BlackRock Debit Strategies Fund, Inc.
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-08603

Name of Fund: BlackRock Debt Strategies Fund, Inc. (DSU)

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Debt Strategies

Fund, Inc., 55 East 52nd Street, New York, NY 10055

Registrant’s telephone number, including area code: (800) 882-0052, Option 4

Date of fiscal year end: 02/28/2015

Date of reporting period: 08/31/2014


Table of Contents

Item 1 – Report to Stockholders

 

 

2


Table of Contents

AUGUST 31, 2014

 

 

 

 

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

    LOGO

 

BlackRock Debt Strategies Fund, Inc. (DSU)

 

Not FDIC Insured • May Lose Value • No Bank Guarantee


Table of Contents
Table of Contents     

 

     Page  

Dear Shareholder

    3   

Semi-Annual Report:

 

Fund Summary

    4   

The Benefits and Risks of Leveraging

    7   

Derivative Financial Instruments

    7   
Financial Statements:  

Consolidated Schedule of Investments

    8   

Consolidated Statement of Assets and Liabilities

    27   

Consolidated Statement of Operations

    28   

Consolidated Statement of Changes in Net Assets

    29   

Consolidated Statement of Cash Flows

    30   

Financial Highlights

    31   

Notes to Consolidated Financial Statements

    32   

Disclosure of Investment Advisory Agreement

    45   

Officers and Directors

    49   

Additional Information

    50   

 

                
2    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Shareholder Letter

 

Dear Shareholder,

The latter part of 2013 was a strong period for most risk assets such as equities and high yield bonds, despite the mixed tone of economic and financial news and uncertainty as to when and by how much the U.S. Federal Reserve would begin to gradually reduce (or “taper”) its asset purchase programs. Stock markets rallied in September when the Fed defied investors’ expectations with its decision to delay tapering. The momentum was disrupted temporarily, however, when the U.S. debt ceiling debate led to a partial government shutdown, roiling financial markets globally until a compromise was struck in mid-October. The remainder of 2013 was generally positive for developed market stocks, while fixed income and emerging market investments struggled as Fed tapering became increasingly imminent. When the central bank ultimately announced its tapering plans in mid-December, equity investors reacted positively, as this action signaled the Fed’s perception of real improvement in the economy.

Most asset classes moved higher in 2014 despite the pull back in Fed stimulus. The year got off to a rocky start, however, as a number of developing economies showed signs of stress while facing the onset of diminishing global liquidity. These risks, combined with disappointing U.S. economic data, caused equities to decline in January while bond markets found renewed strength from investors seeking relatively safer assets. Although these headwinds persisted, equities were back on the rise in February as investors were relieved by a one-year extension of the U.S. debt ceiling and market-friendly comments from the Fed’s new Chairwoman, Janet Yellen. While it was clear that U.S. economic data had softened, investors were assuaged by increasing evidence that the trend was temporary and weather-related, and continued to take on risk with the expectation that growth would pick up later in the year.

In the months that followed, interest rates trended lower and bond prices climbed higher in the modest growth environment. Financial markets exhibited a remarkably low level of volatility despite rising geopolitical risks and mixed global economic news. Tensions in Russia and Ukraine and signs of decelerating growth in China caused some turbulence, but markets were resilient as investors focused on signs of improvement in the U.S. recovery, stronger corporate earnings and increased merger-and-acquisition activity. Importantly, investors were comforted by reassurance from the Fed that no changes to short-term interest rates were on the horizon.

In the ongoing low-rate environment, investors looked to equities as a source of yield, pushing major indices to record levels. As stock prices continued to move higher, investors soon became wary of stretched valuations and a new theme emerged. Stocks that had experienced significant price appreciation in 2013, particularly growth and momentum names, broadly declined as investors fled to stocks with cheaper valuations. This rotation resulted in the strongest performers of 2013 struggling most in 2014, and vice versa. Especially hard hit were U.S. small cap and European stocks, where earnings growth had not kept pace with recent market gains. In contrast, emerging market stocks benefited from the trend after having suffered heavy selling pressure earlier in the year.

However, asset prices tend to be more vulnerable to bad news when investors believe valuations are high. Consequently, markets came under pressure in July as geopolitical turmoil intensified in Gaza, Iraq and Ukraine and financial troubles boiled over in Argentina and Portugal. Investors regained confidence in August and, although volatility ticked up, markets rebounded as low rates and an improving U.S. economy trumped full valuations and lingering geopolitical risks. Concurrently, a slowdown in Europe’s recovery fueled hopes for further monetary accommodation from the European Central Bank, driving global equities higher. Additionally, lower yields on European sovereign bonds made U.S. Treasuries more appealing by comparison, contributing to the persistence of low rates in the United States.

Despite a host of challenges, most asset classes generated solid returns for the six- and 12-month periods ended August 31, 2014, with equities generally outperforming fixed income. Emerging market equities delivered impressive gains. Developed markets also performed well, although the expensive U.S. small cap stocks lagged in 2014. Most fixed income assets produced positive results even as the Fed reduced its open-market purchases. Tax-exempt municipal bonds benefited from a favorable supply-and-demand environment. Short-term interest rates remained near zero, keeping yields on money market securities close to historic lows.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s world.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

LOGO

Asset prices pushed higher over the period despite modest global growth, geopolitical risks and a shift toward tighter U.S. monetary policy.

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of August 31, 2014  
    6-month     12-month  

U.S. large cap equities
(S&P 500® Index)

    8.84     25.25

U.S. small cap equities
(Russell 2000® Index)

    (0.06     17.68   

International equities
(MSCI Europe, Australasia,
Far East Index)

    1.24        16.44   

Emerging market equities
(MSCI Emerging
Markets Index)

    14.52        19.98   

3-month Treasury bills
(BofA Merrill Lynch 3-Month
U.S. Treasury Bill Index)

    0.02        0.05   

U.S. Treasury securities
(BofA Merrill Lynch 10-Year
U.S. Treasury Index)

    4.35        7.07   

U.S. investment-grade
bonds (Barclays
U.S. Aggregate Bond Index)

    2.74        5.66   

Tax-exempt municipal
bonds (S&P Municipal
Bond Index)

    4.21        10.55   

U.S. high yield bonds

(Barclays U.S.
Corporate High Yield 2%
Issuer Capped Index)

    2.89        10.57   
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.    

 

                
   THIS PAGE NOT PART OF YOUR FUND REPORT       3


Table of Contents
Fund Summary as of August 31, 2014     

 

Fund Overview

BlackRock Debt Strategies Fund, Inc.’s (DSU) (the “Fund”) primary investment objective is to provide current income by investing primarily in a diversified portfolio of U.S. companies’ debt instruments, including corporate loans, which are rated in the lower rating categories of the established rating services (BBB or lower by S&P’s or Baa or lower by Moody’s) or unrated debt instruments, which are in the judgment of the investment adviser of equivalent quality. The Fund’s secondary objective is to provide capital appreciation. Corporate loans include senior and subordinated corporate loans, both secured and unsecured. The Fund may invest directly in such securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objectives will be achieved.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

Ÿ  

For the six-month period ended August 31, 2014, the Fund returned 1.97% based on market price and 3.28% based on NAV. For the same period, the closed-end Lipper High Yield Funds (Leveraged) category posted an average return of 3.47% based on market price and 3.75% based on NAV. All returns reflect reinvestment of dividends. The Fund’s discount to NAV, which widened during the period, accounts for the difference between performance based on price and performance based on NAV. The following discussion relates to performance based on NAV.

What factors influenced performance?

 

Ÿ  

Both the high yield bond and loan sectors exhibited favorable performance during the period. The Fund benefited from individual credit selection within both its high yield bond and loan allocations. The largest individual contributors were Caesars Entertainment Resorts Properties (gaming), First Data Corp. (software), La Quinta Intermediate Holdings (lodging), HD Supply, Inc. (construction materials), Amaya Holdings BV (communications equipment) and Texas Competitive Electric Holdings Co. LLC (electric equipment).

 

Ÿ  

The Fund invests roughly half of its assets in high yield bonds and half in floating rate loan interests (bank loans), while most funds in the Lipper category invest primarily in high yield bonds. While the Fund’s allocation to bank loans did not detract from performance on an absolute basis, bank loans underperformed high yield bonds for the period.

Describe recent portfolio activity.

 

Ÿ  

After five years of a favorable high yield market, pricing differentials between sectors have compressed. In this environment, the Fund’s investment decisions were focused on bottom-up security selection over top-down sector allocation. We continued to maintain a positive view on high yield and bank loan assets overall, but remained focused on purchasing income-oriented credit names with stable fundamentals and an attractive coupon rate as upside potential for price appreciation was limited. We selectively added risk in companies with positive growth catalysts or idiosyncratic characteristics. The Fund actively participated in the new-issue market, where the more appealing investment opportunities have been emerging. As we expect modest growth and improving economic conditions, the Fund modestly increased exposure to CCC-rated bonds and loans.

Describe portfolio positioning at period end.

 

Ÿ  

At period end the Fund held 53% of its total portfolio in floating rate loan interests and 43% in corporate bonds, with the remainder invested in asset-backed securities, common stocks and other interests.

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

                
4    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
    

 

 

Fund Information     

Symbol on New York Stock Exchange (“NYSE”)

  DSU

Initial Offering Date

  March 27, 1998

Current Distribution Rate on Closing Market Price as of August 31, 2014 ($4.01)1

  7.48%

Current Monthly Distribution per Common Share2

  $0.025

Current Annualized Distribution per Common Share2

  $0.300

Economic Leverage as of August 31, 20143

  29%

 

  1   

Current distribution rate on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. The current distribution rate consists of income, net realized gains and/or a return of capital. Past performance does not guarantee future results.

 

  2   

The monthly distribution per common share, declared on October 1, 2014, was decreased to $0.024 per share. The current distribution rate on closing market price, current monthly distribution per common share and current annualized distribution per common share do not reflect the new distribution rate. The new distribution rate is not constant and is subject to change in the future. A portion of the distribution may be deemed a return of capital or net realized gain.

 

  3   

Represents bank borrowings outstanding as a percentage of total managed assets, which is the total assets of the Fund (including any assets attributable to borrowings) minus the sum of liabilities (other than borrowings representing financial leverage). For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 7.

 

Market Price and Net Asset Value Per Share Summary                                        
           
      8/31/14      2/28/14      Change      High      Low  

Market Price

     $4.01         $4.08         (1.72)%         $4.19         $3.88   

Net Asset Value

     $4.42         $4.44         (0.45)%         $4.47         $4.37   

 

Market Price and Net Asset Value History For the Past Five Years

 

LOGO

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    5


Table of Contents
    

 

 

Overview of the Fund’s Long-Term Investments

 

Portfolio Composition   8/31/14     2/28/14  

Floating Rate Loan Interests

    54     53

Corporate Bonds

    43        44   

Asset-Backed Securities

    2        1   

Common Stocks

    1        1   

Other Interests

           1   

 

Credit Quality Allocation4   8/31/14     2/28/145  

BBB/Baa

    4     5

BB/Ba

    40        39   

B

    44        45   

CCC/Caa

    7        6   

N/R

    5        5   

 

  4   

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s or Moody’s Investors Service. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 

  5   

Information has been revised to conform to current year presentation.

 

                
6    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
The Benefits and Risks of Leveraging     

 

 

The Fund may utilize leverage to seek to enhance the yield and net asset value (“NAV”) of their common shares (“Common Shares”). However, these objectives cannot be achieved in all interest rate environments.

In general, the concept of leveraging is based on the premise that the financing cost of leverage, which will be based on short-term interest rates, will normally be lower than the income earned by a Fund on its longer-term portfolio investments purchased with the proceeds from leverage. 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 shareholders will benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage is paid to shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share NAV.

To illustrate these concepts, assume a Fund’s Common Shares capitalization is $100 million and it utilizes leverage for an additional $30 million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, the Fund’s financing costs on the $30 million of proceeds obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by the Fund with the proceeds from leverage earn income based on longer-term interest rates. In this case, the Fund’s financing costs of leverage are significantly lower than the income earned on the Fund’s longer-term investments acquired from leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.

However, in order to benefit Common Shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed the Fund’s return on assets purchased with leverage proceeds, income to shareholders will be lower than if the Fund had not used leverage. Furthermore, the value of the Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the value of the Fund’s obligations under its leverage arrangement generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Fund’s NAVs positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that a Fund’s intended leveraging strategy will be successful.

Leverage also will generally cause greater changes in the Fund’s NAVs, market prices and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the net asset value and market price of the Fund’s Common Shares than if the Fund were not leveraged. In addition, the Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund will incur expenses in connection with the use of leverage, all of which are borne by Common Shareholders and may reduce income to the Common Shares.

The Fund may utilize leverage through a credit facility as described in the Notes to Financial Statements.

Under the Investment Company Act of 1940, (the “1940 Act”), the Fund is permitted to issue debt up to 33 1/3% of its total managed assets. A Fund may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act. In addition, the Fund may also be subject to certain asset coverage, leverage or portfolio composition requirements imposed by its credit facility, which may be more stringent than those imposed by the 1940 Act.

 

Derivative Financial Instruments     

 

The Fund may invest in various derivative financial instruments, including financial futures contracts, foreign currency exchange contracts, options and swaps, as specified in Note 4 of the Notes to Consolidated Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a market without owning or taking physical custody of securities or to hedge market, equity, credit, interest rate and/or foreign currency exchange rate risks. Derivative financial instruments involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may require the Fund to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Fund can realize on an investment, may result in lower dividends paid to shareholders and/or may cause the Fund to hold an investment that it might otherwise sell. The Fund’s investments in these instruments are discussed in detail in the Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    7


Table of Contents

Consolidated Schedule of Investments August 31, 2014 (Unaudited)

  

(Percentages shown are based on Net Assets)

 

Common Stocks   

Shares

    Value  

Chemicals — 0.1%

      

GEO Specialty Chemicals, Inc. (a)

       481,806      $ 467,352   

LyondellBasell Industries NV, Class A

       26        2,973   
      

 

 

 
                       470,325   

Diversified Consumer Services — 0.2%

      

Cengage Thomson Learning (a)

             49,549        1,569,068   

Diversified Financial Services — 0.6%

      

Kcad Holdings I Ltd. (a)

             756,012,055        5,163,562   

Diversified Telecommunication Services — 0.0%

  

Broadview Networks Holdings, Inc. (a)

             5,037        10,326   

Electrical Equipment — 0.0%

      

Medis Technologies Ltd. (a)

             286,757        3   

Health Care Providers & Services — 0.0%

  

HealthSouth Corp.

             1,101        43,368   

Media — 0.0%

      

Adelphia Recovery Trust (a)

       396,568        833   

Adept Communications Corp., Class A (a)

       400,000        3,500   
      

 

 

 
                       4,333   

Paper & Forest Products — 0.5%

      

Ainsworth Lumber Co. Ltd. (a)

       803,254        2,014,950   

Ainsworth Lumber Co. Ltd. (a)(b)

       695,930        1,734,544   
      

 

 

 
                       3,749,494   

Semiconductors & Semiconductor Equipment — 0.0%

  

SunPower Corp. (a)

             1,707        65,241   

Software — 0.3%

      

HMH Holdings/EduMedia (a)

             147,998        2,841,562   
Total Common Stocks — 1.7%                      13,917,282   
      
                          
Asset-Backed Securities (b)(c)   

Par  

(000)

        

ACAS CLO Ltd., Series 2013-1A, Class D, 3.83%, 4/20/25

     USD        750        721,875   

Adams Mill CLO Ltd., Series 2014-1A, Class D1, 3.70%, 7/15/26

       450        428,310   

ALM Loan Funding, Series 2013-7RA:

      

Class C, 3.68%, 4/24/24

       1,310        1,252,205   

Class D, 5.23%, 4/24/24

       1,150        1,068,518   

ALM XIV Ltd., Series 2014-14A:

      

Class B, 3.18%, 7/28/26

       563        553,845   

Class C, 3.68%, 7/28/26

       713        676,305   

Atlas Senior Loan Fund Ltd., 3.94%, 10/15/26 (d)

       1,240        1,176,512   

Atrium CDO Corp., Series 9A, Class D, 3.74%, 2/28/24

       1,300        1,242,709   

Benefit Street Partners CLO II Ltd., Series 2013-IIA, Class C, 3.73%, 7/15/24

       900        847,280   
Asset-Backed Securities (b)(c)   

Par  

(000)

    Value  

Carlyle Global Market Strategies CLO Ltd.:

      

Series 2012-4A, Class D, 4.73%, 1/20/25

     USD        900      $ 902,998   

Series 2013-1A, Class C, 4.23%, 2/14/25

       250        245,188   

CFIP CLO Ltd., Series 2013-1A, Class D, 3.98%, 4/20/24

       1,500        1,417,614   

CIFC Funding Ltd., Series 2014-3A, Class D, 3.55%, 7/22/26

       250        233,817   

Fraser Sullivan CLO VII Ltd., Series 2012-7A, Class C, 4.23%, 4/20/23

       1,170        1,160,948   

Galaxy CLO Ltd., Series 2014-18A, Class C1, 3.23%, 10/15/26

       625        612,500   

Madison Park Funding XI Ltd., Series 2013-11A, Class D, 3.73%, 10/23/25

       555        529,380   

Octagon Investment Partners XX Ltd., Series 2014-1A, Class D, 3.89%, 8/12/26

       350        335,965   

OZLM Funding Ltd., Series 2012-2A, Class C, 4.59%, 10/30/23

       500        501,371   

OZLM VII Ltd., Series 2014-7A, Class C, 3.86%, 7/17/26

       500        470,215   

Regatta Funding LP, Series 2013-2A, Class C, 4.23%, 1/15/25

       750        729,750   

Symphony CLO Ltd., Series 2012-10A, Class D, 5.48%, 7/23/23

             650        650,897   
Total Asset-Backed Securities — 1.9%                      15,758,202   
      
                          
Corporate Bonds                      

Aerospace & Defense — 0.7%

      

DigitalGlobe, Inc., 5.25%, 2/01/21 (b)

       1,017        1,006,830   

Huntington Ingalls Industries, Inc., 7.13%, 3/15/21

       1,150        1,250,625   

Meccanica Holdings USA, Inc., 6.25%, 7/15/19 (b)

       347        378,230   

Transdigm, Inc. (b):

      

6.00%, 7/15/22

       2,205        2,243,587   

6.50%, 7/15/24

       1,030        1,055,750   
      

 

 

 
                       5,935,022   

Airlines — 1.3%

      

Air Canada Pass-Through Trust, Series 2013-1, Class C, 6.63%, 5/15/18 (b)

       712        740,872   

American Airlines Pass-Through Trust, Series 2013-2, Class C, 6.00%, 1/15/17 (b)

       3,195        3,306,825   

Continental Airlines Pass-Through Trust, Series 2012-3, Class C, 6.13%, 4/29/18

       2,390        2,533,400   

Delta Air Lines Pass-Through Trust, Series 2009-1, Class B, 9.75%, 6/17/18

       256        289,532   

US Airways Pass-Through Trust:

      

Series 2011-1, Class C, 10.88%, 10/22/14

       95        96,010   

Series 2013-1, Class B, 5.38%, 5/15/23

       2,325        2,400,562   

Virgin Australia Trust, Series 2013-1, Class C, 7.13%, 10/23/18 (b)

       1,229        1,284,286   
      

 

 

 
                       10,651,487   

 

Portfolio Abbreviations

 

CAD    Canadian Dollar      EUR    Euro    PIK    Payment-In-Kind
CLO    Collateralized Loan Obligation      GBP    British Pound    USD    U.S. Dollar
DIP    Debtor-In-Possession      OTC    Over-the-Counter      

 

See Notes to Consolidated Financial Statements.

