 2007, the Fund had unfunded loan commitments of approximately
$5,988,000, which would be extended at the option of the borrower, pursuant to
the following loan agreements:
(in Thousands)
--------------------------------------------------------------------------------
Value of
Unfunded Underlying
Borrower Commitment Loan
--------------------------------------------------------------------------------
Calpine Corp. .................................... $2,000 $1,995
MEG Energy Corp. ................................. $1,250 $1,242
Renfro Corp. ..................................... 88 $ 88
Time Warner ...................................... 150 $ 151
Venetian Macau U.S. Finance Co. LLC .............. $2,500 $2,526
--------------------------------------------------------------------------------
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 23
Notes to Financial Statements (concluded)
6. Short-Term Borrowings:
On May 22, 2006, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The agreement
was renewed for one year and has a maximum limit of $370,000,000. Under the
Citicorp program, the conduits will fund advances to the Fund through the
issuance of highly rated commercial paper. As security for its obligations to
the Lenders under the revolving securitization facility, the Fund has granted a
security interest in substantially all of its assets to and in favor of the
Lenders. The interest rate on the Fund's borrowings is based on the interest
rate carried by the commercial paper plus a program fee. The Fund pays
additional borrowing costs including a backstop commitment fee.
The weighted average annual interest rate was 5.48% and the average borrowing
was approximately $283,906,000 for the year ended February 28, 2007.
7. Distribution to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.053000 per share on
March 30, 2007 to shareholders of record on March 15, 2007. The tax character of
distributions paid during the fiscal years ended February 28, 2007 and February
28, 2006 was as follows:
--------------------------------------------------------------------------------
2/28/2007 2/28/2006
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ................................ $68,729,202 $68,179,612
-----------------------------
Total taxable distributions ...................... $68,729,202 $68,179,612
=============================
As of February 28, 2007, the components of accumulated losses on a tax basis
were as follows:
-----------------------------------------------------------------------------
Undistributed ordinary income -- net .................... $ 8,019,647
Undistributed long-term capital gains -- net ............ --
-------------
Total undistributed earnings -- net ..................... 8,019,647
Capital loss carryforward ............................... (310,688,248)*
Unrealized gains -- net ................................. 7,970,918**
-------------
Total accumulated losses -- net ......................... $(294,697,683)
=============
* On February 28, 2007, the Fund had a net capital loss carryforward of
$310,688,248, of which $51,234,056 expires in 2008, $21,442,332 expires in
2009, $90,564,493 expires in 2010, $85,285,305 expires in 2011,
$17,223,475 expires in 2012, $21,126,025 expires in 2013, $20,233,987
expires in 2014 and $3,578,575 expires in 2015. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains 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 and other book/tax temporary differences.
24 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
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, liabilities and capital,
including the schedule of investments, of BlackRock Debt Strategies Fund, Inc.
(formerly Debt Strategies Fund, Inc.) as of February 28, 2007, 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 28, 2007, 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 28, 2007, 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 its 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 24, 2007
Fund Certification (Unaudited)
In September 2006, the Fund filed its Chief Executive Officer Certification with
the New York Stock Exchange pursuant to Section 303A. 12(a) of the New York
Stock Exchange Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
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 28, 2007:
Interest-Related Dividends for Non-U.S. Residents
------------------------------------------------------------------------------
Month Paid: March 2006 .......................................... 86.63%*
April 2006 .......................................... 85.87%*
May 2006 - January 2007 ............................. 85.85%*
February 2007 ....................................... 73.18%*
------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 25
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
(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, Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
Telephone: 800-432-8224.
26 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Officers and Directors
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for Equities, 168 Portfolios
08543-9011 Director Chairman of the BlackRock Retail Operating
Age: 52 Committee, and member of the BlackRock Executive
Committee since 2006; President of the funds
advised by Merrill Lynch Investment Managers, L.P.
