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 811-21637
Name of Fund: BlackRock Diversified Income Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Diversified Income Strategies Fund, Inc., 800 Scudders
Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011,
Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (800) 882-0052
Date of fiscal year end: 08/31/07
Date of reporting period: 09/01/06 - 08/31/07
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Diversified Income BLACKROCK
Strategies Fund, Inc. (DVF)
ANNUAL REPORT | AUGUST 31, 2007
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Diversified Income Strategies Fund, Inc.
The Benefits and Risks of Leveraging
BlackRock Diversified Income Strategies Fund, Inc. utilizes leveraging through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of assets
to be obtained from leverage will be based on short-term interest rates, which
normally will be lower than the income earned by the Fund on its longer-term
portfolio investments. To the extent that the total assets of the Fund
(including the assets obtained from leverage) are invested in higher-yielding
portfolio investments, the Fund's Common Stock shareholders will be the
beneficiaries of the incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its net asset value and market
price. If the income derived from securities purchased with assets received from
leverage exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased is not sufficient to cover the cost of leverage, the Fund's
net income will be less than if leverage had not been used, and therefore the
amount available for distribution to Common Stock shareholders will be reduced.
Proxy Results
During the six-month period ended August 31, 2007, the shareholders of BlackRock
Diversified Income Strategies Fund, Inc. voted on the following proposal, which
was approved at an annual shareholders' meeting on August 16, 2007. This
proposal was part of the reorganization of the Fund's Board of Directors to take
effect on or about November 1, 2007. A description of the proposal and number of
shares voted are as follows:
- ------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ------------------------------------------------------------------------------------------------
To elect the Fund's Board G. Nicholas Beckwith, III 9,797,001 98,825
of Directors: Richard E. Cavanagh 9,797,275 98,551
Richard S. Davis 9,797,546 98,280
Kent Dixon 9,796,485 99,341
Frank J. Fabozzi 9,798,275 97,551
Kathleen F. Feldstein 9,797,480 98,346
James T. Flynn 9,796,796 99,030
Henry Gabbay 9,796,046 99,780
Jerrold B. Harris 9,796,251 99,575
R. Glenn Hubbard 9,797,419 98,407
W. Carl Kester 9,796,551 99,275
Karen P. Robards 9,795,131 100,695
Robert S. Salomon, Jr. 9,795,360 100,466
- ------------------------------------------------------------------------------------------------
2 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
A Letter to Shareholders
Dear Shareholder
Financial markets embarked on a wild ride during the August reporting period.
Subprime mortgage troubles intensified in the final months of the period,
spawning a widespread credit and liquidity crisis that crept into other areas of
the market. The U.S. Federal Reserve Board (the Fed) and other countries'
central banks stepped in to inject liquidity into the markets and bolster
investor confidence. In August, the Fed cut the discount rate, the rate charged
to banks to borrow money directly from the Fed, from 6.25% to 5.75%. Another
..50% cut in the discount rate came on September 18, along with a .50% cut in the
more widely followed federal funds rate. This brought the target short-term
interest rate, which had remained unchanged at 5.25% for over a year, to 4.75%.
Although heightened volatility has been a recurring theme throughout the past
year, the global economy (excluding the U.S. housing market) remained quite
healthy. In general, equity market fundamentals also held firm -- second-quarter
corporate earnings exceeded expectations (although future earnings could be at
risk if the economy weakens), dividend payouts and share buybacks continued to
grow, and valuations remained attractive. These tailwinds generally prevailed
over such headwinds as a slowing U.S. economy and troubled housing market,
although the more recent credit crunch dampened corporate merger-and-acquisition
activity, a key source of strength for equity markets. Stocks recorded their
second-worst day of the year in August, yet remained comfortably in the black
year-to-date.
Meanwhile, mixed economic signals and the credit market debacle made for a
volatile backdrop for fixed income, with investors fleeing from bonds associated
with the housing and credit markets in favor of higher-quality Treasury issues.
As a result, the 10-year Treasury yield, which touched 5.30% in June (its
highest level in five years), fell to 4.54% by period-end, while prices
correspondingly rose.
Against this backdrop, financial markets posted mixed results for the six- and
12-month periods ended August 31, 2007:
Total Returns as of August 31, 2007 6-month 12-month
==========================================================================================================
U.S. equities (S&P 500 Index) +5.70% +15.13%
- ----------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) +0.54 +11.36
- ----------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +5.83 +18.71
- ----------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) +1.54 + 5.26
- ----------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) -0.57 + 2.30
- ----------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index) -1.71 + 6.46
- ----------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index.
As you navigate market volatility, we encourage you to review your investment
goals with your financial professional and to make portfolio changes, as needed.
For more market insight, we invite you to visit www.blackrock.com/funds. We
thank you for entrusting BlackRock with your investment assets, and we look
forward to continuing to serve you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Fund President and Director
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 3
Fund Summary as of August 31, 2007
Fund Information
Symbol on New York Stock Exchange ............................ DVF
Initial Offering Date ........................................ January 31, 2005
Yield on Closing Market Price as of 8/31/07 ($17.16)* ........ 10.49%
Current Monthly Distribution per share of Common Stock** ..... $ .15
Current Annualized Distribution per share of Common Stock** .. $ 1.80
Leverage as of 8/31/07*** .................................... 25%
- --------------------------------------------------------------------------------
* Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
Past performance does not guarantee future results.
** The distribution is not constant and is subject to change. A portion of
the distribution may be deemed a tax return of capital or net realized
gain at fiscal year end.
*** As a percentage of managed assets, which is the total assets of the Fund
(including any assets attributable to any borrowing that may be
outstanding) minus the sum of accrued liabilities (other than debt
representing financial leverage).
The table below summarizes the changes in the Fund's market price and net asset
value per share:
- --------------------------------------------------------------------------------
8/31/07 8/31/06 Change High Low
- --------------------------------------------------------------------------------
Market Price ........... $17.16 $18.85 (8.97%) $20.85 $13.28
Net Asset Value ........ $17.50 $18.70 (6.42%) $19.35 $17.28
- --------------------------------------------------------------------------------
The following charts show the Fund's portfolio composition and credit quality
allocations of the Fund's long-term investments:
Portfolio Composition
Asset Mix 8/31/07 8/31/06
- --------------------------------------------------------------------------------
Corporate Bonds .......................................... 60% 65%
Floating Rate Loan Interests ............................. 38 34
Preferred Stocks ......................................... 1 --
Common Stocks ............................................ 1 1
Asset-Backed Securities .................................. --* --
- --------------------------------------------------------------------------------
* Amount is less than 1%.
Credit Quality Allocations*
Credit Rating 8/31/07 8/31/06
- --------------------------------------------------------------------------------
BBB/Baa .................................................. --*** --
BB/Ba .................................................... 13% 14%
B/B ...................................................... 59 59
CCC/Caa .................................................. 14 14
CC/Ca .................................................... 1 1
NR (Not Rated) ........................................... 11 11
Other** .................................................. 2 1
- --------------------------------------------------------------------------------
* Using the higher of S&P's or Moody's ratings.