 

                
8    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Auto Components — 1.5%

      

Affinia Group, Inc., 7.75%, 5/01/21

     USD        1,200      $ 1,236,000   

Autodis SA, 6.50%, 2/01/19

     EUR        100        137,394   

Brighthouse Group PLC, 7.88%, 5/15/18

     GBP        100        174,731   

Dana Holding Corp., 6.75%, 2/15/21

     USD        180        192,150   

Delphi Corp., 6.13%, 5/15/21

       380        419,900   

Icahn Enterprises LP/Icahn Enterprises Finance Corp.:

      

3.50%, 3/15/17

       145        145,906   

4.88%, 3/15/19

       4,609        4,735,747   

Jaguar Land Rover Automotive PLC:

      

8.25%, 3/15/20

     GBP        569        1,048,535   

5.63%, 2/01/23 (b)

     USD        425        448,375   

Pittsburgh Glass Works LLC, 8.00%, 11/15/18 (b)

       216        230,580   

Rhino Bondco SpA, 7.25%, 11/15/20

     EUR        100        139,673   

Schaeffler Holding Finance BV:

      

2.75%, 5/15/19

       495        652,130   

6.88%, (6.88% Cash or 7.63% PIK), 8/15/18 (b)(e)

     USD        1,195        1,259,231   

6.88% (6.88% Cash), 8/15/18 (e)

     EUR        385        533,188   

Titan International, Inc., 6.88%, 10/01/20

     USD        610        613,050   

Venture Holdings Co. LLC (a)(f):

      

12.00%, 7/01/49

       5,150        1   

Series B, 9.50%, 7/01/05

       5,125        1   
      

 

 

 
                       11,966,592   

Auto Parts — 0.0%

      

PetroLogistics LP/PetroLogistics Finance Corp., 6.25%, 4/01/20

             280        308,700   

Automobiles — 0.7%

      

Chrysler Group LLC/CG Co-Issuer, Inc.:

      

8.00%, 6/15/19

       1,341        1,442,447   

8.25%, 6/15/21

       1,440        1,609,200   

Ford Motor Co., 4.25%, 11/15/16 (g)

       478        967,353   

General Motors Co.:

      

4.88%, 10/02/23

       495        529,650   

6.25%, 10/02/43

       1,345        1,577,012   
      

 

 

 
                       6,125,662   

Banks — 0.8%

      

Banco Espirito Santo SA:

      

2.63%, 5/08/17

     EUR        100        123,534   

4.75%, 1/15/18

       200        263,682   

4.00%, 1/21/19

       100        129,255   

CIT Group, Inc.:

      

5.00%, 5/15/17

     USD        950        1,003,438   

5.25%, 3/15/18

       1,434        1,530,795   

6.63%, 4/01/18 (b)

       295        328,925   

5.50%, 2/15/19 (b)

       3,099        3,343,046   

Lloyds Bank PLC, 11.88%, 12/16/21 (c)

     EUR        12        19,385   
      

 

 

 
                       6,742,060   

Beverages — 0.0%

      

Constellation Brands, Inc., 7.25%, 5/15/17

     USD        87        97,762   

Building Products — 0.9%

      

American Builders & Contractors Supply Co., Inc., 5.63%, 4/15/21 (b)

       210        213,675   

BMBG Bond Finance SCA, 5.20%, 10/15/20 (c)

     EUR        245        326,296   

Builders FirstSource, Inc., 7.63%, 6/01/21 (b)

     USD        639        667,755   
Corporate Bonds   

Par  

(000)

    Value  

Building Products (concluded)

      

Building Materials Corp. of America, 6.75%, 5/01/21 (b)

     USD        920      $ 986,700   

Cemex Finance LLC, 6.00%, 4/01/24 (b)

       1,290        1,341,600   

Cemex SAB de CV, 5.88%, 3/25/19 (b)

       260        272,350   

CPG Merger Sub LLC, 8.00%, 10/01/21 (b)

       740        777,000   

Ply Gem Industries, Inc., 6.50%, 2/01/22 (b)

       1,755        1,737,450   

USG Corp., 9.75%, 1/15/18

       980        1,153,950   
      

 

 

 
                       7,476,776   

Capital Markets — 0.5%

  

American Capital Ltd., 6.50%, 9/15/18 (b)

       1,070        1,123,500   

Blackstone CQP Holdco LP, 2.32%, 3/18/19

       1,180        1,204,064   

E*Trade Financial Corp. (g)(h):

      

0.00%, 8/31/19 (b)

       593        1,280,509   

Series A, 0.00%, 8/31/19

       100        215,938   
      

 

 

 
                       3,824,011   

Chemicals — 2.4%

  

Ashland, Inc., 3.88%, 4/15/18

       730        747,337   

Axalta Coating Systems US Holdings, Inc./Axalta Coating Systems Dutch Holding BV:

      

5.75%, 2/01/21

     EUR        100        139,279   

7.38%, 5/01/21 (b)

     USD        151        164,590   

Axiall Corp., 4.88%, 5/15/23

       39        39,049   

Celanese US Holdings LLC, 5.88%, 6/15/21

       324        355,590   

Chemtura Corp., 5.75%, 7/15/21

       221        229,840   

GEO Specialty Chemicals, Inc., 7.50%, 3/31/15 (b)

       6,039        15,219,313   

Huntsman International LLC:

      

4.88%, 11/15/20

       40        40,800   

8.63%, 3/15/21

       1,195        1,311,512   

5.13%, 4/15/21

     EUR        428        590,208   

INEOS Group Holdings SA:

      

6.13%, 8/15/18 (b)

     USD        740        764,050   

6.50%, 8/15/18

     EUR        124        169,685   

5.75%, 2/15/19

       151        204,359   

LSB Industries, Inc., 7.75%, 8/01/19

     USD        331        361,617   

Nexeo Solutions LLC/Nexeo Solutions Finance Corp., 8.38%, 3/01/18

       30        30,150   

PolyOne Corp., 7.38%, 9/15/20

       80        86,200   

Rockwood Specialties Group, Inc., 4.63%, 10/15/20

       610        634,400   
      

 

 

 
                       21,087,979   

Commercial Services & Supplies — 1.9%

  

ADS Waste Holdings, Inc., 8.25%, 10/01/20

       267        284,355   

The ADT Corp., 3.50%, 7/15/22

       75        66,938   

ARAMARK Corp., 5.75%, 3/15/20

       1,599        1,674,952   

Avis Budget Car Rental LLC/Avis Budget Finance, Inc., 2.98%, 12/01/17 (c)

       190        189,050   

Bilbao Luxembourg SA, 10.50% (10.50% Cash or 11.25% PIK),12/01/18 (e)

     EUR        100        142,202   

Brand Energy & Infrastructure Services, Inc., 8.50%, 12/01/21 (b)

     USD        498        517,920   

Covanta Holding Corp., 6.38%, 10/01/22

       1,305        1,399,613   

Mobile Mini, Inc., 7.88%, 12/01/20

       1,110        1,198,800   

Modular Space Corp., 10.25%, 1/31/19 (b)

       1,955        2,028,312   

United Rentals North America, Inc.:

      

5.75%, 7/15/18

       1,389        1,461,923   

7.38%, 5/15/20

       760        828,400   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    9


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Commercial Services & Supplies (concluded)

  

United Rentals North America, Inc. (concluded):

      

8.25%, 2/01/21

     USD        165      $ 181,500   

7.63%, 4/15/22

       4,903        5,503,617   
      

 

 

 
                       15,477,582   

Communications Equipment — 1.0%

  

Alcatel-Lucent USA, Inc. (b):

      

4.63%, 7/01/17

       645        654,675   

6.75%, 11/15/20

       1,920        2,030,400   

Avaya, Inc., 7.00%, 4/01/19 (b)

       719        715,405   

Brocade Communications Systems, Inc., 6.88%, 1/15/20

       175        183,641   

CommScope, Inc. (b):

      

5.00%, 6/15/21

       265        268,975   

5.50%, 6/15/24

       272        276,760   

Zayo Group LLC/Zayo Capital, Inc.:

      

8.13%, 1/01/20

       2,688        2,899,680   

10.13%, 7/01/20

       1,206        1,371,825   
      

 

 

 
                       8,401,361   

Construction & Engineering — 0.3%

  

BlueLine Rental Finance Corp., 7.00%, 2/01/19 (b)

       205        216,788   

Novafives SAS:

      

4.21%, 6/30/20 (c)

     EUR        115        151,784   

4.50%, 6/30/21

       100        133,300   

Safway Group Holding LLC/Safway Finance Corp., 7.00%, 5/15/18 (b)

     USD        1,925        2,026,062   

Weekley Homes LLC/Weekley Finance Corp., 6.00%, 2/01/23

       350        346,500   
      

 

 

 
                       2,874,434   

Construction Materials — 1.4%

      

Allegion US Holding Co., Inc., 5.75%, 10/01/21

       117        122,557   

HD Supply, Inc.:

      

8.13%, 4/15/19

       6,505        7,090,450   

11.00%, 4/15/20

       786        909,795   

7.50%, 7/15/20

       3,069        3,299,175   

Kerneos Tech Group SAS:

      

5.06%, 3/01/21 (c)

     EUR        100        132,984   

5.75%, 3/01/21

       104        142,117   

Officine MaccaFerri SpA, 5.75%, 6/01/21

       180        240,177   
      

 

 

 
                       11,937,255   

Consumer Finance — 0.1%

      

IVS F. SpA, 7.13%, 4/01/20

       275        386,659   

Springleaf Finance Corp.:

      

7.75%, 10/01/21

     USD        37        41,995   

8.25%, 10/01/23

       68        78,710   
      

 

 

 
                       507,364   

Containers & Packaging — 0.5%

      

Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc.:

      

6.00%, 6/30/21 (b)

       465        460,350   

4.25%, 1/15/22

     EUR        370        480,084   

Ball Corp., 6.75%, 9/15/20

     USD        635        668,338   

Beverage Packaging Holdings Luxembourg II SA, 6.00%, 6/15/17 (b)

       727        737,905   

Crown Americas LLC/Crown Americas Capital Corp. III, 6.25%, 2/01/21

       715        763,263   
Corporate Bonds   

Par  

(000)

    Value  

Containers & Packaging (concluded)

      

Crown European Holdings SA, 4.00%, 7/15/22

     EUR        320      $ 435,390   

Graphic Packaging International, Inc., 7.88%, 10/01/18

     USD        135        140,738   

Sealed Air Corp. (b):

      

6.50%, 12/01/20

       120        132,000   

8.38%, 9/15/21

       60        67,500   

SGD Group SAS, 5.63%, 5/15/19

     EUR        100        133,384   

Smurfit Kappa Acquisitions, 4.88%, 9/15/18 (b)

     USD        200        207,500   
      

 

 

 
                       4,226,452   

Distributors — 0.1%

      

VWR Funding, Inc., 7.25%, 9/15/17

             938        989,590   

Diversified Consumer Services — 0.2%

      

APX Group, Inc.:

      

6.38%, 12/01/19

       121        122,815   

8.75%, 12/01/20

       254        252,730   

Garda World Security Corp., 7.25%, 11/15/21 (b)

       199        203,726   

Laureate Education, Inc., 9.25%, 9/01/19 (b)

       715        732,875   

Service Corp. International, 4.50%, 11/15/20

       307        305,849   
      

 

 

 
                       1,617,995   

Diversified Financial Services — 3.8%

      

Aircastle Ltd., 6.25%, 12/01/19

       571        618,108   

Ally Financial, Inc.:

      

8.30%, 2/12/15

       4,150        4,274,500   

6.25%, 12/01/17

       30        33,038   

8.00%, 3/15/20

       60        72,900   

7.50%, 9/15/20

       2,540        3,038,475   

8.00%, 11/01/31

       5,588        7,226,242   

Bank of America Corp.:

      

4.50%, 4/01/15

       375        383,572   

6.05%, 5/16/16

       325        351,433   

6.50%, 8/01/16

       410        450,655   

5.63%, 10/14/16

       100        109,061   

CE Energy AS, 7.00%, 2/01/21

     EUR        175        238,851   

Co-Operative Group Holdings, 6.88%, 7/08/20 (i)

     GBP        130        230,387   

General Motors Financial Co., Inc., 4.25%, 5/15/23

     USD        101        103,146   

Jefferies Finance LLC/JFIN Co-Issuer Corp. (b):

      

7.38%, 4/01/20

       825        862,125   

6.88%, 4/15/22

       716        717,790   

Reynolds Group Issuer, Inc.:

      

7.13%, 4/15/19

       3,290        3,417,488   

9.00%, 4/15/19

       969        1,017,450   

7.88%, 8/15/19

       180        194,850   

9.88%, 8/15/19

       1,032        1,144,230   

5.75%, 10/15/20

       6,198        6,476,910   

6.88%, 2/15/21

       266        284,953   

8.25%, 2/15/21

       169        184,421   
      

 

 

 
                       31,430,585   

Diversified Telecommunication Services — 2.0%

  

CenturyLink, Inc.:

      

6.45%, 6/15/21

       240        262,800   

Series V, 5.63%, 4/01/20

       1,153        1,219,297   

Level 3 Communications, Inc., 8.88%, 6/01/19

       670        723,600   

Level 3 Financing, Inc.:

      

3.82%, 1/15/18 (b)(c)

       646        649,230   

 

See Notes to Consolidated Financial Statements.

 

                
10    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Diversified Telecommunication Services (concluded)

  

Level 3 Financing, Inc. (concluded):

      

8.13%, 7/01/19

     USD        6,980      $ 7,555,850   

7.00%, 6/01/20

       524        564,610   

8.63%, 7/15/20

       188        208,210   

6.13%, 1/15/21 (b)

       1,217        1,283,935   

Telecom Italia SpA:

      

6.13%, 11/15/16 (g)

     EUR        500        781,472   

6.38%, 6/24/19

     GBP        200        360,677   

4.88%, 9/25/20

     EUR        235        338,819   

4.50%, 1/25/21

       330        467,281   

5.88%, 5/19/23

     GBP        300        523,872   

Telefonica SA, Series TIT, 6.00%, 7/24/17 (g)

     EUR        200        268,650   

Telenet Finance V Luxembourg SCA:

      

6.25%, 8/15/22

       319        454,778   

6.75%, 8/15/24

       322        473,224   

Windstream Corp.:

      

7.88%, 11/01/17

     USD        142        161,525   

7.75%, 10/15/20

       37        39,868   

6.38%, 8/01/23

       10        10,025   
      

 

 

 
                       16,347,723   

Electric Utilities — 0.3%

  

ContourGlobal Power Holdings SA, 7.13%, 6/01/19 (b)

       897        903,727   

Homer City Generation LP:

      

8.14%, 10/01/19

       250        267,500   

8.73%, 10/01/26

       488        517,280   

Mirant Mid Atlantic Pass-Through Trust, Series B, 9.13%, 6/30/17

       431        464,026   
      

 

 

 
                       2,152,533   

Energy Equipment & Services — 1.3%

  

Calfrac Holdings LP, 7.50%, 12/01/20 (b)

       2,281        2,423,562   

CGG SA, 7.75%, 5/15/17

       19        19,238   

Genesis Energy LP/Genesis Energy Finance Corp., 5.75%, 2/15/21

       18        18,585   

GrafTech International Ltd., 6.38%, 11/15/20

       150        155,250   

MEG Energy Corp. (b):

      

6.50%, 3/15/21

       2,727        2,876,985   

7.00%, 3/31/24

       623        677,512   

Peabody Energy Corp.:

      

6.00%, 11/15/18

       1,821        1,875,630   

6.25%, 11/15/21

       1,072        1,067,980   

Precision Drilling Corp.:

      

6.63%, 11/15/20

       190        201,400   

5.25%, 11/15/24 (b)

       641        641,000   

Rain CII Carbon LLC/CII Carbon Corp., 8.25%, 1/15/21 (b)

       577        605,850   
      

 

 

 
                       10,562,992   

Food & Staples Retailing — 0.1%

  

Labeyrie Fine Foods SAS, 5.63%, 3/15/21

     EUR        105        143,483   

Premier Foods Finance PLC, 5.56%, 3/15/20 (c)

     GBP        145        234,704   

R&R Ice Cream PLC, 9.25%,
(9.25% Cash or 10.00% PIK), 5/15/18 (e)

     EUR        200        268,440   

Rite Aid Corp.:

      

9.25%, 3/15/20

     USD        435        487,200   

6.75%, 6/15/21

       72        76,410   
      

 

 

 
                       1,210,237   
Corporate Bonds   

Par  

(000)

    Value  

Food Products — 0.4%

  

Barry Callebaut Services NV, 5.50%, 6/15/23 (b)

     USD        200      $ 211,130   

Boparan Finance PLC:

      

5.25%, 7/15/19

     GBP        100        158,991   

4.38%, 7/15/21

     EUR        110        138,762   

5.50%, 7/15/21

     GBP        145        228,409   

Findus Bondco SA:

      

9.13%, 7/01/18

     EUR        233        332,173   

9.50%, 7/01/18

     GBP        200        358,593   

Smithfield Foods, Inc.:

      

5.88%, 8/01/21 (b)

     USD        257        274,990   

6.63%, 8/15/22

       849        933,900   

Univeg Holding BV, 7.88%, 11/15/20

     EUR        200        260,162   
      

 

 

 
                       2,897,110   

Gas Utilities — 0.2%

  

Targa Resources Partners LP/Targa Resources Partners Finance Corp., 7.88%, 10/15/18

     USD        1,665        1,737,844   

Health Care Equipment & Supplies — 0.7%

  

3AB Optique Development SAS, 5.63%, 4/15/19

     EUR        215        272,612   

Biomet, Inc., 6.50%, 10/01/20

     USD        1,889        2,014,146   

DJO Finance LLC/DJO Finance Corp., 8.75%, 3/15/18

       480        510,000   

Fresenius Medical Care US Finance, Inc., 5.75%, 2/15/21 (b)

       1,495        1,622,075   

Fresenius US Finance II, Inc., 9.00%, 7/15/15 (b)

       410        434,600   

IDH Finance PLC, 6.00%, 12/01/18

     GBP        103        177,835   

Teleflex, Inc., 6.88%, 6/01/19

     USD        830        877,725   
      

 

 

 
                       5,908,993   

Health Care Providers & Services — 3.1%

  

Acadia Healthcare Co., Inc., 5.13%, 7/01/22 (b)

       295        297,950   

Amsurg Corp., 5.63%, 7/15/22 (b)

       1,248        1,276,080   

Aviv Healthcare Properties LP/Aviv Healthcare Capital Corp., 7.75%, 2/15/19

       1,215        1,284,863   

Care UK Health & Social Care PLC, 0.00%, 7/15/19

     GBP        234        378,763   

CHS/Community Health Systems, Inc.:

      

5.13%, 8/15/18

     USD        776        807,040   

6.88%, 2/01/22 (b)

       2,379        2,527,687   

ConvaTec Healthcare E SA, 7.38%, 12/15/17 (b)

     EUR        200        276,083   

Crown Newco 3 PLC, 7.00%, 2/15/18

     GBP        194        335,596   

DaVita HealthCare Partners, Inc., 5.13%, 7/15/24

     USD        1,347        1,366,363   

HCA Holdings, Inc., 7.75%, 5/15/21

       431        469,790   

HCA, Inc.:

      

3.75%, 3/15/19

       1,048        1,055,860   

6.50%, 2/15/20

       2,254        2,521,663   

5.88%, 3/15/22

       1,148        1,248,450   

4.75%, 5/01/23

       523        527,576   

5.00%, 3/15/24

       450        458,438   

Hologic, Inc., 6.25%, 8/01/20

       1,933        2,039,315   

Kindred Healthcare, Inc., 6.38%, 4/15/22 (b)

       229        231,290   

Priory Group No. 3 PLC, 7.00%, 2/15/18 (b)

     GBP        308        532,802   

Symbion, Inc., 8.00%, 6/15/16

     USD        125        130,156   

Tenet Healthcare Corp.:

      

6.25%, 11/01/18

       607        661,630   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    11


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Health Care Providers & Services (concluded)

  

Tenet Healthcare Corp. (concluded):

      

5.00%, 3/01/19 (b)

     USD        1,124      $ 1,138,050   

4.75%, 6/01/20

       1,190        1,210,825   

6.00%, 10/01/20

       1,478        1,603,630   

4.50%, 4/01/21

       24        24,060   

4.38%, 10/01/21

       1,386        1,375,605   

8.13%, 4/01/22

       1,262        1,452,878   
      

 

 

 
                       25,232,443   

Home Building — 0.1%

  

Weyerhaeuser Real Estate Co. (b):

      

4.38%, 6/15/19

       615        615,000   

5.88%, 6/15/24

       420        428,400   
      

 

 

 
                       1,043,400   

Hotels, Restaurants & Leisure — 2.3%

  

Caesars Entertainment Operating Co., Inc., 9.00%, 2/15/20

       7,014        5,616,052   

Carlson Travel Holdings, Inc., 7.50%, (7.50% Cash or 8.25% PIK), 8/15/19 (b)(e)

       204        209,610   

CDW LLC/CDW Finance Corp., 6.00%, 8/15/22

       345        363,544   

Cirsa Funding Luxembourg SA, 8.75%, 5/15/18

     EUR        2,575        3,501,841   

Gamenet SpA, 7.25%, 8/01/18

       110        148,885   

GLP Capital LP/GLP Financing II, Inc., 4.38%, 11/01/18

     USD        391        405,663   

Greektown Holdings LLC/Greektown Mothership Corp., 8.88%, 3/15/19 (b)

       595        609,875   

Intralot Finance Luxembourg SA, 9.75%, 8/15/18

     EUR        495        736,584   

MCE Finance Ltd., 5.00%, 2/15/21 (b)

     USD        352        350,240   

MGM Resorts International, 6.63%, 12/15/21

       1,515        1,685,437   

Sabre, Inc., 8.50%, 5/15/19 (b)

       526        575,313   

Six Flags Entertainment Corp., 5.25%, 1/15/21 (b)

       842        852,525   

Snai SpA, 7.63%, 6/15/18

     EUR        245        346,866   

Station Casinos LLC, 7.50%, 3/01/21

     USD        1,618        1,747,440   

Travelport LLC/Travelport Holdings, Inc., 6.35%, 3/01/16 (b)(c)

       900        899,507   

Tropicana Entertainment LLC/Tropicana Finance Corp., 9.63%, 12/15/14 (a)(f)

       800          

The Unique Pub Finance Co. PLC, Series A3, 6.54%, 3/30/21

     GBP        368        643,010   

Vougeot Bidco PLC, 7.88%, 7/15/20

       103        178,697   

Wynn Macau Ltd., 5.25%, 10/15/21 (b)

     USD        516        525,030   
      

 

 

 
                       19,396,119   

Household Durables — 1.6%

      

Ashton Woods USA LLC/Ashton Woods Finance Co., 6.88%, 2/15/21 (b)

       556        549,050   

Beazer Homes USA, Inc.:

      

6.63%, 4/15/18

       1,125        1,189,688   

5.75%, 6/15/19

       646        641,155   

Brookfield Residential Properties, Inc., 6.50%, 12/15/20 (b)

       1,000        1,061,250   

Brookfield Residential Properties, Inc./Brookfield Residential US Corp., 6.13%, 7/01/22 (b)

       285        295,331   

K. Hovnanian Enterprises, Inc., 7.25%, 10/15/20 (b)

       2,300        2,472,500   

KB Home, 7.25%, 6/15/18

       965        1,061,500   

The Ryland Group, Inc., 6.63%, 5/01/20

       130        139,100   

Spie BondCo 3 SCA, 11.00%, 8/15/19

     EUR        353        517,192   
Corporate Bonds   

Par  

(000)

    Value  

Household Durables (concluded)

      

Standard Pacific Corp.:

      

10.75%, 9/15/16

     USD        565      $ 658,225   

8.38%, 1/15/21

       3,005        3,530,875   

Taylor Morrison Communities, Inc./Monarch Communities, Inc., 5.25%, 4/15/21 (b)

       749        756,490   
      

 

 

 
                       12,872,356   

Household Products — 0.1%

      

Ontex IV SA, 9.00%, 4/15/19

     EUR        317        447,024   

Spectrum Brands, Inc.:

      

6.38%, 11/15/20

     USD        315        338,625   

6.63%, 11/15/22

       375        405,938   
      

 

 

 
                       1,191,587   

Independent Power and Renewable Electricity Producers — 1.2%

  

Baytex Energy Corp. (b):

      

5.13%, 6/01/21

       210        210,263   

5.63%, 6/01/24

       74        74,000   

Calpine Corp.:

      

6.00%, 1/15/22 (b)

       256        275,840   

5.38%, 1/15/23

       1,355        1,368,550   

5.88%, 1/15/24 (b)

       531        568,170   

5.75%, 1/15/25

       1,433        1,447,330   

NRG Energy, Inc.:

      

7.63%, 1/15/18

       2,308        2,598,808   

6.25%, 5/01/24 (b)

       661        682,483   

NRG REMA LLC:

      

Series B, 9.24%, 7/02/17

       69        73,547   

Series C, 9.68%, 7/02/26

       746        813,140   

QEP Resources, Inc., 5.38%, 10/01/22

       1,590        1,627,762   
      

 

 

 
                       9,739,893   

Insurance — 0.3%

      

A-S Co-Issuer Subsidiary, Inc./A-S Merger Sub LLC, 7.88%, 12/15/20 (b)

       747        795,555   

CNO Financial Group, Inc., 6.38%, 10/01/20 (b)

       329        352,030   

Hockey Merger Sub 2, Inc., 7.88%, 10/01/21 (b)

       184        193,660   

MPL 2 Acquisition Canco, Inc., 9.88%, 8/15/18 (b)

       725        773,937   

Pension Insurance Corp. PLC, 6.50%, 7/03/24

     GBP        150        256,613   

TMF Group Holding BV, 9.88%, 12/01/19

     EUR        300        426,784   
      

 

 

 
                       2,798,579   

Internet Software & Services — 0.2%

      

IAC/InterActiveCorp, 4.88%, 11/30/18

     USD        700        726,250   

Interactive Data Corp., 5.88%, 4/15/19 (b)

       910        906,588   
      

 

 

 
                       1,632,838   

IT Services — 2.0%

      

Ceridian Corp., 8.88%, 7/15/19 (b)

       4,660        5,219,200   

Ceridian HCM Holding, Inc., 11.00%, 3/15/21 (b)

       835        953,988   

Ceridian LLC/Comdata, Inc., 8.13%, 11/15/17 (b)

       805        815,868   

Epicor Software Corp., 8.63%, 5/01/19

       720        772,200   

First Data Corp.:

      

7.38%, 6/15/19 (b)

       3,123        3,333,802   

8.88%, 8/15/20 (b)

       195        212,550   

6.75%, 11/01/20 (b)

       1,307        1,414,827   

11.75%, 8/15/21

       515        608,988   

 

See Notes to Consolidated Financial Statements.