("MLIM") and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President of
MLIM and Fund Asset Management, L.P. ("FAM") from
2001 to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") and
President of Princeton Administrators, L.P.
("Princeton Administrators") from 2001 to 2006;
Chief Investment Officer of OppenheimerFunds, Inc.
in 1999 and Executive Vice President thereof from
1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
BlackRock Advisors, LLC and its affiliates, act as investment adviser. Mr. Doll is an "interested person," as
defined in the Investment Company Act, of the Fund based on his 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.
As Fund President, Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
------------------------------------------------------------------------------------------------------------------------------------
Ronald W. P.O. Box 9095 Director 1997 to Professor Emeritus of Finance, School of Business, 47 Funds None
Forbes** Princeton, NJ present State University of New York at Albany since 2000 49 Portfolios
08543-9095 and Professor thereof from 1989 to 2000;
Age: 66 International Consultant, Urban Institute,
Washington, D.C. from 1995 to 1999.
------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director 1997 to Professor, Harvard Business School since 1989; 47 Funds Newell
Montgomery+ Princeton, NJ present Associate Professor, J.L. Kellogg Graduate School 49 Portfolios Rubbermaid,
08543-9095 of Management, Northwestern University from 1985 Inc.
Age: 54 to 1989; Associate Professor, Graduate School of (manufacturing)
Business Administration, University of Michigan
from 1979 to 1985; Director, Harvard Business
School Publishing since 2005; Director, McLean
Hospital since 2005.
------------------------------------------------------------------------------------------------------------------------------------
Jean Margo P.O. Box 9095 Director 2004 to Self-employed consultant since 2001; Counsel of 47 Funds None
Reid Princeton, NJ present Alliance Capital Management (investment adviser) 49 Portfolios
08543-9095 in 2000; General Counsel, Director and Secretary
Age: 61 of Sanford C. Bernstein & Co., Inc. (investment
adviser/ broker-dealer) from 1997 to 2000;
Secretary, Sanford C. Bernstein Fund, Inc. from
1994 to 2000; Director and Secretary of SCB, Inc.
since 1998; Director and Secretary of SCB
Partners, Inc. since 2000; Director of Covenant
House from 2001 to 2004.
------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute, from 1995 to 47 Funds None
Suddarth Princeton, NJ present 2001; Foreign Service Officer, United States 49 Portfolios
08543-9095 Foreign Service, from 1961 to 1995 and Career
Age: 71 Minister from 1989 to 1995; Deputy Inspector
General, U.S. Department of State, from 1991 to
1994; U.S. Ambassador to the Hashemite Kingdom of
Jordan from 1987 to 1990.
------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 27
Officers and Directors (continued)
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director 1997 to Professor of Finance from 1984 to 1995, Dean from 47 Funds Bowne &
West Princeton, NJ present 1984 to 1993 and since 1995 Dean Emeritus of New 49 Portfolios Co., Inc.,
08543-9095 York University's Leonard N. Stern School of (financial
Age: 69 Business Administration. printers);
Vornado
Realty Trust,
(real estate
company);
Alexander's,
Inc. (real
estate company)
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Board of Directors and the Audit Committee.
+ Chair of the Nominating Committee.
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1997 to Managing Director of BlackRock, Inc. since 2006; Managing Director of Merrill Lynch
Burke Princeton, NJ President present Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. ("FAM") in 2006;
08543-9011 and and First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof from
Age: 46 Treasurer 1999 to 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
present
------------------------------------------------------------------------------------------------------------------------------------
Kevin J. P.O. Box 9011 Vice 2001 to Managing Director of BlackRock, Inc. since 2006; Managing Director (Global Fixed
Booth Princeton, NJ President present Income) of MLIM in 2006; Director of MLIM from 1998 to 2005; Vice President of MLIM
Age: 52 from 1991 to 1998.