** Includes portfolio holdings in common and preferred stocks.
*** Amount is less than 1%.
4 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments as of August 31, 2007 (in U.S. dollars)
Face
Amount Asset-Backed Securities Value
===============================================================================
USD 1,350,000 North Street Referenced Linked Notes Series
2005-8A Class D, 19.86% due 6/15/2041 (b) $ 425,020
- -------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost -- $1,350,000) -- 0.2% 425,020
===============================================================================
===============================================================================
Corporate Bonds
===============================================================================
Aerospace & Defense -- 2.4%
EUR 2,000,000 Bombardier, Inc., 6.939% due 11/15/2013 (b)(d) 2,751,743
USD 2,500,000 Vought Aircraft Industries, Inc., 8%
due 7/15/2011 2,425,000
-----------
5,176,743
===============================================================================
Auto Components -- 0.6%
1,000,000 The Goodyear Tire & Rubber Co., 9.135%
due 12/01/2009 (b)(d) 1,000,000
385,000 Lear Corp., 8.75% due 12/01/2016 356,125
-----------
1,356,125
===============================================================================
Biotechnology -- 0.7%
1,500,000 Angiotech Pharmaceuticals, Inc., 9.371%
due 12/01/2013 (b) 1,485,000
===============================================================================
Building Products -- 1.6%
2,500,000 CPG International I, Inc., 12.13%
due 7/01/2012 (b) 2,512,500
860,000 Masonite International Corp., 11% due 4/06/2015 700,900
310,000 Momentive Performance Materials, Inc., 10.125%
due 12/01/2014 (d)(g) 288,300
-----------
3,501,700
===============================================================================
Chemicals -- 4.9%
440,000 American Pacific Corp., 9% due 2/01/2015 433,400
3,425,000 Ames True Temper, Inc., 9.36% due 1/15/2012 (b) 3,425,000
1,000,000 Hexion U.S. Finance Corp., 10.058%
due 11/15/2014 (b) 1,020,000
420,000 MacDermid, Inc., 9.50% due 4/15/2017 (d) 390,600
3,305,000 Nova Chemicals Corp., 8.484%
due 11/15/2013 (b) 3,205,850
2,000,000 PolyOne Corp., 6.89% due 9/22/2008 2,000,000
-----------
10,474,850
===============================================================================
Commercial Services & Supplies -- 1.4%
330,000 PNA Intermediate Holding Corp., 12.558%
due 2/15/2013 (b)(d) 317,625
1,300,000 Sally Holdings LLC, 10.50% due 11/15/2016 (d) 1,241,500
985,000 West Corp., 11% due 10/15/2016 999,775
435,000 Yankee Acquisition Corp., 9.75% due 2/15/2017 389,325
-----------
2,948,225
===============================================================================
Communications Equipment -- 0.1%
300,000 Nortel Networks Ltd., 9.61% due 7/15/2011 (b)(d) 300,750
===============================================================================
Containers & Packaging -- 3.8%
Berry Plastics Holding Corp.:
60,000 8.875% due 9/15/2014 59,850
3,175,000 9.235% due 9/15/2014 (b) 3,143,250
1,570,000 Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (d) 1,571,962
780,000 Smurfit-Stone Container Enterprises, Inc., 8%
due 3/15/2017 743,925
2,750,000 Wise Metals Group LLC, 10.25% due 5/15/2012 2,475,000
-----------
7,993,987
===============================================================================
Diversified Financial Services -- 1.9%
Ford Motor Credit Co. LLC:
210,000 5.80% due 1/12/2009 197,877
1,340,000 8.11% due 1/13/2012 (b) 1,227,184
2,500,000 9.81% due 4/15/2012 (b) 2,518,387
-----------
3,943,448
===============================================================================
Electric Utilities -- 0.7%
1,570,000 NSG Holdings LLC, 7.75% due 12/15/2025 (d)(i) 1,524,862
===============================================================================
Electronic Equipment & Instruments -- 1.0%
NXP BV:
1,675,000 8.11% due 10/15/2013 (b) 1,517,969
710,000 9.50% due 10/15/2015 614,150
115,000 Sanmina-SCI Corp., 8.125% due 3/01/2016 99,475
-----------
2,231,594
===============================================================================
Energy Equipment & Services -- 3.4%
200,000 Compagnie Generale de Geophysique-Veritas,
7.75% due 5/15/2017 202,000
3,000,000 Ocean RIG ASA, 9.36% due 4/04/2011 (b) 2,962,500
4,000,000 Parker Drilling Co., 10.33% due 9/01/2010 (b) 4,035,000
-----------
7,199,500
===============================================================================
Food & Staples Retailing -- 0.4%
870,000 Rite Aid Corp., 9.375% due 12/15/2015 (d) 791,700
===============================================================================
Health Care Providers & Services -- 1.4%
1,205,000 Community Health Systems, Inc., 8.875%
due 7/15/2015 (d) 1,203,494
1,380,000 Tenet Healthcare Corp., 6.50% due 6/01/2012 1,145,400
Universal Hospital Services, Inc. (d):
300,000 8.50% due 6/01/2015 (g) 278,348
280,000 8.759% due 6/01/2015 (b) 270,200
-----------
2,897,442
===============================================================================
Hotels, Restaurants & Leisure -- 4.9%
375,000 Galaxy Entertainment Finance Co. Ltd., 9.875%
due 12/15/2012 (d) 380,625
800,000 Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (d) 804,000
810,000 Pinnacle Entertainment, Inc., 7.50%
due 6/15/2015 (d) 745,200
410,000 Shingle Springs Tribal Gaming Authority, 9.375%
due 6/15/2015 (d) 403,850
305,000 Snoqualmie Entertainment Authority, 9.063%
due 2/01/2014 (b)(d) 297,756
945,000 Travelport LLC, 10.246% due 9/01/2014 (b) 945,000
975,000 Tropicana Entertainment, LLC, 9.625%
due 12/15/2014 (d) 721,500
1,000,000 Tunica-Biloxi Gaming Authority, 9%
due 11/15/2015 (d) 1,000,000
5,000,000 Universal City Florida Holding Co. I, 10.106%
due 5/01/2010 (b) 5,050,000
-----------
10,347,931
===============================================================================
Household Durables -- 0.8%
775,000 Jarden Corp., 7.50% due 5/01/2017 724,625
1,250,000 Stanley-Martin Communities LLC, 9.75%
due 8/15/2015 931,250
-----------
1,655,875
===============================================================================
IT Services -- 1.0%
2,000,000 SunGard Data Systems, Inc., 10.25%
due 8/15/2015 2,060,000
===============================================================================
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 5
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===============================================================================
Insurance -- 0.2%
USD 490,000 USI Holdings Corp., 9.433%
due 11/15/2014 (b)(d) $ 455,700
===============================================================================
Machinery -- 1.1%
920,000 Esco Corp., 9.235% due 12/15/2013 (b)(d) 901,600
RBS Global, Inc.:
440,000 9.50% due 8/01/2014 444,400
505,000 8.875% due 9/01/2016 493,637
460,000 Titan International, Inc., 8% due 1/15/2012 453,376
-----------
2,293,013
===============================================================================
Marine -- 0.2%
500,000 Navios Maritime Holdings, Inc., 9.50%
due 12/15/2014 510,625
===============================================================================
Media -- 10.1%
Affinion Group, Inc.:
80,000 10.125% due 10/15/2013 80,000
240,000 11.50% due 10/15/2015 240,000
3,000,000 Cablevision Systems Corp. Series B, 9.82%
due 4/01/2009 (b) 3,075,000
3,000,000 Canadian Satellite Radio Holdings, Inc., 12.75%
due 2/15/2014 (d) 2,943,750
Intelsat Bermuda Ltd. (b):
3,195,000 11.409% due 6/15/2013 3,282,862
995,000 8.886% due 1/15/2015 1,002,462
3,725,000 NTL Cable Plc, 9.125% due 8/15/2016 3,766,906