 

                
12    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

IT Services (concluded)

      

SunGard Data Systems, Inc.:

      

7.38%, 11/15/18

     USD        280      $ 292,600   

6.63%, 11/01/19

       1,845        1,932,637   

WEX, Inc., 4.75%, 2/01/23 (b)

       601        576,960   
      

 

 

 
                       16,133,620   

Machinery — 0.1%

      

Amsted Industries, Inc., 5.00%, 3/15/22 (b)

       372        374,790   

Galapagos Holding SA, 7.00%, 6/15/22

     EUR        110        141,379   

Galapagos SA, 5.38%, 6/15/21

       100        132,709   

SPX Corp., 6.88%, 9/01/17

     USD        65        71,663   
      

 

 

 
                       720,541   

Media — 5.9%

      

Adria Bidco BV, 7.88%, 11/15/20

     EUR        100        140,494   

Altice Financing SA, 6.50%, 1/15/22 (b)

     USD        840        884,100   

Altice SA:

      

7.25%, 5/15/22

     EUR        490        682,678   

7.75%, 5/15/22 (b)

     USD        1,295        1,375,937   

AMC Networks, Inc.:

      

7.75%, 7/15/21

       1,005        1,109,269   

4.75%, 12/15/22

       86        87,075   

CBS Outdoor Americas Capital LLC/CBS Outdoor Americas Capital Corp. (b):

      

5.25%, 2/15/22

       130        132,925   

5.63%, 2/15/24

       200        206,000   

CCO Holdings LLC/CCO Holdings Capital Corp.:

      

6.50%, 4/30/21

       320        340,000   

5.25%, 9/30/22

       278        282,170   

5.13%, 2/15/23

       50        49,750   

Cengage Learning Acquisitions, Inc., 11.50%, 4/15/20 (a)

       669          

Cinemark USA, Inc., 5.13%, 12/15/22

       44        44,715   

Clear Channel Communications, Inc.:

      

9.00%, 12/15/19

       450        465,750   

9.00%, 3/01/21

       906        939,975   

Clear Channel Worldwide Holdings, Inc.:

      

7.63%, 3/15/20

       1,364        1,459,480   

6.50%, 11/15/22

       5,061        5,409,215   

Columbus International, Inc., 7.38%, 3/30/21 (b)

       1,695        1,845,431   

DISH DBS Corp., 4.25%, 4/01/18

       1,460        1,494,675   

DreamWorks Animation SKG, Inc., 6.88%, 8/15/20 (b)

       333        352,980   

Gannett Co., Inc.:

      

5.13%, 10/15/19 (b)

       215        220,375   

5.13%, 7/15/20

       237        242,333   

6.38%, 10/15/23 (b)

       330        350,625   

Gray Television, Inc., 7.50%, 10/01/20

       557        587,635   

Inmarsat Finance PLC, 4.88%, 5/15/22 (b)

       1,000        1,002,500   

Intelsat Jackson Holdings SA:

      

7.25%, 10/15/20

       2,544        2,722,080   

5.50%, 8/01/23

       3,422        3,409,167   

Intelsat Luxembourg SA, 6.75%, 6/01/18

       575        602,313   

Level 3 Escrow II, Inc., 5.38%, 8/15/22 (b)

       3,395        3,411,975   

Live Nation Entertainment, Inc., 7.00%, 9/01/20 (b)

       232        249,980   

The McClatchy Co., 9.00%, 12/15/22

       350        393,750   

MDC Partners, Inc., 6.75%, 4/01/20 (b)

       836        873,620   
Corporate Bonds   

Par  

(000)

    Value  

Media (concluded)

      

Midcontinent Communications & Midcontinent Finance Corp., 6.25%, 8/01/21 (b)

     USD        265      $ 273,613   

NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp., 5.00%, 8/01/18 (b)

       538        552,795   

Nielsen Finance LLC/Nielsen Finance Co., 5.00%, 4/15/22 (b)

       410        414,100   

Numericable Group SA:

      

4.88%, 5/15/19 (b)

       2,180        2,207,250   

5.38%, 5/15/22

     EUR        135        188,009   

6.00%, 5/15/22 (b)

     USD        1,885        1,941,550   

5.63%, 5/15/24

     EUR        295        410,395   

6.25%, 5/15/24 (b)

     USD        630        649,687   

ProQuest LLC/ProQuest Notes Co., 9.00%, 10/15/18 (b)

       261        271,440   

RCN Telecom Services LLC/RCN Capital Corp., 8.50%, 8/15/20 (b)

       420        448,350   

Sinclair Television Group, Inc., 5.63%, 8/01/24 (b)

       476        474,810   

Sirius XM Holdings, Inc. (b):

      

4.25%, 5/15/20

       141        138,180   

5.75%, 8/01/21

       464        482,560   

Sterling Entertainment Corp., 10.00%, 12/15/19

       1,300        1,326,000   

Townsquare Radio LLC/Townsquare Radio, Inc., 9.00%, 4/01/19 (b)

       865        940,687   

Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH:

      

7.50%, 3/15/19

     EUR        1,917        2,141,503   

5.50%, 1/15/23 (b)

     USD        1,270        1,298,575   

Unitymedia KabelBW GmbH, 9.50%, 3/15/21

     EUR        150        222,222   

Univision Communications, Inc. (b):

      

8.50%, 5/15/21

     USD        1,820        1,992,900   

5.13%, 5/15/23

       85        89,038   

VTR Finance BV, 6.88%, 1/15/24 (b)

       1,036        1,111,110   
      

 

 

 
                       48,943,746   

Metals & Mining — 2.1%

      

ArcelorMittal, 6.13%, 6/01/18

       857        933,059   

Commercial Metals Co., 4.88%, 5/15/23

       1,135        1,112,300   

Constellium NV:

      

4.63%, 5/15/21

     EUR        235        321,129   

5.75%, 5/15/24 (b)

     USD        439        456,560   

Eco-Bat Finance PLC, 7.75%, 2/15/17

     EUR        405        545,454   

Global Brass & Copper, Inc., 9.50%, 6/01/19

     USD        740        831,575   

Kaiser Aluminum Corp., 8.25%, 6/01/20

       550        613,938   

New Gold, Inc., 6.25%, 11/15/22 (b)

       63        66,150   

Novelis, Inc., 8.75%, 12/15/20

       4,248        4,699,350   

Peabody Energy Corp., 6.50%, 9/15/20

       737        741,606   

Perstorp Holding AB, 8.75%, 5/15/17 (b)

       410        437,675   

Ryerson, Inc./Joseph T Ryerson & Son, Inc., 9.00%, 10/15/17

       393        418,545   

Steel Dynamics, Inc., 6.38%, 8/15/22

       595        636,650   

ThyssenKrupp AG, 3.13%, 10/25/19

     EUR        495        680,317   

Vedanta Resources PLC, 8.25%, 6/07/21 (b)

     USD        200        225,000   

Wise Metals Group LLC/Wise Alloys Finance Corp., 8.75%, 12/15/18 (b)

       4,197        4,532,760   
      

 

 

 
                       17,252,068   

Multiline Retail — 0.3%

      

Debenhams PLC, 5.25%, 7/15/21

     GBP        280        460,194   

Dufry Finance SCA, 4.50%, 7/15/22

     EUR        160        219,362   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    13


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Multiline Retail (concluded)

      

Hema Bondco I BV, 6.25%, 6/15/19

     EUR        350      $ 464,198   

The Neiman Marcus Group Ltd. (b):

      

8.00%, 10/15/21

     USD        750        809,063   

8.75% (8.75% Cash or 9.50% PIK), 10/15/21 (e)

       150        163,125   
      

 

 

 
                       2,115,942   

Oil, Gas & Consumable Fuels — 7.6%

      

Access Midstream Partners LP/ACMP Finance Corp.:

      

6.13%, 7/15/22

       100        108,750   

4.88%, 5/15/23

       2,370        2,494,425   

4.88%, 3/15/24

       262        275,493   

American Energy-Permian Basin LLC/AEPB Finance Corp. (b):

      

7.13%, 11/01/20

       415        402,550   

7.38%, 11/01/21

       355        346,125   

Antero Resources Finance Corp., 5.38%, 11/01/21

       888        914,640   

Athlon Holdings LP/Athlon Finance Corp.:

      

7.38%, 4/15/21

       224        243,040   

6.00%, 5/01/22 (b)

       287        295,610   

Bonanza Creek Energy, Inc., 6.75%, 4/15/21

       200        210,000   

Carrizo Oil & Gas, Inc., 7.50%, 9/15/20

       100        107,000   

Chaparral Energy, Inc., 7.63%, 11/15/22

       330        354,338   

Chesapeake Energy Corp.:

      

6.63%, 8/15/20

       909        1,047,622   

6.88%, 11/15/20

       451        523,160   

6.13%, 2/15/21

       104        117,780   

5.75%, 3/15/23

       2,280        2,545,050   

Cimarex Energy Co., 4.38%, 6/01/24

       254        264,478   

Concho Resources, Inc.:

      

7.00%, 1/15/21

       40        43,500   

5.50%, 4/01/23

       2,390        2,551,325   

CONSOL Energy, Inc., 5.88%, 4/15/22 (b)

       4,037        4,218,665   

Continental Resources, Inc., 4.50%, 4/15/23

       29        31,317   

Crestwood Midstream Partners LP/Crestwood Midstream Finance Corp., 6.13%, 3/01/22

       57        58,995   

CrownRock LP/CrownRock Finance, Inc., 7.13%, 4/15/21 (b)

       740        764,050   

Denbury Resources, Inc., 4.63%, 7/15/23

       1,555        1,500,575   

El Paso LLC:

      

7.80%, 8/01/31

       143        177,320   

7.75%, 1/15/32

       684        856,710   

Energy Transfer Equity LP, 5.88%, 1/15/24

       1,825        1,927,656   

Energy XXI Gulf Coast, Inc.:

      

9.25%, 12/15/17

       120        127,200   

7.75%, 6/15/19

       1,537        1,606,165   

6.88%, 3/15/24 (b)

       343        349,003   

EnQuest PLC, 7.00%, 4/15/22 (b)

       528        530,640   

Enterprise Products Operating LLC, 3.70%, 6/01/15

       500        511,495   

EP Energy LLC/Everest Acquisition Finance, Inc., 6.88%, 5/01/19

       525        553,875   

EV Energy Partners LP/EV Energy Finance Corp., 8.00%, 4/15/19

       55        56,925   

Halcon Resources Corp.:

      

8.88%, 5/15/21

       1,962        2,065,005   

9.25%, 2/15/22

       60        64,425   
Corporate Bonds   

Par  

(000)

    Value  

Oil, Gas & Consumable Fuels (continued)

      

Hilcorp Energy I LP/Hilcorp Finance Co. (b):

      

7.63%, 4/15/21

     USD        1,274      $ 1,372,735   

5.00%, 12/01/24

       641        639,397   

Kinder Morgan, Inc. (b):

      

5.00%, 2/15/21

       358        383,060   

5.63%, 11/15/23

       363        400,207   

Kodiak Oil & Gas Corp., 5.50%, 2/01/22

       27        28,485   

Laredo Petroleum, Inc., 7.38%, 5/01/22

       595        651,525   

Lightstream Resources Ltd., 8.63%, 2/01/20 (b)

       266        275,310   

Linn Energy LLC/Linn Energy Finance Corp.:

      

6.50%, 5/15/19

       16        16,470   

6.25%, 11/01/19

       100        103,250   

8.63%, 4/15/20

       2,898        3,093,615   

7.75%, 2/01/21

       490        521,850   

MarkWest Energy Partners LP/MarkWest Energy Finance Corp.:

      

6.25%, 6/15/22

       34        36,550   

4.50%, 7/15/23

       10        10,163   

Memorial Production Partners LP/Memorial Production Finance Corp., 7.63%, 5/01/21

       430        446,125   

NGPL PipeCo LLC, 9.63%, 6/01/19 (b)

       435        475,237   

Northern Oil and Gas, Inc., 8.00%, 6/01/20

       372        390,600   

Oasis Petroleum, Inc.:

      

7.25%, 2/01/19

       495        519,750   

6.50%, 11/01/21

       555        592,462   

Pacific Drilling SA, 5.38%, 6/01/20 (b)

       748        729,300   

PDC Energy, Inc., 7.75%, 10/15/22

       510        558,450   

Petrobras International Finance Co., 6.88%, 1/20/40

       25        28,138   

Petroleum Geo-Services ASA, 7.38%, 12/15/18 (b)

       210        221,550   

Range Resources Corp.:

      

6.75%, 8/01/20

       874        935,180   

5.75%, 6/01/21

       277        295,698   

5.00%, 8/15/22

       10        10,638   

5.00%, 3/15/23

       23        24,438   

Regency Energy Partners LP/Regency Energy Finance Corp., 4.50%, 11/01/23

       1,698        1,710,735   

RKI Exploration & Production LLC/RKI Finance Corp., 8.50%, 8/01/21 (b)

       198        212,850   

Rose Rock Midstream LP/Rose Rock Finance Corp., 5.63%, 7/15/22 (b)

       464        473,280   

Rosetta Resources, Inc., 5.63%, 5/01/21

       479        490,376   

Sabine Pass Liquefaction LLC:

      

6.25%, 3/15/22 (b)

       104        112,840   

5.63%, 4/15/23

       938        975,520   

5.63%, 4/15/23 (b)

       3,024        3,144,960   

5.75%, 5/15/24 (b)

       562        584,480   

Sabine Pass LNG LP, 7.50%, 11/30/16

       4,940        5,366,075   

Sanchez Energy Corp., 6.13%, 1/15/23 (b)

       838        867,330   

SandRidge Energy, Inc.:

      

8.75%, 1/15/20

       91        95,550   

7.50%, 3/15/21

       250        262,500   

7.50%, 2/15/23

       1,082        1,125,280   

Seventy Seven Energy, Inc., 6.50%, 7/15/22 (b)

       318        327,540   

SM Energy Co., 6.63%, 2/15/19

       109        113,905   

Southern Star Central Corp., 5.13%, 7/15/22 (b)

       1,155        1,169,437   

Summit Midstream Holdings LLC/Summit Midstream Finance Corp.:

      

7.50%, 7/01/21

       798        877,800   

5.50%, 8/15/22

       834        850,680   

 

See Notes to Consolidated Financial Statements.

 

                
14    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Oil, Gas & Consumable Fuels (concluded)

      

Tesoro Logistics LP/Tesoro Logistics Finance Corp., 5.88%, 10/01/20

     USD        150      $ 157,125   

Ultra Petroleum Corp., 5.75%, 12/15/18 (b)

       525        542,062   

Whiting Petroleum Corp., 5.00%, 3/15/19

       1,786        1,884,230   
      

 

 

 
                       62,349,645   

Paper & Forest Products — 0.0%

      

International Paper Co., 7.30%, 11/15/39

       5        6,877   

NewPage Corp., 11.38%, 12/31/14 (a)(f)

       2,882          

Pfleiderer GmbH, 7.88%, 8/01/19

     EUR        115        149,971   
      

 

 

 
                       156,848   

Pharmaceuticals — 1.3%

      

Capsugel SA, 7.00% (7.00% Cash or 7.75% PIK), 5/15/19 (b)(e)

     USD        171        174,848   

Endo Finance LLC/Endo Finco, Inc. (b):

      

7.25%, 1/15/22

       145        157,144   

5.38%, 1/15/23

       285        284,287   

Grifols Worldwide Operations Ltd., 5.25%, 4/01/22 (b)

       937        962,767   

Jaguar Holding Co. I, 9.38%, (9.38% Cash or 10.13% PIK), 10/15/17 (b)(e)

       330        339,487   

Jaguar Holding Co. II/Jaguar Merger Sub, Inc., 9.50%, 12/01/19 (b)

       125        135,938   

Mallinckrodt International Finance SA, 5.75%, 8/01/22 (b)

       1,020        1,041,675   

Salix Pharmaceuticals Ltd., 6.00%, 1/15/21 (b)

       173        187,705   

Valeant Pharmaceuticals International, Inc. (b):

      

6.75%, 8/15/18

       1,221        1,306,470   

7.00%, 10/01/20

       1,150        1,221,875   

6.38%, 10/15/20

       760        795,150   

7.50%, 7/15/21

       1,890        2,060,100   

5.63%, 12/01/21

       661        671,741   

7.25%, 7/15/22

       1,010        1,080,700   
      

 

 

 
                       10,419,887   

Professional Services — 0.1%

      

Truven Health Analytics, Inc., 10.63%, 6/01/20

             380        408,500   

Real Estate Investment Trusts (REITs) — 0.4%

      

Felcor Lodging LP:

      

6.75%, 6/01/19

       1,703        1,796,665   

5.63%, 3/01/23

       377        381,712   

iStar Financial, Inc.:

      

4.00%, 11/01/17

       535        532,325   

5.00%, 7/01/19

       375        375,000   

Rayonier AM Products, Inc., 5.50%, 6/01/24 (b)

       80        78,400   
      

 

 

 
                       3,164,102   

Real Estate Management & Development — 1.1%

  

Lennar Corp., 4.75%, 11/15/22

       110        108,350   

Realogy Corp. (b):

      

7.63%, 1/15/20

       3,446        3,756,140   

9.00%, 1/15/20

       214        239,145   

Realogy Group LLC/Realogy Co-Issuer Corp., 4.50%, 4/15/19 (b)

       1,687        1,687,000   

Rialto Holdings LLC/Rialto Corp., 7.00%, 12/01/18 (b)

       245        254,800   

RPG Byty Sro, 6.75%, 5/01/20

     EUR        260        351,876   

Shea Homes LP/Shea Homes Funding Corp., 8.63%, 5/15/19

     USD        2,730        2,948,400   
      

 

 

 
                       9,345,711   
Corporate Bonds   

Par  

(000)

    Value  

Road & Rail — 1.0%

      

EC Finance PLC, 5.13%, 7/15/21

     EUR        215      $ 287,339   

Florida East Coast Holdings Corp., 6.75%, 5/01/19 (b)

     USD        2,225        2,347,375   

The Hertz Corp.:

      

7.50%, 10/15/18

       1,555        1,623,031   

7.38%, 1/15/21

       3,507        3,752,490   

Watco Cos. LLC/Watco Finance Corp., 6.38%, 4/01/23 (b)

       350        357,875   
      

 

 

 
                       8,368,110   

Semiconductors & Semiconductor Equipment — 0.4%

  

Micron Technology, Inc., 5.50%, 2/01/25 (b)

       1,035        1,047,937   

NXP BV/NXP Funding LLC (b):

      

3.75%, 6/01/18

       1,040        1,045,200   

5.75%, 2/15/21

       1,020        1,071,000   
      

 

 

 
                       3,164,137   

Software — 1.1%

      

Infor Software Parent LLC/Infor Software Parent, Inc., 7.13% (7.13% Cash or 7.88% PIK), 5/01/21 (b)(e)

       918        934,065   

Infor US, Inc.:

      

11.50%, 7/15/18

       927        1,039,399   

9.38%, 4/01/19

       4,345        4,779,500   

Nuance Communications, Inc., 5.38%, 8/15/20 (b)

       2,270        2,281,350   
      

 

 

 
                       9,034,314   

Specialty Retail — 0.4%

      

Asbury Automotive Group, Inc., 8.38%, 11/15/20

       130        142,350   

House of Fraser Funding PLC, 8.88%, 8/15/18 (b)

     GBP        100        176,846   

L Brands, Inc., 8.50%, 6/15/19

     USD        320        385,600   

Magnolia BC SA, 9.00%, 8/01/20

     EUR        220        291,254   

New Look Bondco I PLC, 8.75%, 5/14/18

     GBP        100        175,976   

Party City Holdings, Inc., 8.88%, 8/01/20

     USD        410        452,025   

PC Nextco Holdings LLC/PC Nextco Finance, Inc., 8.75% (8.75% Cash or 9.50% PIK), 8/15/19 (b)(e)

       184        189,060   

QVC, Inc. (b):