08543-9011
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock, Inc. and Fund Chief Compliance Officer since 2006;
Hiller Princeton, NJ Compliance present Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
08543-9011 Officer Chief Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief
Age: 55 Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000; Senior Counsel in the Securities and
Exchange Commission's Division of Enforcement in Washington, D.C. from 1990 to
1995.
------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock, Inc. since 2006; Director (Legal Advisory) of MLIM from 2002
Pellegrino Princeton, NJ present to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM
08543-9011 from 1997 to 1999; Secretary of MLIM, FAM, FAM Distributors, Inc. ("FAMD") and
Age: 46 Princeton Services from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
28 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
Officers and Directors (concluded)
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
NYSE Symbol
DSU
--------------------------------------------------------------------------------
Effective January 1, 2007, Edward D. Zinbarg retired as a Director of BlackRock
Debt Strategies Fund, Inc. The Fund's Board of Directors wishes Mr. Zinbarg well
in his retirement.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Effective April 13, 2007, Jeffrey Hiller resigned his position as Chief
Compliance Officer of the Fund. Also effective April 13, 2007, Karen Clark was
appointed Chief Compliance Officer of the Fund. Ms. Clark has been a Managing
Director of BlackRock, Inc. since 2007. She was a Director thereof from 2005 to
2007. Prior to that, Ms. Clark was a principal and senior compliance officer at
State Street Global Advisors from 2001 to 2005. Ms. Clark was a principal
consultant with PricewaterhouseCoopers, LLP from 1998 to 2001. From 1993 to
1998, Ms. Clark was Branch Chief, Division of Investment Management and Office
of Compliance Examinations, with the U.S. Securities and Exchange Commission.
--------------------------------------------------------------------------------
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007 29
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 nonpublic 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 nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated 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 nonpublic
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 nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
30 BLACKROCK DEBT STRATEGIES FUND, INC. FEBRUARY 28, 2007
BlackRock Debt Strategies Fund, Inc. seeks to provide current income by
investing primarily in a diversified portfolio of U.S. companies' debt
instruments, including corporate loans, that are rated in the lower rating
categories of the established rating services (Baa or lower by Moody's Investors
Service, Inc. or BBB or lower by Standard & Poor's) or unrated debt instruments
of comparable quality.
This report, including the financial information herein, is transmitted to
shareholders of BlackRock Debt Strategies Fund, Inc. for their information. It
is not a prospectus. Past performance results shown in this report should not be
considered a representation of future performance. The Fund leverages its Common
Stock to provide Common Stock shareholders with a potentially higher rate of
return. Leverage creates risk for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price of Common
Stock shares, and the risk that fluctuations in short-term interest rates may
reduce the Common Stock's yield. Statements and other information herein are as
dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Debt Strategies Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#DEBT-2/07
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. 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
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: (1) Ronald W.
Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg (retired as of
December 31, 2006).
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending February 28, 2007 - $45,500
Fiscal Year Ending February 28, 2006 - $45,500
(b) Audit-Related Fees - Fiscal Year Ending February 28, 2007 - $8,000
Fiscal Year Ending February 28, 2006 - $8,000
The nature of the services include agreed upon procedures related to
the credit facility.
(c) Tax Fees - Fiscal Year Ending February 28, 2007 - $6,100
Fiscal Year Ending February 28, 2006 - $6,000
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending February 28, 2007 - $0
Fiscal Year Ending February 28, 2006 - $0
(e)(1) 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"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. 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.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending February 28, 2007 - $3,034,617
Fiscal Year Ending February 28, 2006 - $4,944,454
(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 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) - $1,739,500, 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)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg (retired as of December 31, 2006)
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors has delegated to the Manager authority
to vote all proxies relating to the Fund's portfolio securities. The
Manager has adopted policies and procedures (the "Proxy Voting
Procedures") with respect to the voting of proxies related to the
portfolio securities held in the account of one or more of its clients,
including a Fund. Pursuant to these Proxy Voting Procedures, the
Manager's primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Manager believes is most
likely to enhance the economic value of the securities held by the
Fund. The Proxy Voting Procedures are designed to ensure that the
Manager considers the interests of its clients, including each Fund,
and not the interests of the Manager, when voting proxies and that real
(or perceived) material conflicts that may arise between the Manager's
interest and those of the Manager's clients are properly addressed and
resolved.