875,000 Paxson Communications Corp., 8.61%
due 1/15/2012 (b)(d) 862,968
1,570,000 TL Acquisitions, Inc., 10.50% due 1/15/2015 (d) 1,479,725
1,025,000 Umbrella Acquisition, 9.75% due 3/15/2015 (d)(g) 976,312
1,120,000 XM Satellite Radio, Inc., 9.856%
due 5/01/2013 (b) 1,041,600
3,040,000 Young Broadcasting, Inc., 10% due 3/01/2011 2,736,000
-----------
21,487,585
===============================================================================
Metals & Mining -- 3.0%
850,000 Aleris International, Inc., 9%
due 12/15/2014 (g) 792,695
3,010,000 Freeport-McMoRan Copper & Gold, Inc., 8.564%
due 4/01/2015 (b) 3,100,300
1,076,000 Indalex Holding Corp. Series B, 11.50%
due 2/01/2014 1,008,750
1,425,000 RathGibson, Inc., 11.25% due 2/15/2014 1,426,781
-----------
6,328,526
===============================================================================
Paper & Forest Products -- 11.4%
5,000,000 Abitibi-Consolidated, Inc., 8.86%
due 6/15/2011 (b) 4,300,000
Ainsworth Lumber Co. Ltd. (b):
3,000,000 9.11% due 10/01/2010 2,310,000
1,500,000 9.36% due 4/01/2013 1,140,000
2,000,000 Boise Cascade LLC, 8.235% due 10/15/2012 (b) 1,980,000
Lecta SA:
EUR 1,000,000 6.431% due 2/15/2014 (b)(d) 1,273,703
1,000,000 7.806% due 2/15/2014 1,253,269
USD 3,000,000 NewPage Corp., 11.606% due 5/01/2012 (b) 3,180,000
5,000,000 Smurfit Kappa Funding Plc, 7.75% due 4/01/2015 4,825,000
4,000,000 Verso Paper Holdings LLC Series B, 9.106%
due 8/01/2014 (b) 3,980,000
-----------
24,241,972
===============================================================================
Pharmaceuticals -- 0.9%
2,000,000 Elan Finance Plc, 9.558% due 11/15/2011 (b) 1,960,000
===============================================================================
Real Estate Management & Development -- 3.7%
Realogy Corp. (d):
1,430,000 10.50% due 4/15/2014 1,204,775
6,260,000 11% due 4/15/2014 (g) 5,070,600
2,105,000 12.375% due 4/15/2015 1,549,806
-----------
7,825,181
===============================================================================
Road & Rail -- 1.0%
1,000,000 Atlantic Express Transportation Corp., 12.609%
due 4/15/2012 (b) 970,000
1,520,000 St. Acquisition Corp., 13.107%
due 5/15/2015 (b)(d) 1,056,400
-----------
2,026,400
===============================================================================
Semiconductors & Semiconductor Equipment -- 4.0%
Amkor Technology, Inc.:
60,000 7.75% due 5/15/2013 55,650
135,000 9.25% due 6/01/2016 130,950
2,000,000 Avago Technologies Finance Pte. Ltd., 11.08%
due 6/01/2013 (b) 2,030,000
Freescale Semiconductor, Inc.:
2,670,000 9.125% due 12/15/2014 (g) 2,389,650
2,810,000 9.235% due 12/15/2014 (b) 2,585,200
1,410,000 Spansion, Inc., 8.746% due 6/01/2013 (b)(d) 1,339,500
-----------
8,530,950
===============================================================================
Software -- 0.3%
690,523 BMS Holdings, Inc., 12.40% due 2/15/2012 (b)(d) 644,335
===============================================================================
Specialty Retail -- 4.7%
2,700,000 AutoNation, Inc., 7.36% due 4/15/2013 (b) 2,538,000
590,000 Buffets, Inc., 12.50% due 11/01/2014 454,300
Claire's Stores, Inc. (d):
210,000 9.25% due 6/01/2015 182,175
180,000 9.625% due 6/01/2015 (g) 140,752
340,000 10.50% due 6/01/2017 251,600
1,670,000 General Nutrition Centers, Inc., 9.85%
due 3/15/2014 (d)(g) 1,509,626
Michaels Stores, Inc. (d):
1,190,000 10% due 11/01/2014 1,192,975
3,470,000 11.375% due 11/01/2016 3,374,575
355,000 United Auto Group, Inc., 7.75% due 12/15/2016 339,025
-----------
9,983,028
===============================================================================
Wireless Telecommunication Services -- 5.4%
EUR 367,842 BCM Ireland Preferred Equity Ltd., 10.597%
due 2/15/2017 (d)(g) 471,027
USD 3,000,000 Centennial Communications Corp., 11.11%
due 1/01/2013 (b) 3,075,000
Cricket Communications, Inc.:
1,650,000 9.375% due 11/01/2014 1,617,000
300,000 9.375% due 11/01/2014 (d) 294,000
Digicel Group Ltd. (d):
1,070,000 8.875% due 1/15/2015 977,766
2,329,000 9.125% due 1/15/2015 (g) 2,128,240
650,000 FiberTower Corp., 9% due 11/15/2012 (d)(h) 679,250
380,000 iPCS, Inc., 7.481% due 5/01/2013 (b)(d) 366,700
6 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===============================================================================
Wireless Telecommunication Services (concluded)
Nordic Telephone Co. Holdings ApS (d):
USD 800,000 8.875% due 5/01/2016 $ 828,000
EUR 500,000 9.281% due 5/01/2016 (b) 689,639
Orascom Telecom Finance SCA:
USD 200,000 7.875% due 2/08/2014 182,500
325,000 7.875% due 2/08/2014 (d) 296,562
------------
11,605,684
- -------------------------------------------------------------------------------
Total Corporate Bonds
(Cost -- $172,255,733) -- 77.0% 163,782,731
===============================================================================
===============================================================================
Floating Rate Loan Interests (a)
===============================================================================
Airlines -- 0.4%
1,000,000 US Airways Group, Inc. Term Loan B, 7.86%
due 3/22/2014 939,375
===============================================================================
Auto Components -- 0.9%
Intermet Corp.:
357,702 First Lien Term Loan, 10.36% due 11/08/2010 343,394
518,519 Letter of Credit, 10.21% due 11/08/2010 497,778
Metaldyne Corp.:
86,538 Letter of Credit, 5.17% - 9.125%
due 1/15/2012 84,375
588,462 Term Loan B, 9.125% due 1/15/2014 573,750
500,000 Visteon Corp. Term Loan B, 8.38% due 6/13/2013 460,313
------------
1,959,610
===============================================================================
Beverages -- 0.3%
EUR 500,000 Culligan International Second Lien Term Loan,
7.815% due 10/24/2012 578,956
===============================================================================
Chemicals -- 2.8%
USD 500,000 BOC Edwards Ltd. Term Loan B, 7.541%
due 5/21/2014 457,500
500,000 ISP Chemco Term Loan B, 7.125% - 7.313%
due 5/25/2014 479,584
500,000 KIK Custom Products Inc. First Lien Term Loan,
7.61% due 5/30/2014 455,000
GBP 1,000,000 Viridian Group Plc Term Loan, 8.234% - 10.358%
due 12/21/2012 1,964,837
USD 3,000,000 Wellman, Inc. Second Lien Term Loan, 12.106%
due 2/10/2010 2,610,000
------------
5,966,921
===============================================================================
Commercial Services & Supplies -- 7.0%
1,591,489 Alliance Laundry Systems LLC Term Loan,
7.58% - 7.61% due 2/01/2012 1,559,660
Aramark Corp.:
177,772 Letter of Credit, 5.36% due 1/30/2014 171,061
2,526,836 Term Loan B, 7.36% due 1/30/2014 2,431,448
748,125 Brickman Group, Inc. Term Loan, 7.34%
due 1/30/2014 708,848
Euramax International Plc:
1,269,157 First Lien Term Loan, 8.375% due 6/29/2012 1,173,336
2,500,000 Second Lien Term Loan, 13.36% due 6/29/2013 2,225,000
497,500 Evenflo Company, Inc. Term Loan,
8.041% - 8.065% due 2/15/2013 460,188
500,000 Jason, Inc. Term Loan B, 8.03% - 9.50%
due 4/30/2010 475,000
1,725,712 NES Rentals Holdings, Inc. Term Loan C, 12.125%
due 7/12/2013 1,689,760
2,700,000 Service Master Bridge Loan, 9.86% due 6/19/2008 2,349,000
990,038 West Corp. Term Loan, 7.735% - 7.88%
due 10/31/2013 954,973
Wire Rope Corp. of America, Inc.:
214,071 Delay Draw Term Loan, 7.596% - 7.86%
due 8/07/2014 205,509
535,714 Term Loan B, 7.57% - 7.59% due 1/30/2014 514,286
------------
14,918,069
===============================================================================
Communications Equipment -- 1.1%
2,406,606 Wind Telecomunicazione SpA Term Loan B,
12.61% due 12/21/2011 2,346,441