      

7.50%, 10/01/19

       135        140,921   

7.38%, 10/15/20

       95        101,546   

Sally Holdings LLC/Sally Capital, Inc.:

      

5.75%, 6/01/22

       146        154,030   

5.50%, 11/01/23

       559        589,745   

Sonic Automotive, Inc., 5.00%, 5/15/23

       146        144,175   

THOM Europe SAS, 7.38%, 7/15/19

     EUR        285        366,050   

Twin Set-Simona Barbieri SpA, 6.08%, 7/15/19 (c)

       258        326,321   
      

 

 

 
                       3,635,899   

Textiles, Apparel & Luxury Goods — 0.3%

      

Levi Strauss & Co., 6.88%, 5/01/22

     USD        405        440,437   

PVH Corp., 4.50%, 12/15/22

       122        121,085   

Springs Industries, Inc., 6.25%, 6/01/21

       1,801        1,810,005   

The William Carter Co., 5.25%, 8/15/21

       469        490,105   
      

 

 

 
                       2,861,632   

Tobacco — 0.0%

      

Altria Group, Inc., 9.95%, 11/10/38

             17        28,877   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    15


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Corporate Bonds   

Par  

(000)

    Value  

Trading Companies & Distributors — 0.2%

      

Ashtead Capital, Inc., 6.50%, 7/15/22 (b)

     USD        1,304      $ 1,418,100   

Transportation Infrastructure — 0.2%

      

Aguila 3 SA, 7.88%, 1/31/18 (b)

       929        966,160   

JCH Parent, Inc., 10.50% (10.50% Cash or 11.25% PIK),3/15/19 (b)(e)

       1,080        1,074,600   
      

 

 

 
                       2,040,760   

Wireless Telecommunication Services — 3.7%

      

Crown Castle International Corp., 5.25%, 1/15/23

       115        118,773   

Crown Castle Towers LLC, 6.11%, 1/15/40 (b)

       375        438,558   

Digicel Group Ltd., 8.25%, 9/30/20 (b)

       1,215        1,312,200   

Digicel Ltd., 6.00%, 4/15/21 (b)

       1,898        1,954,940   

The Geo Group, Inc., 5.88%, 1/15/22

       370        378,325   

Phones4u Finance PLC:

      

9.50%, 4/01/18

     GBP        307        521,134   

9.50%, 4/01/18 (b)

       100        169,750   

SBA Communications Corp., 4.88%, 7/15/22 (b)

     USD        870        856,950   

SBA Tower Trust, 4.25%, 4/15/40 (b)

       325        331,973   

Sprint Communications, Inc. (b):

      

9.00%, 11/15/18 (j)

       7,557        8,983,384   

7.00%, 3/01/20

       3,950        4,404,250   

Sprint Corp. (b):

      

7.88%, 9/15/23

       2,089        2,240,452   

7.13%, 6/15/24

       1,401        1,429,020   

T-Mobile USA, Inc.:

      

6.63%, 4/28/21

       2,205        2,320,762   

6.13%, 1/15/22

       81        83,936   

6.73%, 4/28/22

       2,120        2,236,600   

6.84%, 4/28/23

       85        90,206   

6.50%, 1/15/24

       584        607,360   

Wind Acquisition Finance SA:

      

4.00%, 7/15/20

     EUR        868        1,146,211   

4.20%, 7/15/20 (c)

       395        520,957   
      

 

 

 
                       30,145,741   
Total Corporate Bonds — 60.2%        498,111,496   
      
                          
Floating Rate Loan Interests (c)                      

Aerospace & Defense — 1.2%

  

DigitalGlobe, Inc., Term Loan B, 3.75%, 1/31/20

     USD        1,397        1,391,025   

TASC, Inc., 2nd Lien Term Loan, 12.00%, 5/30/21

       1,675        1,641,500   

Transdigm, Inc.:

      

Term Loan C, 3.75%, 2/28/20

       709        704,384   

Term Loan D, 3.75%, 6/04/21

       850        843,982   

TransUnion LLC, Term Loan, 4.00%, 4/09/21

       5,691        5,664,674   
      

 

 

 
                       10,245,565   

Air Freight & Logistics — 0.5%

      

CEVA Group PLC, Synthetic Line of Credit, 6.50%, 3/19/21

       1,058        1,020,898   

CEVA Intercompany BV, Dutch Term Loan, 6.50%, 3/19/21

       1,113        1,086,643   

CEVA Logistics Canada ULC, Canadian Term Loan, 6.50%, 3/19/21

       192        187,353   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Air Freight & Logistics (concluded)

      

CEVA Logistics U.S. Holdings, Inc., Term Loan, 6.50%, 3/19/21

     USD        1,535      $ 1,498,819   
      

 

 

 
                       3,793,713   

Airlines — 0.6%

      

Delta Air Lines, Inc., 2018 Term Loan B1, 3.25%, 10/18/18

       2,968        2,938,629   

Northwest Airlines, Inc., Term Loan:

      

2.18%, 3/10/17

       494        479,766   

1.56%, 9/10/18

       678        647,072   

US Airways Group, Inc., Term Loan B1, 3.50%, 5/23/19

       1,277        1,264,329   
      

 

 

 
                       5,329,796   

Auto Components — 2.3%

      

Affinia Group Intermediate Holdings, Inc., Term Loan B2, 4.75%, 4/27/20

       814        817,255   

Autoparts Holdings Ltd.:

      

1st Lien Term Loan, 6.50%, 7/28/17

       2,177        2,176,091   

2nd Lien Term Loan, 10.50%, 1/29/18

       2,250        2,169,382   

Dayco Products LLC, Term Loan B, 5.25%, 12/12/19

       1,239        1,238,775   

FPC Holdings, Inc., 1st Lien Term Loan, 5.25%, 11/19/19

       1,497        1,481,116   

Gates Global, Inc., Term Loan B, 4.25%, 7/05/21

       6,405        6,354,657   

The Goodyear Tire & Rubber Co., 2nd Lien Term Loan, 4.75%, 4/30/19

       3,280        3,289,217   

Transtar Holding Co., 1st Lien Term Loan, 5.75%, 10/09/18

       1,350        1,343,690   

UCI International, Inc., Term Loan B, 5.50%, 7/26/17

       282        281,791   
      

 

 

 
                       19,151,974   

Banks — 0.1%

      

Redtop Acquisitions Ltd.:

      

1st Lien Term Loan, 4.50%, 12/03/20

       602        600,970   

2nd Lien Term Loan, 8.25%, 6/03/21

       383        390,736   
      

 

 

 
                       991,706   

Building Products — 2.1%

      

Continental Building Products LLC, 1st Lien Term Loan, 4.00%, 8/28/20

       2,065        2,050,085   

CPG International, Inc., Term Loan, 4.75%, 9/30/20

       3,192        3,192,035   

GYP Holdings III Corp., 1st Lien Term Loan, 4.75%, 4/01/21

       1,556        1,536,649   

Interline Brands, Inc., 2021 Term Loan, 4.00%, 3/17/21

       1,636        1,616,482   

Momentive Performance Materials, Inc., DIP Term Loan B, 4.00%, 4/15/15

       650        649,187   

Nortek, Inc., Term Loan, 3.75%, 10/30/20

       2,075        2,066,347   

Ply Gem Industries, Inc., Term Loan, 4.00%, 2/01/21

       2,030        1,992,481   

Quikrete Holdings, Inc., 1st Lien Term Loan, 4.00%, 9/28/20

       1,257        1,248,715   

Wilsonart LLC:

      

Incremental Term Loan B2, 4.00%, 10/31/19

       413        407,421   

Term Loan B, 4.00%, 10/31/19

       2,295        2,264,458   
      

 

 

 
                       17,023,860   

 

See Notes to Consolidated Financial Statements.

 

                
16    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Capital Markets — 0.3%

      

Affinion Group, Inc.:

      

2nd Lien Term Loan, 8.50%, 10/12/18

     USD        960      $ 951,038   

Term Loan B, 6.75%, 4/30/18

       994        984,108   

American Capital Holdings, Inc., 2017 Term Loan, 3.50%, 8/22/17

       658        654,446   
      

 

 

 
                       2,589,592   

Chemicals — 3.0%

      

Allnex (Luxembourg) & Cy SCA, Term Loan B1, 4.50%, 10/03/19

       241        240,853   

Allnex USA, Inc., Term Loan B2, 4.50%, 10/03/19

       125        124,967   

Axalta Coating Systems US Holdings, Inc., Term Loan, 3.75%, 2/01/20

       3,099        3,078,280   

CeramTec Acquisition Corp., Term Loan B2, 4.25%, 8/28/20

       74        73,323   

Chromaflo Technologies Corp.:

      

1st Lien Term Loan, 4.50%, 12/02/19

       721        718,670   

2nd Lien Term Loan, 8.25%, 5/30/20

       405        402,975   

Evergreen Acqco 1 LP, Term Loan, 5.00%, 7/09/19

       1,586        1,586,496   

INEOS U.S. Finance LLC, 6 Year Term Loan, 3.75%, 5/04/18

       1,229        1,220,373   

MacDermid, Inc., 1st Lien Term Loan, 4.00%, 6/07/20

       1,320        1,314,154   

Minerals Technology, Inc., Term Loan B, 4.00%, 5/09/21

       3,225        3,220,969   

Nexeo Solutions LLC, Term Loan B, 5.00%, 9/08/17

       2,566        2,553,679   

OXEA Finance LLC:

      

2nd Lien Term Loan, 8.25%, 7/15/20

       1,155        1,156,929   

Term Loan B2, 4.25%, 1/15/20

       1,484        1,478,223   

Royal Adhesives and Sealants LLC, 1st Lien Term Loan, 5.50%, 7/31/18

       856        857,379   

Solenis International LP:

      

1st Lien Term Loan, 4.25%, 7/02/21

       1,670        1,658,527   

2nd Lien Term Loan, 7.75%, 7/02/22

       1,915        1,897,765   

Tata Chemicals North America, Inc., Term Loan B, 3.75%, 8/07/20

       728        718,554   

Tronox Pigments (Netherlands) BV, 2013 Term Loan, 4.00%, 3/19/20

       1,406        1,402,841   

Univar, Inc., Term Loan B, 5.00%, 6/30/17

       708        708,576   
      

 

 

 
                       24,413,533   

Commercial Services & Supplies — 3.2%

  

ADS Waste Holdings, Inc., Term Loan, 3.75%, 10/09/19

       2,633        2,592,262   

ARAMARK Corp., Term Loan E, 3.25%, 9/07/19

       2,933        2,902,092   

AWAS Finance Luxembourg 2012 SA, Term Loan, 3.50%, 7/16/18

       532        530,369   

Brand Energy & Infrastructure Services, Inc., Term Loan B, 4.75%, 11/26/20

       2,494        2,490,803   

Catalent Pharma Solutions, Inc., Term Loan:

      

6.50%, 12/29/17

       420        422,319   

B, 4.50%, 5/20/21

       2,550        2,551,606   

Connolly Corp.:

      

1st Lien Term Loan, 5.00%, 5/14/21

       2,875        2,887,592   

2nd Lien Term Loan, 8.00%, 5/14/22

       2,125        2,132,969   

KAR Auction Services, Inc., Term Loan B2, 3.50%, 3/11/21

       1,166        1,157,853   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Commercial Services & Supplies (concluded)

  

Koosharem LLC, Exit Term Loan, 7.50%, 4/29/20

     USD        2,875      $ 2,878,594   

Livingston International, Inc.:

      

1st Lien Term Loan, 5.00%, 4/16/19

       851        846,615   

2nd Lien Term Loan, 9.00%, 4/20/20

       254        251,581   

Spin Holdco, Inc., Term Loan B, 4.25%, 11/14/19

       3,569        3,538,548   

West Corp., Term Loan B10, 3.25%, 6/30/18

       1,248        1,233,794   
      

 

 

 
                       26,416,997   

Communications Equipment — 2.5%

  

Amaya Holdings BV:

      

1st Lien Term Loan, 5.00%, 8/01/21

       1,200        1,188,300   

2nd Lien Term Loan, 8.00%, 8/01/22

       8,380        8,479,554   

Applied Systems, Inc.:

      

1st Lien Term Loan, 4.25%, 1/25/21

       607        605,433   

2nd Lien Term Loan, 7.50%, 1/23/22

       540        543,240   

Avaya, Inc., Extended Term Loan B3, 4.66%, 10/26/17

       1,960        1,898,928   

CommScope, Inc., Term Loan B3, 2.66% - 2.73%, 1/21/17

       811        814,311   

Telesat Canada, Term Loan A, 4.37%, 3/24/17

     CAD        2,367        2,155,183   

Zayo Group LLC/Zayo Capital, Inc., Term Loan B, 4.00%, 7/02/19

     USD        4,886        4,864,985   
      

 

 

 
                       20,549,934   

Construction & Engineering — 0.3%

  

BakerCorp International, Inc., Term Loan, 4.25%, 2/14/20

       1,547        1,516,445   

Centaur Acquisition LLC, 2nd Lien Term Loan, 8.75%, 2/15/20

       1,185        1,199,812   
      

 

 

 
                       2,716,257   

Construction Materials — 0.9%

  

Filtration Group Corp., 1st Lien Term Loan, 4.50%, 11/21/20

       602        602,276   

HD Supply, Inc., Term Loan B, 4.00%, 6/28/18

       6,655        6,618,501   

McJunkin Red Man Corp., Term Loan, 5.00%, 11/08/19

       412        411,888   
      

 

 

 
                       7,632,665   

Containers & Packaging — 0.6%

  

Ardagh Holdings USA, Inc., Incremental Term Loan, 4.00%, 12/17/19

       943        937,142   

Berry Plastics Holding Corp., Term Loan E, 3.75%, 1/06/21

       2,156        2,126,560   

BWAY Holding Co., Inc., Term Loan B, 5.50%, 8/14/20

       1,090        1,094,545   

CD&R Millennium Holdco 6 Sarl, 1st Lien Term Loan, 4.50%, 7/31/21

       125        124,180   

Tekni-Plex, Inc., Term Loan B, 4.75%, 8/25/19

       668        664,611   
      

 

 

 
                       4,947,038   

Distributors — 0.5%

  

ABC Supply Co., Inc., Term Loan, 3.50%, 4/16/20

       3,265        3,231,986   

American Tire Distributors Holdings, Inc., Term Loan B, 5.75%, 6/01/18

       284        284,288   

VWR Funding, Inc., Term Loan, 3.41%, 4/03/17

       753        749,292   
      

 

 

 
                       4,265,566   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    17


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Diversified Consumer Services — 1.4%

      

Allied Security Holdings LLC:

      

1st Lien Term Loan, 4.25%, 2/12/21

     USD        2,688      $ 2,665,679   

2nd Lien Term Loan, 8.00%, 8/13/21

       599        593,755   

Bright Horizons Family Solutions, Inc., Term Loan B, 3.75% - 5.00%, 1/30/20

       1,546        1,535,826   

Fitness International LLC, Term Loan B, 5.50%, 7/01/20

       950        946,038   

Garda World Securities Corp.:

      

Delayed Draw Term Loan, 4.00%, 11/06/20

       288        286,321   

Term Loan B, 4.00%, 11/06/20

       1,128        1,119,255   

ROC Finance LLC, Term Loan, 5.00%, 6/20/19

       675        654,235   

ServiceMaster Company, 2014 Term Loan B, 4.25%, 7/01/21

       2,515        2,494,251   

Weight Watchers International, Inc., Term Loan B2, 4.00%, 4/02/20

       2,104        1,652,738   
      

 

 

 
                       11,948,098   

Diversified Financial Services — 0.7%

      

AssuredPartners Capital, Inc., 1st Lien Term Loan, 4.50%, 3/31/21

       1,350        1,343,817   

Reynolds Group Holdings, Inc., Dollar Term Loan, 4.00%, 12/01/18

       2,467        2,460,682   

RPI Finance Trust, Term Loan B3, 3.25%, 11/09/18

       476        475,133   

SAM Finance Luxembourg Sarl, Term Loan, 4.25%, 12/17/20

       1,612        1,609,386   
      

 

 

 
                       5,889,018   

Diversified Telecommunication Services — 2.4%

      

Consolidated Communications, Inc., Term Loan B, 4.25%, 12/23/20

       2,415        2,413,781   

Hawaiian Telcom Communications, Inc., Term Loan B, 5.00%, 6/06/19

       2,845        2,856,646   

Integra Telecom, Inc.:

      

2nd Lien Term Loan, 9.75%, 2/22/20

       1,555        1,578,413   

Term Loan B, 5.25%, 2/22/19

       1,264        1,263,608   

Level 3 Financing, Inc.:

      

2019 Term Loan, 4.00%, 8/01/19

       110        109,473   

2020 Term Loan B, 4.00%, 1/15/20

       7,525        7,487,375   

U.S. Telepacific Corp., Term Loan B, 5.75%, 2/23/17

       3,711        3,707,731   
      

 

 

 
                       19,417,027   

Electric Utilities — 0.6%

      

American Energy — Marcellus LLC, 1st Lien Term Loan, 5.25%, 8/04/20

       1,267        1,268,522   

American Energy — Utica LLC:

      

2nd Lien Delayed Draw Term Loan, 11.00%, 9/30/18

       783        822,397   

2nd Lien Term Loan, 5.50%, 9/30/18

       468        500,846   

Incremental 2nd Lien Term Loan, 11.00%, 9/30/18

       783        822,512   

Sandy Creek Energy Associates LP, Term Loan B, 5.00%, 11/06/20

       1,403        1,409,049   
      

 

 

 
                       4,823,326   

Electrical Equipment — 1.1%

      

Texas Competitive Electric Holdings Co. LLC:

      

DIP Term Loan, 3.75%, 5/05/16

       1,591        1,600,938   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Electrical Equipment (concluded)

      

Texas Competitive Electric Holdings Co. LLC (concluded):

      

Extended Term Loan, 4.65%, 10/10/17 (a)(f)

     USD        9,460      $ 7,315,229   
      

 

 

 
                       8,916,167   

Electronic Equipment, Instruments & Components — 0.4%

  

 

CDW LLC, Term Loan, 3.25%, 4/29/20

             2,944        2,904,801   

Energy Equipment & Services — 0.4%

      

Dynegy Holdings, Inc., Term Loan B2, 4.00%, 4/23/20

       1,307        1,304,356   

MEG Energy Corp., Refinancing Term Loan, 3.75%, 3/31/20

       1,864        1,857,894   
      

 

 

 
                       3,162,250   

Food & Staples Retailing — 0.8%

      

Alliance Boots Holdings Ltd., Term Loan B1, 3.48%, 7/09/15

     GBP        2,241        3,711,777   

New Albertson’s, Inc., Term Loan, 4.75%, 6/27/21

     USD        1,065        1,058,674   

Rite Aid Corp., 2nd Lien Term Loan, 5.75%, 8/21/20

       695        702,527   

Supervalu, Inc., Refinancing Term Loan B, 4.50%, 3/21/19

       1,402        1,391,806   
      

 

 

 
                       6,864,784   

Food Products — 2.0%

      

Del Monte Foods, Inc., 1st Lien Term Loan, 4.25% - 5.00%, 2/18/21

       925        914,745   

Diamond Foods, Inc., Term Loan, 4.25%, 8/20/18

       2,876        2,856,414   

Dole Food Co., Inc., Term Loan B, 4.50% - 5.75%, 11/01/18

       1,651        1,643,816   

GFA Brands, Inc., Term Loan B, 4.50%, 7/09/20

       609        609,611   

Hearthside Group Holdings LLC, Term Loan, 4.50%, 6/02/21

       2,420        2,421,525   

Performance Food Group Co., 2nd Lien Term Loan, 6.25%, 11/14/19

       2,307        2,312,467   

Pinnacle Foods Finance LLC, Term Loan G, 3.25%, 4/29/20

       1,846        1,822,494   

Reddy Ice Corp.:

      

1st Lien Term Loan, 6.75% - 7.75%, 5/01/19

       3,022        2,885,771   

2nd Lien Term Loan, 10.75%, 11/01/19

       995        875,600   
      

 

 

 
                       16,342,443   

Health Care Equipment & Supplies — 3.6%

      

Arysta LifeScience Corp.:

      

1st Lien Term Loan, 4.50%, 5/29/20

       3,848        3,839,374   

2nd Lien Term Loan, 8.25%, 11/30/20

       700        705,691   

Biomet, Inc., Term Loan B2, 3.66% - 3.73%, 7/25/17

       2,078        2,072,983   

Capsugel Holdings US, Inc., Term Loan B, 3.50%, 8/01/18

       1,435        1,418,541   

DJO Finance LLC, 2017 Term Loan, 4.25%, 9/15/17

       3,668        3,662,721   

Fresenius SE & Co. KGaA, Incremental Term Loan B, 2.46%, 6/30/19

     EUR        438        574,413   

The Hologic, Inc., Term Loan B, 3.25%, 8/01/19

     USD        2,507        2,490,793   

Iasis Healthcare LLC, Term Loan B2, 4.50%, 5/03/18

       97        97,464   

 

See Notes to Consolidated Financial Statements.