In order to implement the Proxy Voting Procedures, the Manager has
formed a Proxy Voting Committee (the "Committee"). The Committee, which
is a subcommittee of the Manager's Equity Investment Policy Oversight
Committee ("EIPOC"), is comprised of a senior member of the Manager's
equity management group who is also a member of EIPOC, one or more
other senior investment professionals appointed by EIPOC, portfolio
managers and investment analysts appointed by EIPOC and any other
personnel EIPOC deems appropriate. The Committee will also include two
non-voting representatives from the Manager's Legal Department
appointed by the Manager's General Counsel. The Committee's membership
shall be limited to full-time employees of the Manager. No person with
any investment banking, trading, retail brokerage or research
responsibilities for the Manager's affiliates may serve as a member of
the Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information to
the Committee on the same basis as other interested knowledgeable
parties not affiliated with the Manager might be asked to do so). The
Committee determines how to vote the proxies of all clients, including
a Fund, that have delegated proxy voting authority to the Manager and
seeks to ensure that all votes are consistent with the best interests
of those clients and are free from unwarranted and inappropriate
influences. The Committee establishes general proxy voting policies for
the Manager and is responsible for determining how those policies are
applied to specific proxy votes, in light of each issuer's unique
structure, management, strategic options and, in certain circumstances,
probable economic and other anticipated consequences of alternate
actions. In so doing, the Committee may determine to vote a particular
proxy in a manner contrary to its generally stated policies. In
addition, the Committee will be responsible for ensuring that all
reporting and recordkeeping requirements related to proxy voting are
fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The Manager
believes that certain proxy voting issues require investment analysis -
such as approval of mergers and other significant corporate
transactions - akin to investment decisions, and are, therefore, not
suitable for general guidelines. The Committee may elect to adopt a
common position for the Manager on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager to
make individual decisions on how best to maximize economic value for a
Fund (similar to normal buy/sell investment decisions made by such
portfolio managers). While it is expected that the Manager will
generally seek to vote proxies over which the Manager exercises voting
authority in a uniform manner for all the Manager's clients, the
Committee, in conjunction with a Fund's portfolio manager, may
determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Manager in voting proxies, the Committee has retained
Institutional Shareholder Services ("ISS"). ISS is an independent
adviser that specializes in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan
sponsors, custodians, consultants, and other institutional investors.
The services provided to the Manager by ISS include in-depth research,
voting recommendations (although the Manager is not obligated to follow
such recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Manager's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Manager generally will
not seek to vote proxies related to portfolio securities that are on
loan, although it may do so under certain circumstances. In addition,
the Manager will vote proxies related to securities of foreign issuers
only on a best efforts basis and may elect not to vote at all in
certain countries where the Committee determines that the costs
associated with voting generally outweigh the benefits. The Committee
may at any time override these general policies if it determines that
such action is in the best interests of a Fund.