===============================================================================
Computers & Peripherals -- 1.8%
500,000 Intergraph Corp. Term Loan, 11.506%
due 11/15/2014 478,125
Reynolds and Reynolds Co.:
1,911,829 First Lien Term Loan, 7.36% due 10/31/2012 1,828,187
1,500,000 Second Lien Term Loan, 10.86%
due 10/31/2013 1,485,000
------------
3,791,312
===============================================================================
Containers & Packaging -- 2.3%
1,119,785 Anchor Glass Container Corp. Term Loan B,
7.61% - 7.791% due 5/03/2013 1,086,191
2,660,000 Berry Plastics Corp. Term Loan B, 11.61%
due 6/15/2014 2,287,600
1,492,500 Graham Packaging Term Loan B, 7.625%
due 4/15/2011 1,450,213
------------
4,824,004
===============================================================================
Diversified Financial Services -- 0.9%
2,000,000 JG Wentworth Manufacturing Term Loan B,
7.61% due 4/15/2014 1,855,000
===============================================================================
Diversified Telecommunication Services -- 0.4%
500,000 Hawaiian Telcom Term Loan C, 7.61%
due 5/25/2014 473,500
497,500 Kentucky Data Link, Inc. Term Loan B, 7.815%
due 2/26/2014 478,844
------------
952,344
===============================================================================
Electrical Equipment -- 0.9%
3,000,000 Generac Portable Products, Inc. Second Lien
Term Loan, 11.36% due 5/15/2014 1,997,499
===============================================================================
Energy Equipment & Services -- 0.7%
1,000,000 Dresser, Inc. First Lien Term Loan,
8.01% - 8.038% due 5/15/2014 960,625
493,750 MEG Energy Corp. Term Loan B, 7.36%
due 4/03/2013 476,469
------------
1,437,094
===============================================================================
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 7
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests (a) Value
===============================================================================
Food & Staples Retailing -- 1.9%
USD 500,000 Bolthouse Farms, Inc. Second Lien Term Loan,
10.86% due 12/01/2013 $ 483,750
Dole Food Co., Inc.:
139,639 Letter of Credit, 5.23% due 4/12/2013 131,261
310,260 Term Loan B, 7.438% - 9.25% due 4/12/2013 291,644
1,034,199 Term Loan C, 7.438% - 9.25% due 4/04/2013 972,147
746,250 McJunkin Corp. Term Loan B, 7.815%
due 1/30/2014 724,795
Sturm Foods, Inc.:
498,750 First Lien Term Loan, 7.875% - 7.938%
due 1/30/2014 463,838
1,000,000 Second Lien Term Loan, 11.438%
due 6/30/2014 932,500
-----------
3,999,935
===============================================================================
Food Products -- 0.2%
484,375 Jetro Holdings, Inc. Term Loan, 7.82%
due 5/11/2014 465,000
===============================================================================
Health Care Providers & Services -- 1.1%
498,734 CCS Medical First Lien Term Loan, 8.82%
due 10/31/2012 481,902
1,995,000 Health Management Associates, Inc. Term Loan B,
7.11% due 1/15/2014 1,870,937
-----------
2,352,839
===============================================================================
Hotels, Restaurants & Leisure -- 3.5%
500,000 Golden Nugget, Inc. Term Loan Second Lien,
8.84% due 11/30/2014 467,500
497,500 Great Canadian Gaming Corp. Term Loan B, 7%
due 2/15/2014 492,525
Green Valley Ranch Gaming LLC Term Loan:
480,568 7.36% - 7.565% due 2/16/2014 456,540
500,000 8.791% due 8/30/2014 470,000
120,370 Lake Las Vegas Resort Revolving Credit, 15.46%
due 12/14/2012 108,333
879,630 Lake Las Vegas Resort Term Loan B, 15.46%
due 12/14/2012 791,667
800,000 Las Vegas Sands Term Loan B, 7.11%
due 5/04/2014 759,100
1,000,000 QCE LLC Second Lien Term Loan, 11.11%
due 11/05/2013 952,500
500,000 Riviera Holdings Corp. Term Loan B, 7.36%
due 5/11/2017 485,000
Venetian Macau US Finance Co. LLC:
1,000,000 Delay Draw Term Loan, 7.61% - 7.76%
due 5/25/2012 965,714
1,500,000 Term Loan B, 7.61% due 5/25/2013 1,448,571
-----------
7,397,450
===============================================================================
Household Durables -- 0.5%
1,000,000 American Residential Services Second Lien Term
Loan, 12% due 4/17/2015 990,000
===============================================================================
Household Products -- 0.7%
Spectrum Brands, Inc.:
80,548 Letter of Credit, 5.17% due 4/15/2013 78,064
1,129,481 Term Loan B-1, 9.34% - 9.53%
due 4/15/2013 1,061,712
289,972 Term Loan B-2, 9.565% due 4/15/2013 281,031
-----------
1,420,807
===============================================================================
IT Services -- 1.4%
1,638,379 Activant Solutions Term Loan B, 7.375%
due 5/02/2013 1,527,789
Audio Visual Services Corp.:
500,000 Second Lien Term Loan, 10.86%
due 2/28/2014 475,000
1,000,000 Term Loan B, 7.61% due 2/28/2014 940,000
-----------
2,942,789
===============================================================================
Machinery -- 1.5%
Navistar International Transportation Corp.:
800,000 Revolving Credit, 5.17% - 8.61%
due 1/19/2012 768,000
2,200,000 Term Loan, 8.61% due 1/19/2012 2,112,000
329,988 Rexnord Corp. Term Loan,
11.61% due 3/02/2013 (g) 311,839
-----------
3,191,839
===============================================================================
Media -- 11.3%
1,150,000 Affinion Group, Inc. Term Loan, 11.678%
due 3/01/2012 1,061,833
522,375 Alix Partners Term Loan B, 7.36% due 10/30/2013 511,928
Cequel Communications LLC:
300,000 First Lien Term Loan, 7.36% - 7.505%
due 4/04/2013 282,917
2,000,000 Second Lien Term Loan, 9.856%
due 3/31/2015 1,930,000
505,197 Term Loan B, 7.36% - 7.505%
due 4/04/2013 476,429
1,000,000 Charter Communications, Inc. Term Loan B,
7.361% due 4/30/2014 944,554
973,460 ClientLogic Holding Corp. Term Loan B,
7.86% - 8.065% due 1/30/2014 934,522
1,136,381 Easton-Bell Sports Inc. Term Loan B, 11.36%
due 5/01/2012 1,083,113
2,000,000 Ellis Communications Term Loan, 10%
due 12/31/2011 1,940,000
3,980,000 Idearc, Inc. Term Loan B, 7.36% due 11/15/2014 3,846,129
3,000,000 Insight Midwest Holdings LLC Delay Draw Term
Loan, 7.11% due 4/03/2014 2,915,157
997,499 NEP Supershooters, LP Term Loan B, 7.61%
due 2/13/2014 949,286
1,500,000 National Cinemedia LLC Term Loan B, 7.11%
due 2/28/2015 1,410,000
1,985,000 Nielsen Finance LLC Term Loan B, 7.36%
due 8/09/2013 1,906,152
8 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests (a) Value
===============================================================================
Media (concluded)
Penton Media Term Loan:
USD 997,500 7.61% due 2/15/2013 $ 935,156
1,000,000 10.36% due 2/15/2014 945,000
1,000,000 Persona Communications Second Lien Term Loan,
11.565% due 4/30/2014 1,000,000
EUR 500,000 ProSiebenSat.1 Media AG Term Loan B, 6.796%
due 6/30/2015 620,675
USD 286,312 Riverdeep Group Ltd. Bridge Loan, 11.55%
due 12/21/2007 284,880
------------
23,977,731
===============================================================================
Multi-Utilities -- 0.4%
998,750 Brand Energy Term Loan B, 7.625% - 11.563%
due 2/15/2015 967,123
===============================================================================
Oil, Gas & Consumable Fuels -- 3.3%
2,500,000 Frontier Drilling Term Loan B, 9.18%
due 6/21/2013 2,450,000
500,000 Petroleum Geo-Services ASA Term Loan B, 7.11%
due 6/30/2015 482,917
1,000,000 SandRidge Energy, Inc. Term Loan B, 8.985%
due 3/01/2014 987,500
3,000,000 Scorpion Drilling Ltd. Second Lien Term Loan,
12.86% due 5/05/2015 3,195,000
------------
7,115,417
===============================================================================
Pharmaceuticals -- 0.6%
1,500,000 Pharmaceutical Technologies & Services (PTS)