 

                
18    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Health Care Equipment & Supplies (concluded)

      

Immucor, Inc., Refinancing Term Loan B2, 5.00%, 8/17/18

     USD        2,432      $ 2,429,987   

Leonardo Acquisition Corp., Term Loan, 4.25%, 1/31/21

       1,661        1,646,305   

Millennium Laboratories, Inc., Term Loan B, 5.25%, 4/16/21

       3,775        3,778,549   

National Vision, Inc.:

      

1st Lien Term Loan, 4.00%, 3/12/21

       1,751        1,719,811   

2nd Lien Term Loan, 6.75%, 3/07/22

       755        742,414   

Onex Carestream Finance LP, 2nd Lien Term Loan, 9.50%, 12/07/19

       544        549,482   

Ortho-Clinical Diagnostics, Inc., Term Loan B, 4.75%, 6/30/21

       4,200        4,198,236   
      

 

 

 
                       29,926,764   

Health Care Providers & Services — 4.0%

      

Amedisys, Inc., 2nd Lien Term Loan, 8.50%, 6/25/20

       2,125        2,071,875   

American Renal Holdings, Inc., 1st Lien Term Loan, 4.50%, 9/20/19

       1,615        1,601,775   

Amsurg Corp., 1st Lien Term Loan B, 3.75%, 7/16/21

       945        943,819   

Ardent Medical Services, Inc., Term Loan, 6.75%, 7/02/18

       715        714,864   

CHG Buyer Corp., Term Loan, 4.25%, 11/19/19

       1,661        1,657,087   

CHS/Community Health Systems, Inc., Term Loan D, 4.25%, 1/27/21

       7,378        7,393,050   

ConvaTec, Inc., Term Loan, 4.00%, 12/22/16

       2,633        2,623,843   

DaVita HealthCare Partners, Inc., Term Loan B, 3.50%, 6/24/21

       7,010        6,987,638   

Envision Acquisition Co. LLC, 1st Lien Term Loan, 5.75%, 11/04/20

       1,295        1,301,689   

Genesis HealthCare Corp., Term Loan B, 10.00%, 9/25/17

       1,353        1,373,645   

Ikaria, Inc.:

      

1st Lien Term Loan, 5.00%, 2/12/21

       1,057        1,059,394   

2nd Lien Term Loan, 8.75%, 2/14/22

       450        455,062   

inVentiv Health, Inc., Incremental Term Loan B3, 7.75% - 8.50%, 5/15/18

       874        868,472   

MPH Acquisition Holdings LLC, Term Loan, 4.00%, 3/31/21

       1,669        1,657,682   

National Mentor Holdings, Inc., Term Loan B, 4.75%, 1/31/21

       708        707,120   

Surgery Center Holdings, Inc., 1st Lien Term Loan, 5.25%, 7/09/20

       683        681,927   

Surgical Care Affiliates, Inc., Class C Incremental Term Loan, 4.00%, 6/29/18

       1,178        1,173,682   
      

 

 

 
                       33,272,624   

Health Care Technology — 0.5%

  

IMS Health, Inc., Term Loan, 3.50%, 3/17/21

       2,608        2,573,248   

MedAssets, Inc., Term Loan B, 4.00%, 12/13/19

       1,351        1,339,557   
      

 

 

 
                       3,912,805   

Hotels, Restaurants & Leisure — 6.8%

  

Bally Technologies, Inc., Term Loan B, 4.25%, 11/25/20

       931        929,099   

Belmond Interfin Ltd., Term Loan B, 4.00%, 3/21/21

       1,197        1,187,520   

Bronco Midstream Funding LLC, Term Loan B, 5.00%, 8/17/20

       1,910        1,912,296   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Hotels, Restaurants & Leisure (concluded)

  

Caesars Entertainment Operating Co., Inc.:

      

Extended Term Loan B6, 6.95%, 3/01/17

     USD        1,927      $ 1,805,741   

Term Loan B7, 9.75%, 3/01/17

       2,168        2,093,920   

Caesars Entertainment Resort Properties LLC, Term Loan B, 7.00%, 10/12/20

       4,658        4,571,052   

Caesars Growth Properties Holdings LLC, Term Loan, 6.25%, 5/08/21

       4,100        4,003,363   

CCM Merger, Inc., Term Loan B, 4.50%, 7/18/21

       1,220        1,216,950   

Dave & Buster’s, Inc., Term Loan, 4.50%, 7/25/20

       595        593,364   

Diamond Resorts Corporation, Term Loan, 5.50%, 5/09/21

       3,375        3,391,875   

ESH Hospitality, Inc., Term Loan, 5.00%, 6/24/19

       420        423,675   

Four Seasons Holdings, Inc., 2nd Lien Term Loan, 6.25%, 12/28/20

       895        897,237   

Hilton Worldwide Finance LLC, Term Loan B2, 3.50%, 10/26/20

       5,700        5,662,040   

Intrawest ULC, Term Loan, 5.50%, 11/26/20

       1,010        1,014,975   

La Quinta Intermediate Holdings LLC, Term Loan B, 4.00%, 4/14/21

       7,739        7,725,600   

Las Vegas Sands LLC, Term Loan B, 3.25%, 12/19/20

       3,408        3,397,924   

MGM Resorts International, Term Loan B, 3.50%, 12/20/19

       2,181        2,165,546   

Pinnacle Entertainment, Inc., Term Loan B2, 3.75%, 8/13/20

       1,132        1,126,359   

Playa Resorts Holding BV, Term Loan B, 4.00%, 8/06/19

       1,107        1,101,104   

Sabre, Inc.:

      

Incremental Term Loan, 4.00%, 2/19/19

       640        638,760   

Term Loan B, 4.00%, 2/19/19

       877        872,267   

Station Casinos LLC, Term Loan B, 4.25%, 3/02/20

       4,935        4,914,563   

Travelport Finance (Luxembourg) Sarl, 2014 Term Loan B, 6.00%, 9/02/21

       2,405        2,415,029   

Travelport LLC/Travelport Holdings, Inc.:

      

2nd Lien Term Loan 1, 9.50%, 1/29/16

       1,040        1,059,422   

Refinancing Term Loan, 6.25%, 6/26/19

       1,356        1,376,690   
      

 

 

 
                       56,496,371   

Household Products — 0.5%

  

Bass Pro Group LLC, Term Loan, 3.75%, 11/20/19

       2,002        1,992,246   

Spectrum Brands, Inc., Term Loan C, 3.50%, 9/04/19

       2,138        2,125,249   
      

 

 

 
                       4,117,495   

Independent Power and Renewable Electricity Producers — 0.6%

  

Calpine Construction Finance Co., L.P., Term Loan B1, 3.00%, 5/03/20

       813        795,840   

Calpine Corp., Term Loan B1, 4.00%, 4/01/18

       1,141        1,140,127   

Energy Future Intermediate Holding Co LLC, DIP Term Loan, 4.25%, 6/19/16

       1,220        1,221,220   

La Frontera Generation LLC, Term Loan, 4.50%, 9/30/20

       1,999        2,002,466   
      

 

 

 
                       5,159,653   

Industrial Conglomerates — 0.5%

  

Sequa Corp., Term Loan B, 5.25%, 6/19/17

             4,037        3,948,576   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    19


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Insurance — 1.1%

  

Asurion LLC:

      

2nd Lien Term Loan, 8.50%, 3/03/21

     USD        970      $ 1,000,070   

Term Loan B1, 5.00%, 5/24/19

       1,612        1,616,483   

CNO Financial Group, Inc.:

  

Term Loan B1, 3.00%, 9/28/16

       735        731,518   

Term Loan B2, 3.75%, 9/20/18

       1,415        1,402,763   

Cooper Gay Swett & Crawford Ltd.:

      

1st Lien Term Loan, 5.00%, 4/16/20

       1,158        1,077,219   

2nd Lien Term Loan C, 8.25%, 10/16/20

       360        324,000   

Sedgwick, Inc.:

      

1st Lien Term Loan, 3.75%, 3/01/21

       1,666        1,637,373   

2nd Lien Term Loan, 6.75%, 2/28/22

       1,650        1,641,750   
      

 

 

 
                       9,431,176   

Internet Software & Services — 1.0%

  

Dealertrack Technologies, Inc., Term Loan B, 3.50%, 2/28/21

       1,574        1,558,395   

Go Daddy Operating Co. LLC, Term Loan B, 4.75%, 5/13/21

       2,450        2,442,037   

Interactive Data Corp., 2014 Term Loan, 4.75%, 5/02/21

       2,850        2,857,125   

W3 Co.:

      

1st Lien Term Loan, 5.75%, 3/13/20

       1,116        1,107,506   

2nd Lien Term Loan, 9.25%, 9/11/20

       289        283,489   
      

 

 

 
                       8,248,552   

IT Services — 2.8%

  

Ceridian LLC:

      

Term Loan B1, 4.16%, 5/09/17

       1,947        1,944,170   

Term Loan B2, 4.50%, 9/14/20

       1,746        1,743,777   

First Data Corp.:

      

2018 Extended Term Loan, 3.66%, 3/23/18

       12,472        12,331,356   

2018 Term Loan, 3.66%, 9/24/18

       1,935        1,917,469   

InfoGroup, Inc., Term Loan, 7.50%, 5/25/18

       942        884,337   

SunGard Availability Services Capital, Inc., Term Loan B, 6.00%, 3/31/19

       1,297        1,284,184   

SunGard Data Systems, Inc.:

      

Term Loan C, 3.91%, 2/28/17

       1,080        1,078,650   

Term Loan E, 4.00%, 3/08/20

       414        413,192   

Vantiv LLC, 2014 Term Loan B, 3.75%, 5/12/21

       1,460        1,458,905   
      

 

 

 
                       23,056,040   

Leisure Products — 0.3%

  

Bauer Performance Sports Ltd., Term Loan B, 4.00%, 4/15/21

       1,652        1,645,067   

FGI Operating Co. LLC, Term Loan, 5.50%, 4/19/19

       813        815,917   
      

 

 

 
                       2,460,984   

Machinery — 2.0%

  

Alliance Laundry Systems LLC:

      

2nd Lien Term Loan, 9.50%, 12/10/19

       442        444,580   

Refinancing Term Loan, 4.25%, 12/10/18

       1,564        1,564,357   

Faenza Acquisition GmbH:

      

Term Loan B1, 4.25%, 8/31/20

       741        739,493   

Term Loan B3, 4.25%, 8/28/20

       223        222,613   

Gardner Denver, Inc., Term Loan:

      

4.25%, 7/30/20

       2,060        2,056,695   

4.75%, 7/30/20

     EUR        224        294,810   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Machinery (concluded)

  

Intelligrated, Inc., 1st Lien Term Loan, 4.50%, 7/30/18

     USD        1,179      $ 1,167,967   

Mirror Bidco Corp., Term Loan, 4.25%, 12/28/19

       1,537        1,526,121   

Navistar International Corp., Term Loan B, 5.75%, 8/17/17

       1,785        1,799,808   

Rexnord LLC, 1st Lien Term Loan B, 4.00%, 8/21/20

       1,922        1,908,442   

Silver II US Holdings LLC, Term Loan, 4.00%, 12/13/19

       2,407        2,395,809   

Wabash National Corp., Term Loan B, 4.50%, 5/08/19

       2,114        2,115,353   
      

 

 

 
                       16,236,048   

Media — 6.7%

  

Activision Blizzard, Inc., Term Loan B, 3.25%, 10/12/20

       1,606        1,605,418   

Advanstar Communications, Inc., 2nd Lien Term Loan, 9.50%, 6/06/20

       470        468,825   

Cengage Learning Acquisitions, Inc., 1st Lien Term Loan:

      

0.00%, 7/03/15 (a)(f)

       2,596          

7.00%, 3/31/20

       5,511        5,544,475   

Charter Communications Operating LLC:

      

Term Loan E, 3.00%, 7/01/20

       1,161        1,141,321   

Term Loan G, 4.25%, 7/24/21

       2,950        2,966,609   

Clear Channel Communications, Inc.:

      

Term Loan B, 3.81%, 1/29/16

       1,772        1,435,709   

Term Loan D, 6.91%, 1/30/19

       4,467        4,398,273   

CSC Holdings LLC, Term Loan B, 2.66%, 4/17/20

       1,505        1,479,923   

Cumulus Media Holdings, Inc., 2013 Term Loan, 4.25%, 12/23/20

       2,374        2,366,263   

Getty Images, Inc., Term Loan B, 4.75%, 10/18/19

       306        288,820   

Hemisphere Media Holdings LLC, Term Loan B, 5.00%, 7/30/20

       1,366        1,366,200   

IMG Worldwide Holdings LLC:

      

1st Lien Term Loan, 5.25%, 5/06/21

       1,640        1,622,583   

2nd Lien Term Loan, 8.25%, 5/01/22

       1,310        1,283,800   

Intelsat Jackson Holdings SA, Term Loan B2, 3.75%, 6/30/19

       6,021        5,987,926   

Lions Gate Entertainment Corp., 2nd Lien Term Loan, 5.00%, 7/17/20

       610        612,544   

Live Nation Entertainment, Inc., 2020 Term Loan B1, 3.50%, 8/17/20

       620        616,901   

Media General, Inc., Delayed Draw Term Loan B, 4.25%, 7/31/20

       1,076        1,078,803   

Mediacom Communications Corp., Term Loan F, 2.63%, 3/31/18

       793        779,135   

NEP/NCP Holdco, Inc., Incremental Term Loan, 4.25%, 1/22/20

       2,785        2,761,524   

Numericable U.S. LLC:

      

Term Loan B1, 4.50%, 5/21/20

       1,689        1,694,171   

Term Loan B2, 4.50%, 5/21/20

       1,461        1,465,688   

Salem Communications Corp., Term Loan B, 4.50%, 3/13/20

       1,089        1,080,402   

SBA Senior Finance II LLC, Term Loan B1, 3.25%, 3/24/21

       1,975        1,954,638   

Tribune Co., 2013 Term Loan, 4.00%, 12/27/20

       2,593        2,587,872   

 

See Notes to Consolidated Financial Statements.

 

                
20    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Media (concluded)

  

Univision Communications, Inc., Term Loan C4, 4.00%, 3/01/20

     USD        2,955      $ 2,934,840   

UPC Financing Partnership, Term Loan AG, 3.85%, 3/31/21

     EUR        396        521,547   

Virgin Media Investment Holdings Ltd., Term Loan B, 3.50%, 6/07/20

     USD        1,020        1,005,781   

WideOpenWest Finance LLC, Term Loan B, 4.75%, 4/01/19

       980        982,054   

Ziggo BV:

      

Term Loan B1A, 3.25%, 1/15/22

       1,561        1,530,317   

Term Loan B2A, 3.25%, 1/15/22

       982        962,348   

Term Loan B3, 0.50%, 1/15/22

       837        820,817   
      

 

 

 
                       55,345,527   

Metals & Mining — 1.0%

      

Ameriforge Group, Inc., 2nd Lien Term Loan, 8.75%, 12/19/20

       530        538,612   

FMG Resources (August 2006) Property Ltd., Term Loan B, 3.75%, 6/30/19

       1,716        1,708,729   

Novelis, Inc., Term Loan, 3.75%, 3/10/17

       4,103        4,089,179   

Windsor Financing LLC, Term Loan B, 6.25%, 12/05/17

       1,631        1,655,337   
      

 

 

 
                       7,991,857   

Multiline Retail — 0.8%

      

BJ’s Wholesale Club, Inc.:

      

1st Lien Term Loan, 4.50%, 9/26/19

       1,476        1,467,770   

2nd Lien Term Loan, 8.50%, 3/26/20

       785        792,457   

Hudson’s Bay Co., 1st Lien Term Loan, 4.75%, 11/04/20

       1,179        1,187,406   

The Neiman Marcus Group, Inc., 2020 Term Loan, 4.25%, 10/25/20

       2,895        2,871,283   
      

 

 

 
                       6,318,916   

Oil, Gas & Consumable Fuels — 2.1%

      

Arch Coal, Inc., Term Loan B, 6.25%, 5/16/18

       2,675        2,600,220   

Drillships Ocean Ventures Inc., Term Loan B, 5.50%, 7/18/21

       1,670        1,674,876   

EP Energy LLC/Everest Acquisition Finance, Inc., Term Loan B3, 3.50%, 5/24/18

       1,223        1,212,115   

Fieldwood Energy LLC:

      

1st Lien Term Loan, 3.88%, 9/28/18

       864        860,430   

2nd Lien Term Loan, 8.38%, 9/30/20

       840        858,203   

Obsidian Natural Gas Trust, Term Loan, 7.00%, 11/02/15

       1,215        1,217,885   

Offshore Group Investment Ltd., Term Loan B, 5.75%, 3/28/19

       324        322,179   

Panda Patriot LLC, Term Loan B1, 6.75%, 12/19/20

       2,050        2,091,000   

Panda Temple II Power LLC, Term Loan B, 7.25%, 4/03/19

       980        999,600   

Power Buyer LLC, 2nd Lien Term Loan, 8.25%, 11/06/20

       200        195,000   

Seventy Seven Operating LLC, Term Loan B, 3.75%, 6/25/21

       800        799,664   

Southcross Energy Partners LP, 1st Lien Term Loan, 5.25%, 8/04/21

       790        794,448   

Southcross Holdings Borrower LP, Term Loan B, 6.00%, 7/16/21

       635        637,381   

Western Refining, Inc., Term Loan B, 4.25%, 11/12/20

       1,821        1,816,298   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Oil, Gas & Consumable Fuels (concluded)

      

WTG Holdings III Corp.:

      

1st Lien Term Loan, 4.75%, 1/15/21

     USD        1,209      $ 1,204,392   

2nd Lien Term Loan, 8.50%, 1/15/22

       200        199,666   
      

 

 

 
                       17,483,357   

Pharmaceuticals — 2.5%

      

Akorn, Inc.:

      

Incremental Term Loan, 4.50%, 4/16/21

       555        555,694   

Term Loan B, 4.50%, 4/16/21

       1,140        1,141,425   

Endo Luxembourg Finance Co. I Sarl, 2014 Term Loan B, 3.25%, 2/28/21

       648        643,921   

Grifols Worldwide Operations USA, Inc., Term Loan B, 3.16%, 2/27/21

       3,771        3,741,818   

Mallinckrodt International Finance SA, Term Loan:

      

3.50%, 7/17/21

       850        847,272   

B, 3.50%, 3/19/21

       1,666        1,657,912   

Par Pharmaceutical Cos, Inc., Term Loan B2, 4.00%, 9/30/19

       3,252        3,223,650   

Pharmaceutical Product Development LLC, Term Loan B, 4.00%, 12/05/18

       3,441        3,438,233   

Quintiles Transnational Corp., Term Loan B3, 3.75%, 6/08/18

       1,440        1,427,069   

Valeant Pharmaceuticals International, Inc., Term Loan B:

      

Series C2, 3.75%, 12/11/19

       1,036        1,033,295   

Series D2, 3.75%, 2/13/19

       1,521        1,516,690   

Series E, 3.75%, 8/05/20

       1,492        1,486,814   
      

 

 

 
                       20,713,793   

Professional Services — 1.4%

      

Advantage Sales & Marketing, Inc.:

      

1st Lien Term Loan, 4.25%, 7/23/21

       1,631        1,613,686   

2nd Lien Term Loan, 7.50%, 7/25/22

       1,870        1,870,393   

Delayed Draw Term Loan, 4.25%, 7/23/21

       54        53,790   

Emdeon Business Services LLC, Term Loan B2, 3.75%, 11/02/18

       3,506        3,484,448   

Intertrust Group Holding BV, 2nd Lien Term Loan, 8.00%, 4/16/22

       1,675        1,669,774   

SIRVA Worldwide, Inc., Term Loan, 7.50%, 3/27/19

       1,155        1,178,482   

Truven Health Analytics, Inc., Term Loan B, 4.50%, 6/06/19

       1,720        1,711,464   
      

 

 

 
                       11,582,037   

Real Estate Management & Development — 0.8%

  

CityCenter Holdings LLC, Term Loan B, 4.25%, 10/16/20

       1,441        1,439,023   

Realogy Corp.:

      

Extended Letter of Credit, 4.40%, 10/10/16

       637        633,364   

Term Loan B, 3.75%, 3/05/20

       4,377        4,355,015   
      

 

 

 
                       6,427,402   

Road & Rail — 0.3%

      

Road Infrastructure Investment LLC:

      

1st Lien Term Loan, 4.25%, 3/31/21

       1,242        1,228,438   

2nd Lien Term Loan, 7.75%, 9/21/21

       1,175        1,160,312   
      

 

 

 
                       2,388,750   

Semiconductors & Semiconductor Equipment — 1.0%

  

Avago Technologies Cayman Ltd., Term Loan B, 3.75%, 5/06/21

       5,275        5,266,613   

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    21


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Semiconductors & Semiconductor Equipment (concluded)

  

Freescale Semiconductor, Inc.:

      

Term Loan B4, 4.25%, 2/28/20

     USD        2,740      $ 2,729,647   

Term Loan B5, 5.00%, 1/15/21

       407        408,198   
      

 

 

 
                       8,404,458   

Software — 2.5%

      

BMC Software Finance, Inc., Term Loan, 5.00%, 9/10/20

       2,268        2,260,438   

Evertec Group LLC, Term Loan B, 3.50%, 4/17/20

       673        661,419   

GCA Services Group, Inc.:

      

2nd Lien Term Loan, 9.25%, 10/22/20

       624        625,042   

Term Loan B, 4.25% - 5.50%, 11/01/19

       1,185        1,178,402   

Infor US, Inc., Term Loan B5, 3.75%, 6/03/20

       4,595        4,554,440   

IQOR US, Inc., Term Loan B, 6.00%, 4/01/21

       1,268        1,185,966   

Kronos Worldwide, Inc., 2014 Term Loan, 4.75%, 2/18/20

       434        434,455   

Kronos, Inc., 2nd Lien Term Loan, 9.75%, 4/30/20

       1,952        2,000,662   

Mitchell International, Inc.:

      

1st Lien Term Loan, 4.50%, 10/12/20

       1,857        1,853,123   

2nd Lien Term Loan, 8.50%, 10/11/21

       1,250        1,258,600   

Regit Eins GmbH, 1st Lien Term Loan, 6.00%, 6/30/21

       1,680        1,642,200   

RP Crown Parent LLC, 2013 Term Loan, 6.00%, 12/21/18

       803        790,093   

Sophia LP, 2014 Term Loan B, 4.00%, 7/19/18

       1,709        1,700,011   

Websense, Inc., 2nd Lien Term Loan, 8.25%, 12/24/20

       265        263,344   
      

 

 

 
                       20,408,195   

Specialty Retail — 2.2%

  

Academy Ltd., Term Loan, 4.50%, 8/03/18

       2,331        2,323,613   

The Gymboree Corp., Initial Term Loan, 5.00%, 2/23/18

       195        154,561   

Jo-Ann Stores, Inc., Term Loan, 4.00%, 3/16/18

       1,137        1,109,487   

Leslie’s Poolmart, Inc., Term Loan, 4.25%, 10/16/19

       1,928        1,914,422   

Michaels Stores, Inc.:

      