From time to time, the Manager may be required to vote proxies in
respect of an issuer where an affiliate of the Manager (each, an
"Affiliate"), or a money management or other client of the Manager,
including investment companies for which the Manager provides
investment advisory, administrative and/or other services (each, a
"Client"), is involved. The Proxy Voting Procedures and the Manager's
adherence to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates
and Clients. If, however, an issue representing a non-routine matter
that is material to an Affiliate or a widely known Client is involved
such that the Committee does not reasonably believe it is able to
follow its guidelines (or if the particular proxy matter is not
addressed by the guidelines) and vote impartially, the Committee may,
in its discretion for the purposes of ensuring that an independent
determination is reached, retain an independent fiduciary to advise the
Committee on how to vote or to cast votes on behalf of the Manager's
clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the Committee may pass the voting power to a subcommittee,
appointed by EIPOC (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by EIPOC. EIPOC shall
appoint to the subcommittee, where appropriate, only persons whose job
responsibilities do not include contact with the Client and whose job
evaluations would not be affected by the Manager's relationship with
the Client (or failure to retain such relationship). The subcommittee
shall determine whether and how to vote all proxies on behalf of the
Manager's clients or, if the proxy matter is, in their judgment, akin
to an investment decision, to defer to the applicable portfolio
managers, provided that, if the subcommittee determines to alter the
Manager's normal voting guidelines or, on matters where the Manager's
policy is case-by-case, does not follow the voting recommendation of
any proxy voting service or other independent fiduciary that may be
retained to provide research or advice to the Manager on that matter,
no proxies relating to the Client may be voted unless the Secretary, or
in the Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Manager's fiduciary duties.
In addition to the general principles outlined above, the Manager has
adopted voting guidelines with respect to certain recurring proxy
issues that are not expected to involve unusual circumstances. These
policies are guidelines only, and the Manager may elect to vote
differently from the recommendation set forth in a voting guideline if
the Committee determines that it is in a Fund's best interest to do so.
In addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee meeting
at which there is a quorum.
The Manager has adopted specific voting guidelines with respect to the
following proxy issues:
o Proposals related to the composition of the board of directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's board of directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is,
therefore, best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation of
good corporate governance is the election of qualified, independent
corporate directors who are likely to diligently represent the
interests of shareholders and oversee management of the corporation in
a manner that will seek to maximize shareholder value over time. In
individual cases, the Committee may look at a nominee's number of other
directorships, history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
o Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that corporate
auditors have a responsibility to represent the interests of
shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor, in
individual cases, the Committee may look at an auditors' history of
representing shareholder interests as auditor of other companies, to
the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits.
As a general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation,
but believes that compensation matters are normally best determined by
an issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not
be supported.
o Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital structure.
As a general matter, the Committee will support requests that enhance
the rights of common shareholders and oppose requests that appear to be
unreasonably dilutive.
o Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee opposes
poison pill provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the
Committee believes that a fund's board of directors (rather than its
shareholders) is best positioned to set fund policy and oversee
management. However, the Committee opposes granting boards of directors
authority over certain matters, such as changes to a fund's investment
objective, which the Investment Company Act envisions will be approved
directly by shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter. While
the Committee is generally supportive of proposals to require corporate
disclosure of matters that seem relevant and material to the economic
interests of shareholders, the Committee is generally not supportive of
proposals to require disclosure of corporate matters for other
purposes.
Information about how a Fund voted proxies relating to securities held
in the Fund's portfolio during the most recent 12 month period ended
February 28 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 28, 2007.
(a)(1) The Fund is managed by a team of investment professionals that
is responsible for the day-to-day management of the Fund's portfolio.
The lead members of this team are Mark J. Williams, Managing Director
at BlackRock, and Kevin J. Booth, Managing Director at BlackRock. Mr.
Williams and Mr. Booth each has been a portfolio manager of the Fund
since 2006. Mr. Williams is responsible for setting the Fund's overall
investment strategy and overseeing the management of the Fund as of
October 2, 2006. Mr. Booth is responsible for the day-to-day management
of the Fund's portfolio and the selection of its investments.
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.
Mr. Booth is a member of BlackRock's bank loan group. He joined
BlackRock in 2006. Prior to joining BlackRock, Mr. Booth was a Managing
Director (Global Fixed Income) of Merrill Lynch Investment Managers,
L.P. ("MLIM") since 2006 and a member of MLIM's bank loan group from
2000 to 2006. He was a Director of MLIM from 2000 to 2006 and was a
Vice President of MLIM from 1994 to 2000. He has been portfolio manager
with BlackRock or MLIM since 2000.