Term Loan, 7.61% due 4/15/2014 1,368,750
===============================================================================
Real Estate Management & Development -- 1.4%
3,000,000 LNR Property Corp. Term Loan B, 8.11%
due 7/12/2011 2,904,999
===============================================================================
Road & Rail -- 0.4%
883,721 Swift Transportation Co., Inc. Term Loan B,
8.375% due 5/15/2014 781,172
===============================================================================
Software -- 1.3%
3,000,000 Aspect Software Second Lien Term Loan,
12.438% due 7/11/2010 2,820,000
===============================================================================
Specialty Retail -- 0.4%
1,000,000 Claire's Stores Term Loan B, 8.11%
due 5/24/2014 915,417
===============================================================================
Wireless Telecommunication Services -- 0.4%
500,000 IPC Systems First Lien Term Loan, 7.61%
due 5/25/2014 444,167
406,417 Ng Wireless Term Loan, 10% due 7/31/2014 398,289
------------
842,456
- -------------------------------------------------------------------------------
Total Floating Rate Loan Interests
(Cost -- $112,561,527) -- 49.8% 106,020,349
===============================================================================
===============================================================================
Shares
Held Common Stocks
===============================================================================
Electrical Equipment -- 0.8%
176,126 Medis Technologies Ltd. (f) 1,858,129
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost -- $3,229,974) -- 0.8% 1,858,129
===============================================================================
===============================================================================
Preferred Stocks
===============================================================================
Oil, Gas & Consumable Fuels -- 1.5%
54 EXCO Resources, Inc., 7% (h) 615,600
221 EXCO Resources, Inc., 11% 2,519,400
- -------------------------------------------------------------------------------
Total Preferred Stocks
(Cost -- $2,750,000) -- 1.5% 3,135,000
===============================================================================
===============================================================================
Beneficial
Interest Short-Term Securities
===============================================================================
USD 2,528,765 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33% (c)(e) 2,528,765
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $2,528,765) -- 1.2% 2,528,765
===============================================================================
Total Investments (Cost -- $294,675,999*) -- 130.5% 277,749,994
Liabilities in Excess of Other Assets -- (30.5%) (64,957,968)
------------
Net Assets -- 100.0% $212,792,026
============
* The cost and unrealized appreciation (depreciation) of investments as of
August 31, 2007, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $ 295,105,048
=============
Gross unrealized appreciation .......................... 1,467,533
Gross unrealized depreciation .......................... $ (18,822,587)
-------------
Net unrealized depreciation ............................ $ (17,355,054)
=============
(a) Floating rate loan interests in which the Fund invests generally pay
interest at rates that are periodically redetermined by reference to a
base lending rate plus a premium. The base lending rates are generally (i)
the lending rate offered by one or more major European banks, such as
LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one
or more major U.S. banks, or (iii) the certificate of deposit rate.
(b) Floating rate security.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series,
LLC Cash Sweep Series $523,492 $225,965
--------------------------------------------------------------------------
(d) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(e) Represents the current yield as of August 31, 2007.
(f) Non-income producing security.
(g) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 9
Schedule of Investments (concluded) (in U.S. dollars)
(h) Convertible security.
(i) Subject to principal paydowns.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one of more of the industry sub-classifications used by one of more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
o Forward foreign exchange contracts as of August 31, 2007 were as follows:
--------------------------------------------------------------------------
Foreign Settlement Unrealized
Currency Sold Date Appreciation
--------------------------------------------------------------------------
EUR 5,923,500 October 2007 $ 91,113
GBP 600,000 October 2007 7,906
--------------------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign Exchange
Contracts -- (USD Commitment -- $9,393,082) $ 99,019
============
o Swaps outstanding as of August 31, 2007 were as follows:
--------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
--------------------------------------------------------------------------
Sold credit default protection on Novelis
Inc. and receive 1.4%
Broker, JPMorgan Chase
Expires January 2008 USD 2,000,000 $ 1,804
Sold credit default protection on General
Motors Corp. and receive 5.25%
Broker, Morgan Stanley Capital Services,
Inc. Expires June 2008 USD 3,000,000 (4,476)
Sold credit default protection on Ford
Motor Company and receive 4.2%
Broker, Deutsche Bank AG London
Expires March 2010 USD 4,000,000 (235,796)
Sold credit default protection on ACES
High Yield Index (10% - 13% Tranche)
Broker, Morgan Stanley Capital Services,
Inc. Expires March 2010 USD 7,000,000 242,634
Sold credit default protection on
Pagesjaunes SA and receive 2.10%
Broker, Lehman Brothers Special Finance
Expires March 2012 EUR 2,000,000 (100,536)
Bought credit default protection on
LCDX Index and pay 1.2%
Broker, JPMorgan Chase
Expires June 2012 USD 1,500,000 (17,101)
Bought credit default protection on
LCDX Index and pay 1.2%
Broker, Morgan Stanley Capital Services,
Inc. Expires June 2012 USD 1,500,000 (17,101)
Sold credit default protection on LCDX
Index and receive 1.20%
Broker, Morgan Stanley Capital Services,
Inc. Expires June 2012 USD 1,500,000 32,200
Sold credit default protection on BAA
Ferovial Junior Term Loan and
receive 2.0%
Broker, Deutsche Bank AG London
Expires June 2012 GBP 300,000 (8,561)
Sold credit default protection on
Dow Jones CDX North America High Yield
Series 8 and receive 2.75%
Broker, JPMorgan Chase
Expires June 2012 USD 1,850,000 (5,702)
Sold credit default protection on
Dow Jones CDX North America High Yield
Series 8 and receive 2.75%
Broker, JPMorgan Chase
Expires June 2012 USD 1,850,000 (4,546)
Bought credit default protection on
Frontier Drilling and pay 3.45%
Broker, Lehman Brothers Special Finance
Expires September 2012 USD 1,000,000 28,013
Bought credit default protection on
Frontier Drilling ASA and pay 4.00%
Broker, Lehman Brothers Special Finance
Expires September 2012 USD 1,000,000 12,343
Pay a fixed rate of 4.823% and receive a
floating rate based on 3-month LIBOR
Broker, JPMorgan Chase
Expires January 2013 USD 20,000,000 150,003
Pay a fixed rate of 4.853% and receive a
floating rate based on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires March 2013 USD 31,000,000 216,118
--------------------------------------------------------------------------
Total $ 289,296
=========
o Currency Abbreviations:
EUR Euro
GBP British Pound
USD U.S. Dollar
See Notes to Financial Statements.