Incremental 2014 Term Loan B2, 4.00%, 1/28/20

       2,105        2,091,844   

Term Loan B, 3.75%, 1/28/20

       1,627        1,607,758   

Party City Holdings, Inc., Term Loan, 4.00%, 7/27/19

       2,798        2,771,368   

Petco Animal Supplies, Inc., Term Loan, 4.00%, 11/24/17

       2,813        2,803,836   

Things Remembered, Inc., Term Loan B, 8.00%, 5/24/18

       2,192        2,181,385   

Toys ‘R’ Us-Delaware, Inc.:

      

Incremental Term Loan B2, 5.25%, 5/25/18

       799        671,461   

Term Loan B3, 5.25%, 5/25/18

       139        117,099   
      

 

 

 
                       17,746,834   

Textiles, Apparel & Luxury Goods — 1.2%

  

Ascend Performance Materials LLC, Term Loan B, 6.75%, 4/10/18

       2,875        2,831,575   

J. Crew Group, Inc., Term Loan B, 4.00%, 3/05/21

       1,771        1,734,779   

Kate Spade & Co., Term Loan B, 4.00%, 4/09/21

       2,175        2,144,420   
Floating Rate Loan Interests (c)   

Par  

(000)

    Value  

Textiles, Apparel & Luxury Goods (concluded)

  

Nine West Holdings, Inc.:

      

Guarantee Term Loan, 6.25%, 1/08/20

     USD        1,165      $ 1,159,175   

Term Loan B, 4.75%, 10/08/19

       815        816,019   

Polymer Group, Inc., 1st Lien Term Loan, 5.25%, 12/19/19

       1,539        1,547,116   
      

 

 

 
                       10,233,084   

Thrifts & Mortgage Finance — 0.2%

  

IG Investment Holdings LLC, 1st Lien Term Loan, 5.25%, 10/31/19

             1,525        1,525,550   

Wireless Telecommunication Services — 0.2%

  

LTS Buyer LLC, 1st Lien Term Loan, 4.00%, 4/13/20

             1,693        1,683,030   
Total Floating Rate Loan Interests — 74.5%        614,855,988   
      
   
Non-Agency Mortgage-Backed Securities  

Collateralized Mortgage Obligations — 0.2%

  

Hilton USA Trust, Series 2013-HLT, Class EFX, 5.61%, 11/05/30 (b)(c)

             1,668        1,706,546   
      
   
Other Interests (k)           Beneficial
Interest
(000)
        

Auto Components — 0.0%

  

Intermet Liquidating Trust, Class A (a)

             1,154        12   

Diversified Financial Services — 0.1%

  

J.G. Wentworth LLC Preferred Equity (Acquired 11/18/13, cost $1,604,600) (a)(l)

             23        313,777   

Household Durables — 0.4%

  

Stanley Martin, Class B Membership Units

             2        3,345,750   

Media — 0.0%

  

Adelphia Escrow (a)

       7,500        75   

Adelphia Preferred Escrow (a)

       8          

Adelphia Recovery Trust (a)

       9,406        4,703   

Adelphia Recovery Trust, Series ACC-6B INT (a)

       750        22,500   
      

 

 

 
                       27,278   
Total Other Interests — 0.5%        3,686,817   
      
   
Preferred Securities           Shares         

Preferred Stock — 0.0%

                        

Capital Markets — 0.0%

  

The Goldman Sachs Group, Inc., Series J, 5.50% (c)(m)

             13,550        331,704   
      

Trust Preferreds

                        

Diversified Financial Services — 0.2%

  

GMAC Capital Trust I, Series 2, 8.13%, 2/15/40 (c)

             69,669        1,866,020   
Total Preferred Securities — 0.2%        2,197,724   

 

See Notes to Consolidated Financial Statements.

 

                
22    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

  

(Percentages shown are based on Net Assets)

 

Warrants (n)         Shares     Value  

Chemicals — 0.1%

  

GEO Specialty Chemicals, Inc., (Expires 3/31/15)

         557,488      $ 535,189   

Media — 0.2%

  

Charter Communications, Inc., (Issued/Exercisable 11/30/09, 1 Warrant, Expires 11/30/14, Strike Price $51.28)

         19,523        2,045,620   

Software — 0.0%

  

HMH Holdings/EduMedia (Issued/Exercisable 3/09/10, 19 Shares for 1 Warrant, Expires 6/22/19, Strike Price $42.27)

         3,049        14,182   
Total Warrants — 0.3%        2,594,991   
Total Long-Term Investments
(Cost — $1,151,988,199) — 139.5%
        1,152,829,046   

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.03% (o)(p)

         2,687,543      $ 2,687,543   
Total Short-Term Securities
(Cost — $2,687,543) — 0.3%
        2,687,543   
      
   
Options Purchased
(Cost — $5,867) — 0.0%
                   
Total Investments (Cost — $1,154,681,609) — 139.8%        1,155,516,589   
Liabilities in Excess of Other Assets — (39.8)%        (329,115,072
      

 

 

 
Net Assets — 100.0%        $ 826,401,517   
      

 

 

 

 

Notes to Consolidated Schedule of Investments

 

(a)   Non-income producing security.

 

(b)   Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.

 

(c)   Variable rate security. Rate shown is as of report date.

 

(d)   When-issued security. Unsettled when-issued transactions were as follows:

 

Counterparty      Value        Unrealized
Appreciation
(Depreciation)

Deutsche Bank Securities, Inc.

     $ 1,176,512        

 

(e)   Represents a payment-in-kind security which may pay interest/dividends in additional par/shares and/or in cash. Rates shown are the current rate and possible payment rates.

 

(f)   Issuer filed for bankruptcy and/or is in default of principal and/or interest payments.

 

(g)   Convertible security.

 

(h)   Zero-coupon bond.

 

(i)   Represents a step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate shown is as of report date.

 

(j)   All or a portion of security has been pledged in connection with forward foreign currency exchange contracts.

 

(k)   Other interests represent beneficial interests in liquidation trusts and other reorganization or private entities.

 

(l)   Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $313,777 and an original cost of $1,604,600 which was less than 0.05% of its net assets.

 

(m)   Security is perpetual in nature and has no stated maturity date.

 

(n)   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, if any.

 

(o)   Investments in issuers considered to be an affiliate of the Fund during the period ended August 31, 2014, for purposes of Section 2(a)(3) of the 1940 Act, as amended, were as follows:

 

Affiliate      Shares Held
at February 28,
2014
       Net
Activity
       Shares Held
at August 31,
2014
       Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

       4,698,789           (2,011,246        2,687,543         $ 298   

 

(p)   Represents the current yield as of report date.

 

Ÿ  

Financial futures contracts outstanding as of August 31, 2014 were as follows:

 

Contracts
Sold
    Issue   Exchange   Expiration   Notional
Value
    Unrealized
Depreciation
 
  (46   10-Year U.S. Treasury Note   Chicago Board of Trade   December 2014     USD    5,785,938      $ (7,585

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    23


Table of Contents

Consolidated Schedule of Investments (continued)

     

 

 

Ÿ  

Forward foreign currency exchange contracts outstanding as of August 31, 2014 were as follows:

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
EUR        175,000         USD        234,276      Citibank N.A.     10/21/14         $ (4,267
EUR        214,000         USD        286,118      Goldman Sachs Bank USA     10/21/14           (4,850
GBP        117,000         USD        196,927      Deutsche Bank AG     10/21/14           (2,765
USD        1,512,281         CAD        1,629,000      UBS AG     10/21/14           15,768   
USD        270,668         EUR        200,100      Bank of America N.A.     10/21/14           7,669   
USD        287,518         EUR        214,000      Barclays Bank PLC     10/21/14           6,250   
USD        26,542,565         EUR        19,618,000      Citibank N.A.     10/21/14           757,877   
USD        71,709         EUR        54,000      Royal Bank of Scotland PLC     10/21/14           735   
USD        10,904,860         GBP        6,382,000      Bank of America N.A.     10/21/14           313,898   
Total                         $ 1,090,315   
                       

 

 

 

 

Ÿ  

OTC options purchased as of August 31, 2014 were as follows:

 

Description    Counterparty      Put/
Call
       Strike
Price
       Expiration
Date
       Contracts        Market
Value
 

Marsico Parent Superholdco LLC

   Goldman Sachs & Co.        Call           USD    942.86           12/14/19           6             

 

Ÿ  

OTC credit default swaps — sold protection outstanding as of August 31, 2014 were as follows:

 

Issuer   Receive
Fixed Rate
    Counterparty   Expiration
Date
  Credit
Rating1
    Notional
Amount
(000)2
    Market
Value
    Premiums
Paid
(Received)
    Unrealized
Appreciation
 

MetLife, Inc.

    5.00   Deutsche Bank AG   6/20/15     A-        USD    150      $ 5,934      $ 1,721      $ 4,213   

MetLife, Inc.

    1.00   UBS AG   9/20/15     A-        USD    175        1,615        (2,674     4,289   

Total

            $ 7,549      $ (953   $ 8,502   
           

 

 

 

1    Using S&P’s rating of the issuer.

       

2    The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement.

       

 

Ÿ  

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 rating group indexes, and/or as defined by investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

 

  Ÿ  

Level 1 — unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs)

 

  Ÿ  

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, please refer to Note 2 of the Notes to Consolidated Financial Statements.

 

See Notes to Consolidated Financial Statements.

 

                
24    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents

Consolidated Schedule of Investments (continued)

     

 

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of August 31, 2014:

 

     Level 1        Level 2        Level 3        Total  

Assets:

                
Investments:                 

Long-Term Investments:

                

Common Stocks

  $ 4,978,420         $ 3,307,945         $ 5,630,917         $ 13,917,282   

Asset-Backed Securities

              12,983,247           2,774,955           15,758,202   

Corporate Bonds

              480,362,117           17,749,379           498,111,496   

Floating Rate Loan Interests

              560,587,211           54,268,777           614,855,988   

Non-Agency Mortgage-Backed Securities

              1,706,546                     1,706,546   

Other Interests

    313,777           27,203           3,345,837           3,686,817   

Preferred Securities

    2,197,724                               2,197,724   

Warrants

              2,059,802           535,189           2,594,991   

Short-Term Securities

    2,687,543                               2,687,543   

Liabilities:

                

Unfunded Floating Rate Loan Interests

              (23,335        (377        (23,712
 

 

 

 

Total

  $ 10,177,464         $ 1,061,010,736         $ 84,304,677         $ 1,155,492,877   
 

 

 

 
                
     Level 1        Level 2        Level 3        Total  
Derivative Financial Instruments1                 

Assets:

                

Credit contracts

            $ 8,502                   $ 8,502   

Foreign currency exchange contracts

              1,102,197                     1,102,197   

Liabilities:

                

Foreign currency exchange contracts

              (11,882                  (11,882

Interest rate contracts

  $ (7,585                       (7,585
 

 

 

 

Total

  $ (7,585      $ 1,098,817                   $ 1,091,232   
 

 

 

 

1    Derivative financial instruments are swaps, financial futures contracts and forward foreign currency exchange contracts. Swaps, financial futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument.

        

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of August 31, 2014, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:    
     Level 1        Level 2        Level 3        Total  

Assets:

                

Cash

  $ 386,963                             $ 386,963   

Cash pledged for financial futures contracts

    89,000                               89,000   

Foreign currency at value

    224,273                               224,273   

Liabilities:

                

Bank borrowings payable

            $ (338,000,000                  (338,000,000
 

 

 

 

Total

  $ 700,236         $ (338,000,000                $ (337,299,764
 

 

 

 

There were no transfers between Level 1 and Level 2 during the six months ended August 31, 2014.

 

See Notes to Consolidated Financial Statements.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    25


Table of Contents

Consolidated Schedule of Investments (concluded)

     

 

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:

 

     Common
Stocks
    Asset-Backed
Securities
    Corporate
Bonds
    Floating
Rate Loan
Interests
    Other
Interests
    Warrants     Unfunded Loan
Commitments
(Liabilities)
    Total  

Assets:

               

Opening balance, as of February 28, 2014

  $ 4,390,667      $ 1,662,820      $ 14,491,919      $ 52,786,443      $ 3,658,586      $ 462,715             $ 77,453,150   

Transfers into Level 31

                         11,975,246                             11,975,246   

Transfers out of Level 32

                         (9,744,384                          (9,744,384

Accrued discounts/premiums

           1,684        151,716        60,792                             214,192   

Net realized gain (loss)

    1,071,691        27,648        (16,775,062     92,929                             (15,582,794

Net change in unrealized appreciation/depreciation3,4

    1,240,250        (35,691     18,694,412        (579,430     (58,153     72,474      $ (377     19,333,485   

Purchases

           2,055,669        1,186,394        15,742,924                             18,984,987   

Sales

    (1,071,691     (937,175            (16,065,743     (254,596                   (18,329,205
 

 

 

 

Closing balance, as of August 31, 2014

  $ 5,630,917      $ 2,774,955      $ 17,749,379      $ 54,268,777      $ 3,345,837      $ 535,189      $ (377   $ 84,304,677   
 

 

 

 

Net change in unrealized appreciation/depreciation on investments still held at August 31, 20144

  $ 2,277,780      $ (12,955   $ 1,919,353      $ 428,974      $ 58,153      $ 72,474      $ (377   $ 4,743,372   
 

 

 

 

1    As of February 28, 2014, the Fund used significant observable inputs in determining the value of certain investments. As of August 31, 2014, the Fund used unobservable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $11,975,246 transferred from Level 2 to Level 3 in the disclosure hierarchy.

         

2    As of February 28, 2014, the Fund used significant unobservable inputs in determining the value of certain investments. As of August 31, 2014, the Fund used observable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $9,744,384 transferred from Level 3 to Level 2 in the disclosure hierarchy.

         

3    Included in the related Net change in unrealized appreciation/depreciation in the Consolidated Statement of Operations.

       

4    Any difference between Net change in unrealized appreciation/depreciation and Net change in unrealized appreciation/depreciation on investments still held at August 31, 2014 is generally due to investments no longer held or categorized as Level 3 at period end.

        

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of August 31, 2014. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $56,066,126. A significant change in such third party pricing information could result in a significantly lower or higher value of such Level 3 investments.

 

     Value      Valuation Techniques   Unobservable Inputs   Range of
Unobservable
Inputs Utilized
 

Assets:

        

Common Stocks

    $467,352       Market Comparable Companies   Last 12 Months EBITDA Multiple3     6.50x   
       Illiquidity Discount4     17.50%   
    5,163,562       Market Comparable Companies   Offshore Last 12 Months EBITDA Multiple3     6.19x   
       Offshore Current Fiscal Year EBITDA Multiple3     7.25x   
       Onshore Last 12 Months EBITDA Mulitple3     5.18x   
       Onshore Current Fiscal Year EBITDA Multiple3     4.75x   
       Discontinued Operations Expected Sale Proceeds3     $1505   

Corporate Bonds1

    1,326,000       Discounted Cash Flow   Internal Rate of Return4     10.00%   
    15,219,313       Market Comparable Companies   Last 12 Months EBITDA Multiple3     6.50x   
       Illiquidity Discount4     17.50%   

Floating Rate Loan Interests

    2,181,385       Market Comparable Yield Analysis   Yield4     8.25%   

Other Interests2

    3,345,750       Market Comparable Companies   Tangible Book Value Multiple3     1.35x   

Warrants

    535,189       Market Comparable Companies   Last 12 Months EBITDA Multiple3     6.50x   
       Illiquidity Discount4     17.50%   
 

 

 

        

Total

    $28,238,551          
 

 

 

        

1    For the six months ended August 31, 2014, the valuation technique for an investment classified as corporate bonds changed to utilizing an income approach. Market information previously utilized to determine fair value under the market approach no longer applied to this investment; therefore, the income approach is considered to be more relevant measure of fair value for this investment.

         

2   For the six months ended August 31, 2014, the valuation technique for an investment classified as other interests changed to a market approach. The investment was previously valued utilizing an income approach. Market information became available for this investment which is considered to be a more relevant measure of fair value for this investment.

        

3    Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

       

4    Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

       

5    Amount is stated in millions.

       

 

See Notes to Consolidated Financial Statements.

 

                
26    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Consolidated Statement of Assets and Liabilities     

 

August 31, 2014 (Unaudited)      
 
Assets        

Investments at value — unaffiliated (cost — $1,151,994,066)

  $ 1,152,829,046   

Investments at value — affiliated (cost — $2,687,543)

    2,687,543   

Cash

    386,963   

Cash pledged for financial futures contracts

    89,000   

Interest receivable

    11,905,097   

Investments sold receivable

    9,206,039   

Unrealized appreciation on forward foreign currency exchange contracts

    1,102,197   

Foreign currency at value (cost — $224,947)

    224,273   

Unrealized appreciation on OTC derivatives

    8,502   

Variation margin receivable on financial futures contracts

    2,875   

Swaps receivable

    1,875   

Swap premiums paid

    1,721   

Dividends receivable

    18   

Deferred offering costs

    116,832   

Prepaid expenses

    143,136   

Other assets

    241,451   
 

 

 

 

Total assets

    1,178,946,568   
 

 

 

 
 
Liabilities        

Bank borrowings payable

    338,000,000   

Investments purchased payable

    12,744,961   

Investment advisory fees payable

    537,637   

Income dividends payable

    313,269   

Interest expense payable

    256,604   

Officer’s and Directors’ fees payable

    220,978   

Unrealized depreciation on unfunded floating rate loan interests

    23,712   

Unrealized depreciation on forward foreign currency exchange contracts

    11,882   

Swap premiums received

    2,674   

Offering costs payable

    146,293   

Other accrued expenses payable

    287,041   
 

 

 

 

Total liabilities

    352,545,051   
 

 

 

 

Net Assets

  $ 826,401,517   
 

 

 

 
 
Net Assets Consist of        

Paid-in capital1

  $ 1,114,730,225   

Distribution in excess of net investment income

    (3,509,823

Accumulated net realized loss

    (286,870,622

Net unrealized appreciation/depreciation

    2,051,737   
 

 

 

 

Net Assets

  $ 826,401,517   
 

 

 

 

Net asset value, offering and redemption price per share

  $ 4.42   
 

 

 

 

1    Shares outstanding, 400 million shares authorized, par value $0.10 per share

    186,913,216   

 

See Notes to Consolidated Financial Statements.      
                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    27


Table of Contents
Consolidated Statement of Operations     

 

Six Months Ended August 31, 2014 (Unaudited)      
 
Investment Income        

Interest

  $ 33,043,318   

Dividends — affiliated

    298   

Foreign taxes withheld

    (776
 

 

 

 

Total income

    33,042,840   
 

 

 

 
 
Expenses        

Investment advisory

    3,115,721   

Professional

    154,140   

Accounting services

    72,289   

Transfer agent

    54,850   

Officer and Directors

    45,314   

Custodian

    44,114   

Registration

    37,772   

Printing

    30,907   

Offering costs

    30,111   

Miscellaneous

    64,705   
 

 

 

 

Total expenses excluding interest expense and income tax

    3,649,923   

Interest expense

    1,351,233   

Income tax

    15,769   
 

 

 

 

Total expenses

    5,016,925   

Less fees waived by Manager

    (795

Less fees paid indirectly

    (160
 

 

 

 

Total expenses after fees waived

    5,015,970   
 

 

 

 

Net investment income

    28,026,870   
 

 

 

 
 
Realized and Unrealized Gain (Loss)        
Net realized gain (loss) from:  

Investments

    (7,954,021

Financial futures contracts

    (142,454

Foreign currency transactions

    (313,396

Options written

    25,783   

Swaps

    (2,393,525
 

 

 

 
    (10,777,613
 

 

 

 
Net change in unrealized appreciation/depreciation on:  

Investments

    5,084,822   

Financial futures contracts

    12,545   

Foreign currency translations

    1,659,921   

Options written

    (21,045

Swaps

    739,243   

Unfunded floating rate loan interests

    (23,591
 

 

 

 
    7,451,895   
 

 

 

 

Net realized and unrealized loss

    (3,325,718
 

 

 

 

Net Increase in Net Assets Resulting from Operations

  $ 24,701,152   
 

 

 

 

 

 

See Notes to Consolidated Financial Statements.      
                
28    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Consolidated Statements of Changes in Net Assets     

 

Increase (Decrease) in Net Assets:   Six Months Ended
August 31,
2014
(Unaudited)
    Year Ended
February 28,
2014
 
   
Operations                

Net investment income

  $ 28,026,870      $ 37,636,248   

Net realized gain (loss)

    (10,777,613     724,987   

Net change in unrealized appreciation/depreciation

    7,451,895        13,302,708   
 

 

 

 

Net increase in net assets resulting from operations

    24,701,152        51,663,943   
 

 

 

 
   
Dividends and Distributions to Shareholders From1                

Net investment income

    (28,036,984     (41,261,648

Return of capital

           (1,052,576
 

 

 

 

Decrease in net assets resulting from dividends and distributions to shareholders

    (28,036,984     (42,314,224
 

 

 

 
   
Capital Share Transactions                

Net proceeds from the issuance of shares due to reorganization

           345,166,797   

Reinvestment of dividends

           267,828   
 

 

 

 

Net increase in net assets derived from capital share transactions

           345,434,625   
 

 

 

 
   
Net Assets                

Total increase (decrease) in net assets

    (3,335,832     354,784,344   

Beginning of period

    829,737,349        474,953,005   
 

 

 

 

End of period

  $ 826,401,517      $ 829,737,349   
 

 

 

 

Distribution in excess of net investment income, end of period

  $ (3,509,823   $ (3,499,709
 

 

 

 

1    Dividends and distributions for annual periods determined in accordance with federal income tax regulations.

   

 

See Notes to Consolidated Financial Statements.      
                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    29


Table of Contents
Consolidated Statement of Cash Flows     

 

Six Months Ended August 31, 2014 (Unaudited)      
 
Cash Provided by Operating Activities        

Net increase in net assets resulting from operations

  $ 24,701,152   

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:

 

Increase in interest receivable

    (155,297

Decrease in swaps receivable

    69,158   

Decrease in cash pledged for centrally cleared swaps

    10,000   

Decrease in cash pledged as collateral for OTC derivatives

    1,260,000   

Increase in other assets

    (43,216

Increase in prepaid expenses

    (54,707

Decrease in variation margin receivable on financial futures contracts

    8,063   

Decrease in income tax refund receivable

    111,451   

Decrease in dividends receivable

    17,436   

Decrease in swap premiums paid

    20,672   

Increase in investment advisory fees payable

    59,464   

Increase in interest expense payable

    25,640   

Decrease in other accrued expenses payable

    (117,029

Decrease in swaps payable

    (1,013

Increase in Officer’s and Directors’ fees payable

    23,550   

Decrease in reorganization costs payable

    (65,000

Decrease in variation margin payable on centrally cleared swaps

    (29

Decrease in swap premiums received

    (1,330,541

Net realized loss on investments

    9,076,582   

Net unrealized gain on investments, options written, swaps, foreign currency translations and unfunded loan commitments

    (7,467,087

Amortization of premium and accretion of discount on investments

    (234,651

Proceeds from sales of long-term investments

    394,785,212   

Purchases of long-term investments

    (418,078,993

Net proceeds from sales of short-term securities

    2,011,246   

Premiums paid on closing options written

    (13,217
 

 

 

 

Cash provided by operating activities

    4,618,846   
 

 

 

 
 
Cash Used for Financing Activities        

Proceeds from bank borrowings

    198,000,000   

Payments on bank borrowings

    (175,000,000

Payments for offering costs

    (650

Amortization of deferred offering costs

    30,111   

Cash dividends paid to shareholders

    (27,948,099
 

 

 

 

Cash used for financing activities

    (4,918,638
 

 

 

 
 
Cash Impact from Foreign Exchange Fluctuations        

Cash impact from foreign exchange fluctuations

  $ (5,891
 

 

 

 
 
Cash and Foreign Currency        

Net decrease in cash and foreign currency

    (305,683

Cash and foreign currency at beginning of year

    916,919   
 

 

 

 

Cash and foreign currency at end of year

  $ 611,236   
 

 

 

 
 
Supplemental Disclosure of Cash Flow Information        

Cash paid during the period for interest

  $ 1,295,482   
 

 

 

 

 

 

See Notes to Consolidated Financial Statements.      
                