(a)(2) As of February 28, 2007:
(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
-------------------- -----------------
Kevin J. Booth 9 2 1 0 2 0
$ 4,811,800,801 529,770,486 $ 56,698,833 $ 0 $ 529,770,486 $ 0
Mark J. Williams 8 18 1 0 10 0
$ 4,059,669,609 6,003,278,704 $158,013,679 $ 0 $ 3,985,661,008 $ 0
(iv) Potential Material Conflicts of Interest
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 currently manage certain accounts
that are subject to performance fees. In addition, certain portfolio
managers 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 28, 2007:
Compensation Program
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 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.
Discretionary Compensation
In addition to base compensation, portfolio managers may receive
discretionary compensation, which can be a substantial portion of total
compensation. Discretionary compensation can include a discretionary
cash bonus as well as 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. The plan provides for the grant of awards that
are 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.
Deferred Compensation Program
A portion of the compensation paid to each portfolio manager may
be voluntarily deferred by the portfolio manager into an account that
tracks the performance of certain of the firm's investment products.
Each portfolio manager is permitted to allocate his deferred amounts
among various options, including to certain of the firm's hedge funds
and other unregistered products. In addition, prior to 2005, a portion
of the annual compensation of certain senior managers was mandatorily
deferred in a similar manner for a number of years. Beginning in 2005,
a portion of the annual compensation of certain senior managers was
paid in the form of BlackRock, Inc. restricted stock units which vest
ratably over a number of years.
Options and Restricted Stock Awards
While incentive stock options are not currently being awarded to
BlackRock employees, BlackRock, Inc. previously granted stock options
to key employees, including certain portfolio managers who may still
hold unexercised or unvested options. BlackRock, Inc. also has a
restricted stock award program 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.
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 stable value
fund. 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.
Annual incentive compensation for each portfolio manager 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 and income
generation, of the firm's assets under management or supervision by
that portfolio manager relative to predetermined benchmarks, and the
individual's teamwork and contribution to the overall performance of
these portfolios and BlackRock. Unlike many other firms, portfolio
managers at BlackRock compete against benchmarks rather than each
other. In most cases, including for the portfolio managers of the
Registrant, these benchmarks are the same as the benchmark or
benchmarks against which the investment performance, including
risk-adjusted returns and income generation, of the Registrant or other
accounts are measured. A group of BlackRock, Inc.'s officers determines
which benchmarks against which to compare the performance of funds and
other accounts managed by each portfolio manager.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. This
determination may take into consideration the fact that a benchmark may
not perfectly correlate to the way the Registrant or other accounts are
managed, even if it is the benchmark that is most appropriate for the
Registrant or other account. For example, a benchmark's return may be
based on the total return of the securities comprising the benchmark,
but the Registrant or other account may be managed to maximize income
and not total return. Senior portfolio managers who perform additional
management functions within BlackRock may receive additional
compensation for serving in these other capacities.
(a)(4) Beneficial Ownership of Securities. As of February 28, 2007, Mr.
Booth beneficially owns stock issued by the Fund in the range of
$50,001 - $100,000. As of February 28, 2007, Mr. Williams does
not beneficially own any stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our
evaluation of these controls and procedures as of a date within 90
days prior to the filing date of this report.
11(b) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the
registrant was migrated to BlackRock's trading and compliance
monitoring systems, and various personnel changes occurred. In
conjunction with these business improvements, there were no changes in
the registrants internal control over financial reporting (as defined
in Rule 30a-3(d) under Act (17 CFR 270.30a-3(d)) that occurred during
the last fiscal half-year of the period covered by this report that
has materially affected, or is reasonably likely to 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/ Robert C. Doll, Jr.
------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Debt Strategies Fund, Inc.
Date: April 23, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Debt Strategies Fund, Inc.
Date: April 23, 2007
By: /s/ Donald C. Burke
------------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Debt Strategies Fund, Inc.
Date: April 23, 2007