10 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Statement of Assets, Liabilities and Capital
As of August 31, 2007
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $292,147,234) . $ 275,221,229
Investments in affiliated securities, at value (identified cost -- $2,528,765) ..... 2,528,765
Swap premiums paid ................................................................. 181,094
Cash ............................................................................... 107,267
Unrealized appreciation on forward foreign exchange contracts ...................... 99,019
Unrealized appreciation on swaps ................................................... 683,115
Receivables:
Interest receivable ............................................................ $ 5,483,403
Securities sold ................................................................ 2,810,940
Swaps .......................................................................... 639,986
Dividends ...................................................................... 16,823
Commitment fees ................................................................ 995 8,952,147
-------------
Prepaid expenses ................................................................... 3,189
-------------
Total assets ....................................................................... 287,775,825
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Loans .............................................................................. 72,000,000
Unfunded loan commitment ........................................................... 34,166
Swap premiums received ............................................................. 274,560
Unrealized depreciation on swaps 393,819
Payables:
Securities purchased ........................................................... 788,391
Swaps .......................................................................... 789,532
Dividends to shareholders ...................................................... 246,323
Investment adviser ............................................................. 231,835
Interest on loans .............................................................. 114,522
Other affiliates ............................................................... 1,698 2,172,301
-------------
Accrued expenses and other liabilities ............................................. 108,953
-------------
Total liabilities .................................................................. 74,983,799
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets ......................................................................... $ 212,792,026
=============
===================================================================================================================================
Capital
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share; 200,000,000 shares authorized
(12,162,985 shares issued and outstanding) ....................................... $ 1,216,299
Paid-in capital in excess of par ................................................... 230,596,638
Undistributed investment income -- net ............................................. $ 1,905,486
Accumulated realized capital losses -- net ......................................... (4,355,055)
Unrealized depreciation -- net ..................................................... (16,571,342)
-------------
Total accumulated losses -- net .................................................... (19,020,911)
-------------
Total capital -- Equivalent to $17.50 net asset value per share of
Common Stock (market price -- $17.16) ............................................ $ 212,792,026
=============
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 11
Statement of Operations
For the Year Ended August 31, 2007
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Interest (including $225,965 from affiliates) ...................................... $ 30,156,908
Facility and other fees ............................................................ 219,689
Dividends .......................................................................... 60,081
-------------
Total income ....................................................................... 30,436,678
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Loan interest expense .............................................................. $ 5,406,375
Investment advisory fees ........................................................... 2,440,416
Borrowing costs .................................................................... 176,736
Accounting services ................................................................ 77,761
Professional fees .................................................................. 77,042
Printing and shareholder reports ................................................... 43,664
Directors' fees and expenses ....................................................... 42,103
Transfer agent fees ................................................................ 35,615
Pricing services ................................................................... 25,720
Custodian fees ..................................................................... 23,242
Listing fees ....................................................................... 9,673
Other .............................................................................. 22,443
-------------
Total expenses ..................................................................... 8,380,790
-------------
Investment income -- net ........................................................... 22,055,888
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net ............................................................. (2,044,125)
Swaps -- net ................................................................... 1,122,780
Foreign currency transactions -- net ........................................... (408,105) (1,329,450)
-------------
Change in unrealized appreciation/depreciation on:
Investments -- net ............................................................. (12,535,244)
Unfunded corporate loans -- net ................................................ (25,612)
Swaps -- net ................................................................... (1,234,200)
Foreign currency transactions -- net ........................................... 98,983 (13,696,073)
-------------------------------
Total realized and unrealized loss -- net .......................................... (15,025,523)
-------------
Net Increase in Net Assets Resulting from Operations ............................... $ 7,030,365
=============
See Notes to Financial Statements.
12 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Statements of Changes in Net Assets
For the Year Ended
August 31,
-------------------------------
Increase (Decrease) in Net Assets: 2007 2006
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ........................................................... $ 22,055,888 $ 21,188,611
Realized loss -- net ............................................................... (1,329,450) (2,699,062)
Change in unrealized appreciation/depreciation -- net .............................. (13,696,073) 5,700,291
-------------------------------
Net increase in net assets resulting from operations ............................... 7,030,365 24,189,840
-------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from investment income -- net ............................ (21,741,425) (20,336,039)
-------------------------------
===================================================================================================================================
Common Stock Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends ... 3,347,551 558,690
Adjustment of offering costs resulting from the issuance of Common Stock ........... -- (4,659)
-------------------------------
Net increase in net assets resulting from Common Stock transactions ................ 3,347,551 554,031
-------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................................ (11,363,509) 4,407,832
Beginning of year .................................................................. 224,155,535 219,747,703
-------------------------------
End of year* ....................................................................... $ 212,792,026 $ 224,155,535
===============================
* Undistributed investment income -- net ......................................... $ 1,905,486 $ 1,262,021
===============================
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 13
Statement of Cash Flows
For the Year Ended August 31, 2007
===================================================================================================================================
Cash Provided by Operating Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ................................................. $ 7,030,365
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Increase in receivables and prepaid expenses ..................................................... (442,553)
Increase in other liabilities .................................................................... 139,381
Realized and unrealized loss -- net .............................................................. 16,978,617
Amortization of premium and discount ............................................................. 275,855
Realized and unrealized loss on foreign currency transactions .................................... (408,141)
Proceeds from sales and paydowns of long-term securities ............................................. 237,664,968
Purchases of long-term securities .................................................................... (225,662,256)
Purchases of short-term investments .................................................................. (521,418)
-------------
Cash provided by operating activities ................................................................ 35,054,818
-------------
===================================================================================================================================
Cash Used for Financing Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Cash receipts from borrowings ........................................................................ 89,300,000
Cash payments on borrowings .......................................................................... (106,100,000)
Dividends paid to shareholders ....................................................................... (18,147,551)
-------------
Cash used for financing activities ................................................................... (34,947,551)
-------------
===================================================================================================================================
Cash
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash ................................................................................. 107,267
Cash at beginning of year ............................................................................ 0
-------------
Cash at end of year .................................................................................. $ 107,267
=============
===================================================================================================================================
Cash Flow Information
- -----------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest ............................................................................... $ 5,381,920
=============
===================================================================================================================================
Noncash Financing Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Capital shares issued in reinvestment of dividends paid to shareholders .............................. $ 3,347,551
=============
See Notes to Financial Statements.
14 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Financial Highlights
For the Year Ended For the Period
--------------------- January 31, 2005+
The following per share data and ratios have been derived August 31, to August 31,
from information provided in the financial statements. 2007 2006 2005
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................................... $ 18.70 $ 18.38 $ 19.10
-------------------------------------------
Investment income -- net*** ............................................. 1.83 1.77 .84
Realized and unrealized gain (loss) -- net .............................. (1.23) .25 (.77)
-------------------------------------------
Total from investment operations ........................................ .60 2.02 .07
-------------------------------------------
Less dividends from investment income -- net ............................ (1.80) (1.70) (.75)
-------------------------------------------
Offering costs resulting from the issuance of Common Stock .............. -- --++ (.04)
-------------------------------------------
Net asset value, end of period .......................................... $ 17.50 $ 18.70 $ 18.38
===========================================
Market price per share, end of period ................................... $ 17.16 $ 18.85 $ 17.53
===========================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................................... 3.00% 11.99% .42%@
===========================================
Based on market price per share ......................................... .19% 18.36% (8.53%)@
===========================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and excluding interest expense .................. 1.30% 1.29% 1.00%*
===========================================
Expenses, net of waiver ................................................. 3.66% 3.17% 2.20%*
===========================================
Expenses ................................................................ 3.66% 3.17% 2.48%*
===========================================
Investment income -- net ................................................ 9.63% 9.57% 7.88%*
===========================================
====================================================================================================================================
Leverage
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of borrowings, end of period (in thousands) ...................... $ 72,000 $ 88,800 $101,400
===========================================
Average amount of borrowings outstanding during the period (in thousands) $ 95,465 $ 86,132 $ 75,543
===========================================
Average amount of borrowings outstanding per share during the period*** . $ 7.91 $ 7.20 $ 6.33
===========================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................................ $212,792 $224,156 $219,748
===========================================
Portfolio turnover ...................................................... 72% 64% 17%
===========================================
* Annualized.