30    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Financial Highlights     

 

    Six Months Ended
August  31,
20141
(Unaudited)
    Year Ended February 28,    

Year Ended

February 29,
20121

    Year Ended February 28,  
      20141     20131       2011     2010  
           
Per Share Operating Performance                                                

Net asset value, beginning of period

  $ 4.44      $ 4.38      $ 4.13      $ 4.28      $ 3.89      $ 2.35   
 

 

 

 

Net investment income2

    0.15        0.30        0.33        0.33        0.33        0.39   

Net realized and unrealized gain (loss)

    (0.02     0.10        0.25        (0.16     0.40        1.55   
 

 

 

 

Net increase from investment operations

    0.13        0.40        0.58        0.17        0.73        1.94   
 

 

 

 
Dividends and distributions from:            

Net investment income

    (0.15 )3      (0.33 )4      (0.33 )4      (0.32 )4      (0.33 )4      (0.39 )4 

Return of capital

           (0.01                   (0.01     (0.01
 

 

 

 

Total dividends and distributions

    (0.15     (0.34     (0.33     (0.32     (0.34     (0.40
 

 

 

 

Net asset value, end of period

  $ 4.42      $ 4.44      $ 4.38      $ 4.13      $ 4.28      $ 3.89   
 

 

 

 

Market price, end of period

  $ 4.01      $ 4.08      $ 4.46      $ 4.13      $ 4.05      $ 3.91   
 

 

 

 
           
Total Return5                                                

Based on net asset value

    3.28% 6      9.91%        14.78%        4.53%        19.92%        87.82%   
 

 

 

 

Based on market price

    1.97% 6      (0.81)%        16.87%        10.47%        12.90%        114.32%   
 

 

 

 
           
Ratios to Average Net Assets                                                

Total expenses

    1.20% 7      1.38% 8      1.41%        1.44% 9      1.27%        1.23%   
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.20% 7      1.38% 8      1.41%        1.44% 9      1.27%        1.23%   
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense and income tax

    0.88% 7      1.00% 8      1.04% 10      1.06% 10      1.02%        1.02%   
 

 

 

 

Net investment income

    6.71% 7      6.80%        7.89%        7.99% 9      8.22%        12.16%   
 

 

 

 
           
Supplemental Data                                                

Net assets, end of period (000)

  $ 826,402      $ 829,737      $ 474,953      $ 445,824      $ 461,247      $  419,222   
 

 

 

 

Borrowings outstanding, end of period (000)

  $  338,000      $ 315,000      $ 190,000      $ 145,000      $  117,000      $ 67,000   
 

 

 

 

Average borrowings outstanding, during the period (000)

  $ 295,630      $  220,600      $  177,975      $  142,596      $ 89,362      $ 58,574   
 

 

 

 

Portfolio turnover rate

    34%        54%        72%        59%        81%        86%   
 

 

 

 

Asset coverage, end of period ($1000)

  $ 3,445      $ 3,634      $ 3,500      $ 4,075      $ 4,942      $ 7,257   
 

 

 

 

 

  1   

Consolidated Financial Highlights.

 

  2   

Based on average shares outstanding.

 

  3   

A portion of the dividends from net investment income may be determined a tax return of capital or net realized gain at fiscal year end.

 

  4   

Dividends and distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of dividends and distributions.

 

  6   

Aggregate total return.

 

  7   

Annualized.

 

  8   

Includes reorganization costs. Without these costs, total expenses, total expenses after fees waived and paid indirectly, and total expenses after fees waived and paid indirectly and excluding interest expense and income tax would have been 1.31%, 1.31% and 0.94%, respectively.

 

  9   

Restated to include income taxes for the consolidated entity.

 

  10  

For the years ended February 28, 2013 and February 29, 2012, the total expense ratio after fees waived and paid indirectly and excluding interest expense, borrowing costs and income tax were 0.98% and 0.95%, respectively.

 

See Notes to Consolidated Financial Statements.      
                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    31


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)     

 

1. Organization:

BlackRock Debt Strategies Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, closed-end management investment company. The Fund is organized as a Maryland corporation. The Fund determines and makes available for publication the NAV of its Common Shares on a daily basis.

Reorganizations: The Board of Directors of the Fund (the “Board”) and shareholders of the Fund and the Board and shareholders of each of BlackRock Senior High Income Fund, Inc. (“ARK”) and BlackRock Strategic Bond Trust (“BHD”) (individually, a “Target Fund” and collectively the “Target Funds”) approved the reorganizations of each Target Fund into the Fund pursuant to which the Fund acquired substantially all of the assets and substantially all of the liabilities of each Target Fund in exchange for an equal aggregate value of newly — issued shares of the Fund.

Each shareholder of a Target Fund received shares of the Fund in an amount equal to the aggregate net asset value of such shareholder’s Target Fund shares, as determined at the close of business on December 6, 2013, less the costs of the Target Fund’s reorganization. Cash was distributed for any fractional shares.

The reorganizations were accomplished by a tax-free exchange of shares of the Fund in the following amounts and at the following conversion ratios:

 

Target Funds   Shares Prior to
Reorganization
     Conversion
Ratio
    

Shares of

the Fund

 

ARK

    56,886,649         0.97437180         55,428,663   

BHD

    7,065,615         3.26403638         23,062,414   

Each Target Fund’s net assets and composition of net assets on December 6, 2013, the valuation date of the reorganization, were as follows:

 

     Target Funds  
     ARK      BHD  

Net assets

  $ 243,749,527       $ 101,417,270   

Paid-in capital

  $ 344,418,617       $ 97,940,284   

Distributions in excess of net investment income

  $ (670,506    $ (195,247

Accumulated net realized loss

  $ (100,906,593    $ (9,623

Net unrealized appreciation/depreciation

  $ 908,009       $ 3,681,856   

For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value. However, the cost basis of the investments received from the Target Funds were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.

The net assets of the Fund before the acquisition were $476,789,832. The aggregate net assets of the Fund immediately after the acquisition amounted to $821,956,629. Each Target Fund’s fair value and cost of investments prior to the reorganization were as follows:

 

Target Funds  

Fair Value of

Investments

    

Cost of

Investments

 

ARK

  $ 346,992,065       $ 346,088,163   

BHD

  $ 115,609,153       $ 111,772,185   

The purpose of these transactions was to combine three funds managed by BlackRock Advisors, LLC (the “Manager”) with the same or substantially similar (but not identical) investment objectives, investment policies, strategies, risks and restrictions. Each reorganization was a tax-free event and was effective on December 9, 2013.

Assuming the acquisition had been completed on March 1, 2013, the beginning of the fiscal reporting period of the Fund, the pro forma results of operations for the year ended February 28, 2014, are as follows:

 

Ÿ  

Net investment income: $55,661,983

 

Ÿ  

Net realized and change in unrealized gain/loss on investments: $12,922,509

 

Ÿ  

Net increase/decrease in net assets resulting from operations: $68,584,492

Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Funds that have been included in the Fund’s Consolidated Statement of Operations since December 9, 2013.

 

                
32    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

Reorganization costs incurred in connection with the reorganizations were expensed by the Fund.

Basis of Consolidation: The accompanying consolidated financial statements include the account of the DSU Subsidiary, LLC (the “Taxable Subsidiary”), which is a wholly owned taxable subsidiary of the Fund. The Taxable Subsidiary enables the Fund to hold investments in J.G. Wentworth LLC Preferred Equity Interests and Stanley Martin, Class B Membership Units, each an operating company and satisfy Regulated Investment Company (“RIC”) tax requirements. Income earned and gains realized on the investments held by the Taxable Subsidiary are taxable to such subsidiary. A tax provision for income, if any, is shown as income tax in the Consolidated Statements of Operations. A tax provision for realized and unrealized gains, if any, is included as reduction of realized and/or unrealized gain (loss) in the Consolidated Statements of Operations. The Fund may invest up to 25% of its total assets in the Taxable Subsidiary. The net assets of the Taxable Subsidiary at August 31, 2014 were $4,062,951 or 0.5% of the Funds consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Taxable Subsidiary is subject to the same investment policies and restrictions that apply to the Fund.

2. Significant Accounting Policies:

The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by Fund:

Valuation: U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair value of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.

Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Certain centrally cleared swaps are valued at the price determined by the relevant exchange or clearinghouse. Investments in open-end registered investment companies are valued at NAV each business day.

Equity investments traded on a recognized securities exchange or the NASDAQ Stock Market (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid (long positions) or ask (short positions) price.

Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and swaptions are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    33


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee or its delegate deems relevant consistent with the principles of fair value measurement which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach, generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Assets and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and OTC options (the “Systematic Fair Value Price”).

Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective date of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.

The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Consolidated Statement of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components may be treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts, options written or swaps), or certain borrowings (e.g., bank borrowings payable) that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments or borrowings. Doing so allows the investment or borrowing to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.

 

                
34    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

Dividends and Distributions: Dividends and distributions paid by the Fund are recorded on the ex-dividend date. Subject to the Fund’s level distribution plan, the Fund intends to make monthly cash dividends and/or distributions to shareholders, which may consist of net investment income, net realized and unrealized gains on investments and/or return of capital.

Portions of return of capital distributions under U.S. GAAP may be taxed at ordinary income rates.

The character of dividends and distributions is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. The portion of distributions that exceeds a Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a non-taxable return of capital. Realized net capital gains can be offset by capital losses carried forward from prior years. However, the Fund has capital loss carry-forwards from pre-2012 tax years that offset realized net capital gains but do not offset current and accumulated earnings and profits. Consequently, if distributions in any tax year are less than the Fund’s current earnings and profits but greater than net investment income and net realized capital gains (taxable income), distributions in excess of taxable income are not treated as non-taxable return of capital, but rather may be taxable to shareholders at ordinary income rates. Under certain circumstances, taxable excess distributions could be significant.

Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by the Fund’s Board, the independent Directors (“Independent Directors”) may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain other BlackRock Closed-End Funds selected by the Independent Directors.

This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.

The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Fund. Deferred compensation liabilities are included in officer’s and directors’ fees payable in the Statement of Assets and Liabilities and will remain as a liability of the Fund until such amounts are distributed in accordance with the Plan.

Recent Accounting Standard: In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance will require expanded disclosure for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. It is effective for financial statements with fiscal years beginning on or after December 15, 2014 and interim periods within those fiscal years. Management is evaluating the impact, if any, of this guidance on the Fund’s financial statement disclosures.

Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

The Fund has an arrangement with the custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Consolidated Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Securities and Other Investments:

Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.

The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    35


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the Treasury.

Collateralized Debt Obligations: The Fund may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”). CBOs and CLOs are types of asset-backed securities. A CDO is an entity that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the CDO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche. This tranche bears the greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances. Since it is shielded from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive investment grade ratings from one or more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.

Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments.

Capital Trusts and Trust Preferred Securities: The Fund may invest in capital trusts and/or trust preferred securities. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation will pay interest to the trust, which will then be distributed to holders of the trust preferred securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.

Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Floating Rate Loan Interests: The Fund may invest in floating rate loan interests. The floating rate loan interests held by the Fund are typically issued to companies (the “borrower”) by banks, other financial institutions, and privately and publicly offered corporations (the “lender”). Floating rate loan interests are generally non-investment grade, often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Floating rate loan interests may include fully funded term loans or revolving lines of credit. Floating rate loan interests are typically senior in the corporate capital structure of the borrower. Floating rate loan interests generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally the lending rate offered by one or more European banks, such as the London Interbank Offered Rate (“LIBOR”), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. Floating rate loan interests may involve foreign borrowers, and investments may be denominated in foreign currencies. The Fund considers these investments to be investments in debt securities for purposes of its investment policies.

When the Fund purchases a floating rate loan interest it may receive a facility fee and when it sells a floating rate loan interest it may pay a facility fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit amount of a floating rate loan interest. Facility and commitment fees are typically amortized to income over the term of the loan or term of the commitment, respectively. Consent and amendment fees are recorded to income as earned. Prepayment penalty fees, which may be received by the Fund upon the prepayment of a floating rate loan interest by a borrower, are recorded as realized gains. The Fund may invest in multiple series or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.

 

                
36    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

Floating rate loan interests are usually freely callable at the borrower’s option. The Fund may invest in such loans in the form of participations in loans (“Participations”) or assignments (“Assignments”) of all or a portion of loans from third parties. Participations typically will result in the Fund having a contractual relationship only with the lender, not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of offset against the borrower, and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the borrower and the lender that is selling the Participation. The Fund’s investment in loan participation interests involves the risk of insolvency of the financial intermediaries who are parties to the transactions. In the event of the insolvency of the lender selling the Participation, the Fund may be treated as a general creditor of the lender and may not benefit from any offset between the lender and the borrower. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement.

In connection with floating rate loan interests, the Fund may also enter into unfunded floating rate loan interests (“commitments”). In connection with these commitments, the Fund earns a commitment fee, typically set as a percentage of the commitment amount. Such fee income, which is included in interest income in the Statement of Operations, is recognized ratably over the commitment period. Unfunded floating rate loan interests are marked-to-market daily, and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and Statement of Operations. As of August 31, 2014, the Fund had the following unfunded floating rate loan interests:

 

Borrower   Unfunded
Floating Rate
Loan Interest
     Value of
Underlying
Floating Rate
Loan  Interest
     Unrealized
Depreciation
 

Allied Security Holdings LLC, 1st Lien Delayed Draw Term Loan

  $ 958,174       $ 950,393       $ (9,368

Allied Security Holdings LLC, 2nd Lien Delayed Draw Term Loan

  $ 226,003       $ 224,026       $ (2,391

Polymer Group, Inc., Delayed Draw Term Loan

  $ 150,994       $ 150,617       $ (377

Ziggo BV, Term Loan B2A

  $ 41,291       $ 40,479       $ (541

Ziggo BV, Term Loan B3

  $ 845,092       $ 828,477       $ (11,035

Forward Commitments and When-Issued Delayed Delivery Securities: The Fund may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Fund may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, the Fund may be required to pay more at settlement than the security is worth. In addition, the Funds are not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, the Funds’ maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions, which is shown in the Schedules of Investments.

4. Derivative Financial Instruments:

The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to economically hedge their exposure to certain risks such as credit risk, equity risk, interest rate risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

Financial Futures Contracts: The Fund purchases and/or sells financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.

Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Consolidated Schedule of Investments and cash deposited, if any, is recorded on the Consolidated Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation or depreciation and, if applicable, as a receivable or payable for variation margin in the Consolidated Statement of Assets and Liabilities.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    37


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest and the underlying assets.

Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. 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. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.

Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments including equity risk and/or interest rate risk, in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument 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 instrument acquired or deducted from (or added to) the proceeds of the instrument 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 premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.

Options on swaps (“swaptions”) are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swaptions is granting or buying the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.

The Fund also purchase or sell listed or OTC foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates or to gain exposure to foreign currencies (foreign currency exchange rate risk). When foreign currency is purchased or sold through an exercise of a foreign currency option, the related premium paid (or received) is added to (or deducted from) the basis of the foreign currency acquired or deducted from (or added to) the proceeds of the foreign currency sold (receipts from the foreign currency purchased). Such transactions may be effected with respect to hedges on non-U.S. dollar denominated instruments owned by the Funds but not yet delivered, or committed or anticipated to be purchased by the Funds.

In purchasing and writing options, the Funds bear the risk of an unfavorable change in the value of the underlying instrument or the risk that the Funds may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Funds purchasing or selling a security when it otherwise would not, or at a price different from the current market value.

Transactions in options written for the six months ended August 31, 2014, were as follow:

 

     Puts  
     Notional
(000)1
     Premium
Received
 

Outstanding options, beginning of period

  $ 2,000       $ 39,000   

Options written

              

Options exercised

              

Options expired

              

Options closed

  $ (2,000    $ (39,000
 

 

 

 

Outstanding options, end of period

              
 

 

 

 

 

  1   

Amount shown is in the currency in which the transaction was denominated.

 

                
38    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

Swaps: The Fund enters into swap agreements in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).

For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.

In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Consolidated Schedule of Investments and cash deposited is recorded on the Consolidated Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Consolidated Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Consolidated Statement of Operations.

Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

 

Ÿ  

Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce their risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occur. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.

 

Ÿ  

Interest rate swaps — The Fund enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds, which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. [Interest rate floors, which are a type of interest rate swap, are agreements in which one party agrees to make payments to the other party to the extent that interest rates fall below a specified rate or floor in return for a premium. In more complex swaps, the notional principal amount may decline (or amortize) over time.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    39


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:

 

Fair Values of Derivative Financial Instruments Six Months Ended August 31, 2014  
         Value  
     Consolidated Statements of Assets and Liabilities Location    Derivative Assets      Derivative Liabilities  

Interest rate contracts

  Net unrealized appreciation/depreciation1            $ (7,585

Forward foreign currency exchange contracts

  Unrealized appreciation on forward foreign currency exchange contracts    $ 1,102,197         (11,882

Credit contracts

  Unrealized appreciation on OTC swaps; Swap premiums paid/received      10,223         (2,674
 

 

  

 

 

    

 

 

 

Total

     $ 1,112,420       $ (22,141
 

 

  

 

 

    

 

 

 

 

  1  

Includes cumulative appreciation/depreciation on financial futures contracts and centerally cleared swaps, if any, as reported in the Consolidated Schedule of Investments. Only current day’s variation margin is reported within the Consolidated Statement of Assets and Liabilities.

 

The Effect of Derivative Financial Instruments in the Consolidated Statement of Operations
Six Months Ended August 31, 2014
 
    

Net Realized Gain (Loss) From

   Net Change in Unrealized
Appreciation/Depreciation on
 
Interest rate contracts:         

Financial futures contracts

    $ (142,454      $ 12,545   

Swaps

      (18,729        2,423   

Options2

      (71,342        63,545   
Foreign currency exchange contracts:         

Foreign currency transactions/translations

      (116,414        1,688,702   
Credit contracts:         

Swaps

      (2,374,796        736,820   
   

 

 

 

Total

    $ (2,723,735      $ 2,504,035   
   

 

 

 

 

  2  

Options purchased are included in the net realized gain (loss) from investments and net change in unrealized appreciation/depreciation on investments.

For the six months ended August 31, 2014, the average quarterly balances of outstanding derivative financial instruments were as follows:

 

Financial future contracts:

       

Average number of contracts sold

    47   

Average notional value of contracts sold

  $ 5,905,344   
Forward foreign currency exchange contracts:  

Average number of contracts — USD purchased

    7   

Average number of contracts — USD sold

    4   

Average U.S. dollar amounts purchased

  $ 42,642,657   

Average U.S. dollar amounts sold

  $ 2,872,245   
Options:  

Average number of option contracts purchased

    6   

Average notional amount of option contracts purchased

  $ 565,716   

Average number of swaption contracts purchased

    1   

Average number of swaption contracts written

    1 3 

Average notional value of swaption contracts purchased

  $ 500,000   

Average notional value of swaption contracts written

  $ 2,000,000 3 
Credit default swaps:  

Average number of contracts — buy protection

    1   

Average number of contracts — sell protection

    20   

Average notional value — buy protection

  $ 250,000   

Average notional value — sell protection

    3,735,489   

 

  3   

Actual amounts for the period are shown due to limited outstanding derivative financial instruments as of each quarter.

Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by such Fund.

For OTC options purchased, the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform.

 

                
40    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

With exchange-traded purchased options and futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.

In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.

Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.

Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Consolidated Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Consolidated Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent a Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, a Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.

For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Consolidated Statements of Assets and Liabilities.

As of August 31, 2014, the Fund’s derivative assets and liabilities (by type) are as follows:

 

     Assets      Liabilities  
Derivative Financial Instruments:     

Financial futures contracts

  $ 2,875           

Forward foreign currency exchange contracts

    1,102,197       $ 11,882   

Swaps — OTC1

    10,223         2,674   
 

 

 

 

Total derivative assets and liabilities in the Statement of Assets and Liabilities

  $ 1,115,295       $ 14,556   
 

 

 

 

Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)

    (2,875        
 

 

 

 

Total derivative assets and liabilities subject to an MNA

  $ 1,112,420       $ 14,556   
 

 

 

 

 

  1   

Includes unrealized appreciation/depreciation on OTC swaps and swap premiums paid/received in the Consolidated Statement of Assets and Liabilities.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    41


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund as of August 31, 2014:

 

Counterparty   Derivative Assets
Subject to an MNA
by  Counterparty
  Derivatives
Available for
Offset1
    Non-Cash  Collateral
Received
    Cash Collateral
Received
    Net Amount of
Derivative Assets2
 

Bank of America N.A.