** Total investment returns based on market price, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Amount is less than $(.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 15
Notes to Financial Statements
1. Significant Accounting Policies:
BlackRock Diversified Income Strategies Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The Fund's financial statements are
prepared in conformity with U.S. generally accepted accounting principles, which
may require the use of management accruals and estimates. Actual results may
differ from these estimates. The Fund determines and makes available for
publication the net asset value of its Common Stock on a daily basis. The Fund's
Common Stock shares are listed on the New York Stock Exchange ("NYSE") under the
symbol DVF.
(a) Corporate debt obligations -- The Fund invests principally in floating rate
debt obligations of companies, including floating rate loan interests made by
banks and other financial institutions and both privately and publicly offered
corporate bonds and notes. The Fund's investments in loan participation
interests involve the risk of insolvency of the financial intermediaries who are
parties to the transactions.
(b) Valuation of investments -- Floating rate loans are valued in accordance
with guidelines established by the Fund's Board of Directors. As of October 2,
2006, floating rate loan interests are valued at the mean between the last
available bid prices from one or more brokers or dealers as obtained from Loan
Pricing Corporation. Previously, floating rate loan interests were valued at the
mean between the last available bid and asked prices as obtained from the same
pricing source. This change had no significant effect on the valuation of these
loans. For the limited number of floating rate loans for which no reliable price
quotes are available, such loan interests may be valued by Loan Pricing
Corporation through the use of pricing matrixes to determine valuations. If the
pricing service does not provide a value for a floating rate loan, BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., will value the floating rate loan at fair value, which is
intended to approximate market value.
Debt securities are traded primarily in the over-the-counter ("OTC") markets and
are valued at the last available bid price in the OTC market or on the basis of
values obtained by a pricing service. Pricing services use valuation matrixes
that incorporate both dealer-supplied valuations and valuation models. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general direction of the Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Securities held by the Fund that are traded on stock exchanges or the NASDAQ
Global Market are valued at the last sale price or official close price on the
exchange on which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last available
bid price for long positions, and at the last available asked price for short
positions. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated as the primary market by or
under the authority of the Board of Directors of the Fund. Long positions in
securities traded in the OTC market, NASDAQ Capital Market or Bulletin Board are
valued at the last available bid price or yield equivalent obtained from one or
more dealers or pricing services approved by the Board of Directors of the Fund.
Short positions in securities traded in the OTC market are valued at the last
available asked price. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based on the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options written or purchased are valued at the
last sale price in the case of exchange-traded options. Options traded in the
OTC market are valued at the last asked price (options written) or last bid
price (options purchased). Swap agreements are valued based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
Other investments, including futures contracts and related options, are stated
at market value. Valuation of short-term investment vehicles is generally based
on the net asset value of the underlying investment vehicle or amortized cost.
Repurchase agreements will be valued at cost plus accrued interest.
Generally, trading in foreign securities, as well as U.S. government securities,
money market instruments and certain fixed income securities, is substantially
completed each day at various times prior to the close of business on the NYSE.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
will generally be determined as of the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset
16 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Notes to Financial Statements (continued)
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Fund's Board of Directors or by
the Manager using a pricing service and/or procedures approved by the Fund's
Board of Directors.
(c) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
o Forward foreign exchange contracts -- The Fund may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. The contract is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or
loss. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value at the time it was opened
and the value at the time it was closed.
o Options -- The Fund may write and purchase call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction is less
than or exceeds the premiums paid or received).
Written and purchased options are non-income producing investments.
o Swaps -- The Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a predetermined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses also
are realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to swap
agreements.
(d) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(e) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 17
Notes to Financial Statements (continued)
all of its taxable income to its shareholders. Therefore, no federal income tax
provision is required.
(f) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund amortizes all premiums and discounts on debt securities. The Fund earns
facility and other fees on loan participation interests. Other fees earned
include amendment, consent and prepayment fees.
(g) Offering costs -- Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital.
(h) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. The Fund may at times pay out less than the entire amount of
net investment income earned in any particular period and may at times pay out
such accumulated undistributed income in other periods to permit the Fund to
maintain a more stable level of dividends.
(i) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(j) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
(k) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $329,002 has been reclassified between accumulated net realized capital
losses and undistributed net investment income as a result of permanent
differences attributable to swap agreements, foreign currency transactions and
18 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Notes to Financial Statements (continued)
amortization methods on fixed income securities. This reclassification has no
effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. BlackRock Advisors, Inc. was reorganized
into a limited liability company and renamed BlackRock Advisors, LLC.
The new Investment Advisory Agreement between the Fund and the Manager became
effective on September 29, 2006. Prior to September 29, 2006, FAM was the Fund's
manager. The general partner of FAM is an indirect, wholly owned subsidiary of
Merrill Lynch, which is the limited partner.
The Manager is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays a monthly fee at an annual rate of .75% of the Fund's average daily net
assets plus the proceeds of any outstanding borrowings used for leverage. In
addition, the Manager has entered into a Sub-Advisory Agreement with BlackRock
Financial Management, Inc., an affiliate of the Manager, under which the Manager
pays the Sub-Adviser for services it provides a monthly fee that is a percentage
of the management fee paid by the Fund to the Manager.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. Pursuant to that order, the Fund has retained
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, as
the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. Prior to September 29, 2006, BIM was organized as
Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, and
MLIM, LLC was the securities lending agent. BIM may, on behalf of the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates.
For the year ended August 31, 2007, the Fund reimbursed FAM and the Manager $275
and $3,918, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or directors of the Fund were
officers and/or directors of FAM, MLIM, Merrill Lynch, and/or MLIM, LLC.
Commencing September 29, 2006, certain officers and/or directors of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended August 31, 2007 were $226,450,647 and
$240,352,016, respectively.
4. Common Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10 per share, all of which are initially classified as Common Stock. The Board
of Directors is authorized, however, to classify and reclassify any unissued
shares of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding for the year ended August 31, 2007 and the year
ended August 31, 2006 increased by 177,522 and 30,227, respectively, as a result
of dividend reinvestments.
5. Unfunded Loan Interest:
As of August 31, 2007, the Fund had unfunded loan commitments of approximately
$794,000 which would be extended at the option of the borrower, pursuant to the
following loan agreements:
(in Thousands)
- --------------------------------------------------------------------------------
Value of
Unfunded Underlying
Borrower Commitment Loan
- --------------------------------------------------------------------------------
Las Vegas Sands ..................................... $200 $190
MEG Energy Corp. .................................... $500 $478
Ng Wireless ......................................... $ 94 $ 92
- --------------------------------------------------------------------------------
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 19
Notes to Financial Statements (concluded)
6. Short-Term Borrowings:
On May 16, 2007, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The agreement
was renewed for one year and has a maximum limit of $125,000,000. Under the
Citicorp program, the conduits will fund advances to the Fund through the
issuance of highly rated commercial paper. As security for its obligations to
the Lenders under the revolving securitization facility, the Fund has granted a
security interest in substantially all of its assets to and in favor of the
Lenders. The interest rate on the Fund's borrowings is based on the interest
rate carried by the commercial paper plus a program fee. The Fund pays
additional borrowing costs including a backstop commitment fee.
The weighted average annual interest rate was 5.62% and the average borrowing
was approximately $95,465,000 for the year ended August 31, 2007.
7. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.150000 per share on
September 28, 2007 to shareholders of record on September 14, 2007.
The tax character of distributions paid during the fiscal years ended August 31,
2007 and August 31, 2006 was as follows:
- --------------------------------------------------------------------------------
8/31/2007 8/31/2006
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $21,741,425 $20,336,039
------------------------------
Total taxable distributions. ............. $21,741,425 $20,336,039
==============================
As of August 31, 2007, the components of accumulated losses on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income -- net ........................ $ 2,004,505
Undistributed long-term capital gains -- net ................ --
------------
Total undistributed earnings -- net ......................... 2,004,505
Capital loss carryforward ................................... (3,993,093)*
Unrealized losses -- net .................................... (17,032,323)**
------------
Total accumulated losses -- net ............................. $(19,020,911)
============
* On August 31, 2007, the Fund had a capital loss carryforward of
$3,993,093, of which $1,755,694 expires in 2014 and $2,237,399 expires in
2015. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains (losses) on certain
foreign currency contracts, the deferral of post-October capital losses
for tax purposes and the accounting for swap agreements.