    $ 321,567                             $ 321,567   

Barclays Bank PLC

      6,250                               6,250   

Citibank N.A.

      757,877        $ (4,267                   753,610   

Deutsche Bank AG

      5,934          (2,765                   3,169   

Royal Bank of Scotland PLC

      735                               735   

UBS AG

      20,057          (2,674                   17,383   
   

 

 

 

Total

    $ 1,112,420        $ (9,706                 $ 1,102,714   
   

 

 

 
             
Counterparty   Derivative Liabilities
Subject to an MNA
by  Counterparty
  Derivatives
Available for
Offset1
    Non-Cash Collateral
Pledged3
    Cash Collateral
Pledged
   

Net Amount of

Derivative Liabilities4

 

Citibank N.A.

    $ 4,267        $ (4,267                     

Deutsche Bank AG

      2,765          (2,765                     

Goldman Sachs Bank USA

      4,850               $ (4,850              

UBS AG

      2,674          (2,674                     
   

 

 

 

Total

    $ 14,556        $ (9,706   $ (4,850              
   

 

 

 

 

  1   

The amount of derivatives available for offset is limited to the amount of the assets and/or liabilities that are subject to an MNA.

 

  2   

Net amount represents the net amount receivable from the counterparty in the event of default.

 

  3   

Excess of collateral pledged to the individual counterparty is not shown for financial reporting purposes

 

  4   

Net amount represents the net amount payable due to the counterparty in the event of default.

5. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Fund entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee at an annual rate of 0.55% of the Fund’s average daily net assets, plus the proceeds of any outstanding borrowings used for leverage.

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any. These amounts are shown as fees waived by Manager in the Consolidated Statements of Operations.

The Manager provides investment management and other services to the Taxable Subsidiary. The Manager does not receive separate compensation from the Taxable Subsidiary for providing investment management or administrative services. However, the Fund pays the Manager based on the Fund’s net assets, which includes the assets of the Taxable Subsidiary.

The Manager had entered into a sub-advisory agreement with BlackRock Financial Management, Inc. (“BFM”), an affiliate of the Manager. The Manager pays BFM, for services it provides, a monthly fee that is a percentage of the investment advisory fees paid by the Fund to the Manager. Effective July 1, 2014, the sub-advisory agreement with BFM expired.

Certain officers and/or Directors of the Funds are officers and/or Directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Funds’ Chief Compliance Officer, which is included in officer and Directors in the Statements of Operations.

The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common trustees. For the six months ended August 31, 2014, the purchase and sale transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $23,293 and $608,548, respectively.

 

                
42    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Notes to Consolidated Financial Statements (continued)

 

6. Purchases and Sales:

Purchases and sales of investments including, paydowns, and excluding short-term securities, for the six months ended August 31, 2014, were $390,592,472 and $386,778,754, respectively.

7. Income Tax Information:

It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required.

The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended February 28, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Fund’s facts and circumstances and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

As of February 28, 2014, the Fund had capital loss carryforward available to offset future realized capital gains through the indicated expiration dates as follows:

 

Expires February 28,       

2015

  $ 3,578,574   

2016

    17,361,478   

2017

    64,528,254   

2018

    155,847,890   

2019

    16,301,990   

No expiration date1

    11,127,893   
 

 

 

 

Total

  $ 268,746,079   
 

 

 

 

 

  1   

Must be utilized prior to losses subject to expiration.

As of August 31, 2014, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

Tax cost

  $ 1,159,274,679   
 

 

 

 

Gross unrealized appreciation

  $ 39,472,856   

Gross unrealized depreciation

    (43,230,946
 

 

 

 

Net unrealized depreciation

  $ (3,758,090
 

 

 

 

8. Borrowings:

The Fund is party to a senior committed secured, 360-day rolling line of credit facility and a separate security agreement (the “SSB Agreement”) with State Street Bank and Trust Company (“SSB”). SSB may elect to terminate its commitment upon 360-days written notice to the Fund. As of August 31, 2014, the Fund has not received any notice to terminate. The Fund has granted a security interest in substantially all of its assets to SSB. The SSB Agreement allows for a maximum commitment amount of $405,000,000.

Advances will be made by SSB to the Fund, at the Fund’s option of (a) the higher of (i) 0.80% above the Fed Funds rate and (ii) 0.80% above the Overnight LIBOR or (b) 0.80% above 7-day, 30-day, 60-day or 90-day LIBOR.

In addition, the Fund pays a facility fee and utilization fee (based on the daily unused portion of the commitments). The commitment fees are waived if the Fund meets certain conditions. The fees associated with each of the agreements are included in the Consolidated Statement of Operations as borrowing costs. Advances to the Fund as of August 31, 2014 are shown in the Consolidated Statement of Assets and Liabilities as bank borrowings payable. Based on the short-term nature of the borrowings under the line of credit and the variable interest rate, the carrying amount of the borrowings approximates fair value.

The Fund may not declare dividends or make other distributions on shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding short-term borrowings is less than 300%.

For the six months ended August 31, 2014, the daily weighted average interest rates for the Fund with loans under the revolving credit agreements was 0.91%.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    43


Table of Contents
Notes to Consolidated Financial Statements (concluded)

 

9. Concentration, Market and Credit Risk:

In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Fund.

The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed-income markets. See the Consolidated Schedule of Investments for these securities and/or derivatives. Changes in market interest rates or economic conditions, including the Federal Reserve’s decision in December 2013 to taper its quantitative easing policy, may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.

10. Capital Share Transactions:

The Fund is authorized to issue 400 million shares, all of which were initially classified as Common Shares. The Board is authorized, however, to reclassify any unissued shares without approval of Common Shareholders. In connection with the reorganizations, the Fund increased its authorized shares from 200 million shares to 400 million shares.

During the current reporting period, the Fund filed an initial registration statement with the U.S. Securities and Exchange Commission (“SEC”) allowing it to issue additional Common Shares through an equity shelf program (a “Shelf Offering”), which was declared effective on October 10, 2014. Under the Shelf Offering, the Fund, subject to market conditions, may raise additional equity capital from time to time in varying amounts and utilizing various offering methods at a net price at or above the Fund’s net asset value (“NAV”) per Common Share (calculated within 48 hours of pricing). Please see Additional Information—Shelf Offering Program for additional information about the Shelf Offering.

Costs incurred by the Fund in connection with the Shelf Offering are recorded as a deferred charge and amortized over 12 months.

For the periods shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:

 

Six Months Ended August 31, 2014

       

Year Ended February 28, 2014

     60,013   

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Fund’s consolidated financial statements was completed through the date the consolidated financial statements were issued and the following items were noted:

The Fund paid a net investment income dividend of $0.025 per share on September 30, 2014 to Common Shareholders of record on September 15, 2014.

Additionally, the Fund declared a net investment income dividend of $0.024 on October 1, 2014 payable to Common Shareholders of record on October 15, 2014.

 

                
44    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Disclosure of Investment Advisory Agreement     

 

The Board of Directors (the “Board,” the members of which are referred to as “Board Members”) of BlackRock Debt Strategies Fund, Inc. (the “Fund”) met in person on May 9, 2014 (the “May Meeting”) and June 5-6, 2014 (the “June Meeting”) to consider the approval of the Fund’s investment advisory agreement (the “Advisory Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor. At the June Meeting, it was noted that the sub-advisory agreement among the Manager, BlackRock Financial Management, Inc. and the Fund would expire effective July 1, 2014. It was also noted that the non-renewal of the sub-advisory agreement would not result in any change in the nature or quality of services provided to the Fund, or in the portfolio management team that serves the Fund. The Manager is referred to herein as “BlackRock.”

Activities and Composition of the Board

The Board consists of eleven individuals, nine of whom are not “interested persons” of the Fund as defined in the Investment Company Act of 1940 (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chairman of the Board is an Independent Board Member. The Board has established six standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee, an Executive Committee, and a Leverage Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee and the Leverage Committee, each of which also has one interested Board Member).

The Advisory Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Advisory Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth one-day meeting to consider specific information surrounding the consideration of renewing the Advisory Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Fund by BlackRock, its personnel and its affiliates, including, as applicable, investment management, administrative, and shareholder services; oversight of fund service providers; marketing services; risk oversight; compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Advisory Agreement, including the services and support provided by BlackRock to the Fund and its shareholders. Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year and/or since inception periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over-performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Fund for services such as call center; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objective, policies and restrictions, and meeting new regulatory requirements; (e) the Fund’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. BlackRock also furnished information to the Board in response to specific questions. These questions covered issues such as: BlackRock’s profitability; investment performance; subadvisory and advisory relationships with other clients (including mutual funds sponsored by third parties); investment professional investment in funds they manage; and management fee levels and breakpoints. The Board further discussed with BlackRock: BlackRock’s management structure; portfolio turnover; BlackRock’s portfolio manager compensation and performance accountability; marketing support for the Fund; services provided to the Fund by BlackRock affiliates; and BlackRock’s oversight of relationships with third party service providers.

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    45


Table of Contents
Disclosure of Investment Advisory Agreement (continued)

 

Board Considerations in Approving the Advisory Agreement

The Approval Process: Prior to the May Meeting, the Board requested and received materials specifically relating to the Advisory Agreement. The Board is continuously engaged in a process with its independent legal counsel and BlackRock to review the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the May Meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Fund fees and expenses as compared with a peer group of funds as determined by Lipper (“Expense Peers”) and the investment performance of the Fund as compared with a peer group of funds as determined by Lipper1 and a customized peer group selected by BlackRock; (b) information on the profits realized by BlackRock and its affiliates pursuant to the Advisory Agreement and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees charged to other clients, such as institutional clients and open-end funds, under similar investment mandates, as applicable; (d) review of non-management fees; (e) the existence, impact and sharing of potential economies of scale; (f) a summary of aggregate amounts paid by the Fund to BlackRock and (g) if applicable, a comparison of management fees to similar BlackRock closed-end funds, as classified by Lipper.

At the May Meeting, the Board reviewed materials relating to its consideration of the Advisory Agreement. As a result of the discussions that occurred during the May Meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the June Meeting.

At the June Meeting, the Board, including the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Fund for a one-year term ending June 30, 2015. In approving the continuation of the Advisory Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Fund; (d) the Fund’s costs to investors compared to the costs of Expense Peers and performance compared to the relevant performance comparison as previously discussed; (e) economies of scale; (f) fall-out benefits to BlackRock and its affiliates as a result of its relationship with the Fund; and (g) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to securities lending, services related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Fund and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of closed-end funds and/or the performance of a relevant benchmark, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing the Fund’s performance and the Fund’s investment objective, strategies and outlook.

The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and the Fund’s portfolio management team; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and other non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with the following administrative services including, among others: (i) preparing disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of the Fund; (iii) oversight of daily accounting and pricing; (iv) preparing periodic filings with regulators and stock

 

1   

Funds are ranked by Lipper in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable.

 

                
46    BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014   


Table of Contents
Disclosure of Investment Advisory Agreement (continued)

 

exchanges; (v) overseeing and coordinating the activities of other service providers; (vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger or consolidation of certain closed-end funds; and (ix) performing other administrative functions necessary for the operation of the Fund, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Fund. In preparation for the May Meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with reports independently prepared by Lipper, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance, based on net asset value (NAV), of the Fund as compared to other funds in its applicable Lipper category and the customized peer group selected by BlackRock. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review its methodology. The Board and its Performance Oversight Committee regularly review, and meet with Fund management to discuss, the performance of the Fund throughout the year.

The Board noted that for each of the one-, three- and five-year periods reported, the Fund ranked in the second quartile against its Customized Lipper Peer Group. BlackRock believes that the Customized Lipper Peer Group is an appropriate performance metric for the Fund.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Fund: The Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with the other funds in its Lipper category. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared the Fund’s total expense ratio, as well as its actual management fee rate, to those of other funds in its Lipper category. The total expense ratio represents a fund’s total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Fund. The Board reviewed BlackRock’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2013 compared to available aggregate profitability data provided for the prior two years. The Board reviewed BlackRock’s profitability with respect to certain other fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. As a result, calculating and comparing profitability at individual fund levels is difficult.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, the Board considered the cost of the services provided to the Fund by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management of the Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Advisory Agreement and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk and liability profile in servicing the Fund in contrast to what is required of BlackRock with respect to other products with similar investment objectives across the open-end fund, ETF, closed-end fund and institutional account product channels, as applicable.

 

 

                
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Table of Contents
Disclosure of Investment Advisory Agreement (concluded)     

 

The Board noted that the Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in first quartile, relative to the Fund’s Expense Peers.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Fund increase. The Board also considered the extent to which the Fund benefits from such economies and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Fund.

Based on the Board’s review and consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. They are typically priced at scale at a fund’s inception.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Fund, including securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in exchange traded funds (i.e., ETFs) without any offset against the management fees payable by the funds to BlackRock.

In connection with its consideration of the Advisory Agreement, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund shares in the secondary market if they believe that the Fund’s fees and expenses are too high or if they are dissatisfied with the performance of the Fund.

The Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included completion of the refinancing of auction rate preferred securities; developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; share repurchases and other support initiatives for certain BlackRock funds; and continued communications efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRock’s continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds. BlackRock’s support services included, among other things: continuing communications concerning the refinancing efforts related to auction rate preferred securities; sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.

Conclusion

The Board, including the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Fund for a one-year term ending June 30, 2015. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Advisory Agreement were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Advisory Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Fund reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

 

                
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Table of Contents
Officers and Directors     

 

Richard E. Cavanagh, Chairman of the Board and Director

Karen P. Robards, Vice Chairperson of the Board, Chairperson of the Audit Committee and Director

Paul L. Audet, Director

Michael J. Castellano, Director and Member of the Audit Committee

Frank J. Fabozzi,1 Director and Member of the Audit Committee

Kathleen F. Feldstein, Director

James T. Flynn, Director and Member of the Audit Committee

Henry Gabbay, Director

Jerrold B. Harris, Director

R. Glenn Hubbard, Director

W. Carl Kester, Director and Member of the Audit Committee

John M. Perlowski, President and Chief Executive Officer

Brendan Kyne, Vice President

Robert W. Crothers, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Charles Park, Chief Compliance Officer and Anti-Money Laundering Officer

Janey Ahn, Secretary

 

  1   

Dr. Fabozzi is also a board member of the BlackRock Equity-Liquidity Complex.

 

Effective June 6, 2014, Brian Kindelan resigned as Chief Compliance Officer and Anti-Money Laundering Officer of the Fund and Charles Park became Chief Compliance Officer and Anti-Money Laundering Officer of the Fund. Mr. Park joined BlackRock in 2009 and is the current Global Chief Compliance Officer of the BlackRock iShares exchange traded funds.

 

       

Investment Advisor

BlackRock Advisors, LLC

Wilmington, DE 19809

 

Custodians

State Street Bank and
Trust Company

Boston, MA 02110

 

Accounting Agent

State Street Bank and
Trust Company

Boston, MA 02110

 

Independent Registered
Public Accounting Firm

Deloitte & Touche LLP

Boston, MA 02116

 

Transfer Agent

Computershare Trust
Company, N.A.

Canton, MA 02021

 

Legal Counsel

Skadden, Arps, Slate,

Meagher & Flom LLP

New York, NY 10036

 

Address of the Funds

100 Bellevue Parkway

Wilmington, DE 19809

 

                
   BLACKROCK DEBT STRATEGIES FUND, INC.    AUGUST 31, 2014    49


Table of Contents
Additional Information     

 

Proxy Results

The Annual Meeting of Shareholders was held on July 30, 2014 for shareholders of record on June 3, 2014, to elect director nominees for BlackRock Debt Strategies Fund, Inc. There were no broker non-votes with regard to the Fund.

 

             Votes For        Votes Withheld        Abstain  

Approved the Directors as follows:

  Paul L. Audet        154,945,503           3,063,691           0   
  Michael J. Castellano        154,728,643           3,280,551           0   
  Richard E. Cavanagh        154,872,656           3,136,538           0   
  Frank J. Fabozzi        154,800,269           3,208,925           0   
  Kathleen F. Feldstein        154,460,637           3,548,556           0   
  James T. Flynn        154,561,823           3,447,371           0   
  Henry Gabbay        154,887,995           3,121,198           0   
  Jerrold B. Harris        154,406,487           3,602,707           0   
  R. Glenn Hubbard        154,505,068           3,504,125           0   
  W. Carl Kester        154,764,003           3,245,190           0   
    Karen P. Robards        154,835,141           3,174,052           0   

 

Dividend Policy

 

The Fund’s dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of dividend distributions, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The portion of dividend distributions that exceeds the Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Dividend distributions in excess of the Fund’s taxable income and net capital gains, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a nontaxable return of capital. The Fund’s current accumulated but undistributed net investment income, if any, is disclosed in the Consolidated Statement of Assets and Liabilities, which comprises part of the financial information included in this report.

 

General Information

 

The Fund does not make available copies of its Statement of Additional Information because the Fund’s shares are not continuously offered, which means that the Statement of Additional Information of the Fund has not been updated after completion of the Fund’s offerings and the information contained in the Fund’s Statement of Additional Information may have become outdated.

On September 5, 2014, the Board adopted the following fundamental policy: As a fundamental policy, to the extent the Fund invests in corporate loans, the Fund will invest more than 25% and may invest up to 100% of its assets in securities of issuers in the industry group consisting of financial institutions and their holding companies, including commercial banks, thrift institutions, insurance companies and finance companies.

During the period, except as described above, there were no material changes in the Fund’s investment objectives or policies or to the Fund’s charters or by-laws that would delay or prevent a change of control of the Fund that were not approved by shareholders or in the principal risk factors associated with investment in the Fund. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Fund’s portfolio.

Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com. This reference to BlackRock’s website is intended to allow investors public access to information regarding the

 

                
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Additional Information (continued)     

 

Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.

Electronic Delivery

Electronic copies of most financial reports are available on the Fund’s website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports by enrolling in the Fund’s electronic delivery program.

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor to enroll. Please note that not all investment advisors, banks or brokerages may offer this service.

Householding

The Fund will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Fund at (800) 882-0052.

Availability of Quarterly Schedule of Investments

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.

Availability of Proxy Voting Policies and Procedures

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 (800) 882-0052; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Fund voted proxies relating to securities held in the Fund’s portfolio during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 882-0052 and (2) on the SEC’s website at http://www.sec.gov.

Availability of Fund Updates

BlackRock will update performance and certain other data for the Fund on a monthly basis on its website in the “Closed-end Funds” section of http://www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to periodically check the website for updated performance information and the release of other material information about the Fund. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.

 

                
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Additional Information (continued)     

 

 

Shelf Offering Program

 

From time-to-time, the Fund may seek to raise additional equity capital through an equity shelf program (a “Shelf Offering”). In a Shelf Offering, the Fund may, subject to market conditions, raise additional equity capital by issuing new Common Shares from time to time in varying amounts at a net price at or above the Fund’s net asset value (“NAV”) per Common Share (calculated within 48 hours of pricing). While any such Shelf Offering may allow the Fund to pursue additional investment opportunities without the need to sell existing portfolio investments, it could also entail risks — including that the issuance of additional Common Shares may limit the extent to which the Common Shares are able to trade at a premium to NAV in the secondary market. On June 11, 2014, the Fund filed a registration statement with the SEC to issue additional Fund Common Shares through a Shelf Offering, which was declared effective on October 10, 2014. The Fund may not sell any Fund Common Shares in a Shelf Offering until the registration statement filed with the SEC is effective. This report and the preliminary prospectus are not offers to sell Fund Common Shares and are not solicitations of an offer to buy Fund Common Shares in any jurisdiction where the offers or sales are not permitted. The preliminary prospectus contains more complete information about the Fund’s Shelf Offering and should be read carefully before investing. The information in the preliminary prospectus for the Fund is not complete and may be amended or changed. A copy of the final prospectus for the Fund can be obtained from BlackRock at http:// www.blackrock.com, when available.

 

                
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Additional Information (concluded)     

 

 

BlackRock Privacy Principles

 

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following:

(i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents;

(ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

                
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Table of Contents

This report is intended for existing shareholders. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares, and the risk that fluctuations in short-term interest rates may reduce the Common Shares’ yield. Statements and other information herein are as dated and are subject to change.

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CEFDSU-8/14-SAR  
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Table of Contents

Item 2 –

  Code of Ethics – Not Applicable to this semi-annual report

Item 3 –

  Audit Committee Financial Expert – Not Applicable to this semi-annual report

Item 4 –

  Principal Accountant Fees and Services – Not Applicable to this semi-annual report

Item 5 –

  Audit Committee of Listed Registrants – Not Applicable to this semi-annual report

Item 6 –

  Investments
  (a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.
  (b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

Item 7 –

  Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable to this semi-annual report

Item 8 –

  Portfolio Managers of Closed-End Management Investment Companies
 

(a)    Not Applicable to this semi-annual report

 

(b)    As of the date of this filing, there have been no changes in any of the portfolio managers identified in the most recent annual report on Form N-CSR.

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 – There have been no material changes to these procedures.

Item 11 –

  Controls and Procedures
  (a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.
  (b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12 –

  Exhibits attached hereto
  (a)(1) – Code of Ethics – Not Applicable to this semi-annual report
  (a)(2) – Certifications – Attached hereto
  (a)(3) – Not Applicable
  (b) – Certifications – Attached hereto

 

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Table of Contents

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/ John M. Perlowski

  John M. Perlowski
  Chief Executive Officer (principal executive officer) of
  BlackRock Debt Strategies Fund, Inc.
Date: November 3, 2014

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/ John M. Perlowski

  John M. Perlowski
  Chief Executive Officer (principal executive officer) of
  BlackRock Debt Strategies Fund, Inc.
Date: November 3, 2014

 

By:      

/s/ Neal J. Andrews

  Neal J. Andrews
  Chief Financial Officer (principal financial officer) of
  BlackRock Debt Strategies Fund, Inc.
Date: November 3, 2014

 

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