20 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BlackRock Diversified Income
Strategies Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of BlackRock Diversified Income
Strategies Fund, Inc. (the "Fund") as of August 31, 2007, and the related
statements of operations and cash flows for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the respective periods then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2007, by correspondence with the custodian
and financial intermediaries; where replies were not received from financial
intermediaries, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Diversified Income Strategies Fund, Inc. as of August 31, 2007, the
results of its operations and its cash flows for the year then ended and the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the respective periods then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
October 26, 2007
Important Tax Information (Unaudited)
The following information is provided with respect to the ordinary income
distributions paid monthly by BlackRock Diversified Income Strategies Fund, Inc.
for the fiscal year ended August 31, 2007:
- -------------------------------------------------------------------------------
Interest-Related Dividends for Non-U.S. Residents*
- -------------------------------------------------------------------------------
Month Paid: September 2006 ..................................... 87.68%
October 2006 - January 2007 ........................ 80.27%
February 2007 - August 2007 ........................ 84.17%
- -------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
Fund Certification (Unaudited)
In January 2007, the Fund filed its Chief Executive Officer Certification and
its Annual Written Affirmation for the prior year with the New York Stock
Exchange pursuant to Section 303A.12 of the New York Stock Exchange Corporate
Listed Company Manual.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 21
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by Computershare Trust
Company, N.A. (the "Plan Agent"). Under the Plan, whenever the Fund declares a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the re traded both in the Plan Agent will invest the dividend amount
in newly issued shares. If the Fund's net asset value per share is greater than
the market price per share (a condition often referred to as a "market
discount"), the Plan Agent will invest the dividend amount by purchasing on the
open market additional shares. If the Plan Agent is unable to invest the full
dividend amount in open market purchases, or if the market discount shifts to a
market premium during the purchase period, the Plan Agent will invest any
uninvested portion in newly issued shares. The shares acquired are credited to
each shareholder's account. The amount credited is determined by dividing the
dollar amount of the dividend by either (i) when the shares are newly issued,
the net asset value per share on the date the shares are issued or (ii) when
shares are purchased in the open market, the average purchase price per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount reinvested would
be excluded from gross income. If, when the Fund's shares are trading at a
market premium, the Fund issues shares pursuant to the Plan that have a greater
fair market value than the amount of cash reinvested, it is possible that all or
a portion of the discount from the market value (which may not exceed 5% of the
fair market value of the Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution, it is also
possible that the taxable character of this discount would be allocable to all
the shareholders, including shareholders who do not participate in the Plan.
Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at Computershare
Trust Company, N.A., P.O. Box 43010, Providence, RI 02940-3010, Telephone:
800-426-5523
22 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Officers and Directors
Number of
Funds and
Portfolios in
Position(s) Length of Fund Complex Other Public
Name, Address Held with Time Overseen by Directorships
and Year of Birth Fund Served Principal Occupation(s) During Past 5 Years Director Held by Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. Doll, Jr.* Fund 2005 to Vice Chairman and Director of BlackRock, 120 Funds None
P.O. Box 9011 President present Inc., Global Chief Investment Officer for 161 Portfolios
Princeton, NJ 08543-9011 and Equities, Chairman of the BlackRock Retail
1954 Director Operating Committee, and member of the
BlackRock Executive Committee since 2006;
President of the funds advised by Merrill
Lynch Investment Managers, L.P. ("MLIM") and
its affiliates ("MLIM/FAM-advised funds")
from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President
of MLIM and Fund Asset Management, L.P.
("FAM") from 2001 to 2006; Co-Head (Americas
Region) thereof from 2000 to 2001 and Senior
Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc.
("Princeton Services") and President of
Princeton Administrators, L.P. ("Princeton
Administrators") from 2001 to 2006; Chief
Investment Officer of OppenheimerFunds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999.
---------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment
companies for which BlackRock Advisors, LLC and its affiliates act as investment adviser. Mr. Doll
is an "interested person," as defined in the Investment Company Act, of the Fund based on his
current and former positions with BlackRock, Inc. and its affiliates. Directors serve until their
resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald W. Forbes** Director 2005 to Professor Emeritus of Finance, School of 46 Funds None
P.O. Box 9095 present Business, State University of New York at 48 Portfolios
Princeton, NJ 08543-9095 Albany since 2000 and Professor thereof from
1940 1989 to 2000; International Consultant,
Urban Institute, Washington, D.C. from 1995
to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. Montgomery Director 2005 to Professor, Harvard Business School since 46 Funds Newell Rubbermaid,
P.O. Box 9095 present 1989; Associate Professor, J.L. Kellogg 48 Portfolios Inc. (manufacturing)
Princeton, NJ 08543-9095 Graduate School of Management, Northwestern
1952 University from 1985 to 1989; Associate
Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985; Director, Harvard Business
School Publishing since 2005; Director,
McLean Hospital since 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Director 2005 to Self-employed consultant since 2001; Counsel 46 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 48 Portfolios
Princeton, NJ 08543-9095 adviser) in 2000; General Counsel, Director
1945 and Secretary of Sanford C. Bernstein & Co.,
Inc. (investment adviser/broker-dealer) from
1997 to 2000; Secretary, Sanford C.
Bernstein Fund, Inc. from 1994 to 2000;
Director and Secretary of SCB, Inc. since
1998; Director and Secretary of SCB
Partners, Inc. since 2000; Director of
Covenant House from 2001 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. Suddarth Director 2005 to President, Middle East Institute, from 1995 46 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 48 Portfolios
Princeton, NJ 08543-9095 States Foreign Service, from 1961 to 1995
1935 and Career Minister from 1989 to 1995;
Deputy Inspector General, U.S. Department of
State, from 1991 to 1994; U.S. Ambassador to
the Hashemite Kingdom of Jordan from 1987 to
1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. West Director 2005 to Professor of Finance from 1984 to 1995, Dean 46 Funds Bowne & Co., Inc.
P.O. Box 9095 present from 1984 to 1993 and since 1995 Dean 48 Portfolios (financial printers);
Princeton, NJ 08543-9095 Emeritus of New York University's Leonard N. Vornado Realty
1938 Stern School of Business Administration. Trust (real estate
company);
Alexander's, Inc.
(real estate company)
---------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in
which they turn 72.
** Chairman of the Board of Directors and the Audit Committee.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 23
Officers and Directors (concluded)
Position(s) Length of
Name, Address Held with Time
and Year of Birth Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke Vice 2005 to Managing Director of BlackRock, Inc. since 2006; Managing Director of Merrill
P.O. Box 9011 President present Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. ("FAM")
Princeton, NJ 08543-9011 and in 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer
1960 Treasurer thereof from 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Clark Fund Chief 2007 to Managing Director of BlackRock, Inc. and Chief Compliance Officer of certain
P.O. Box 9011 Compliance present BlackRock-advised funds since 2007; Director of BlackRock, Inc. from 2005 to
Princeton, NJ 08543-9011 Officer 2007; Principal and Senior Compliance Officer, State Street Global Advisors,
1965 from 2001 to 2005; Principal Consultant, PricewaterhouseCoopers, LLP from 1998
to 2001; and Branch Chief, Division of Investment Management and Office of
Compliance Inspections and Examinations, U.S. Securities and Exchange
Commission, from 1993 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. Pellegrino Fund 2004 to Director of BlackRock, Inc. from 2006 to 2007; Director (Legal Advisory) of MLIM
P.O. Box 9011 Secretary 2007 from 2002 to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated
Princeton, NJ 08543-9011 with MLIM from 1997 to 1999; Secretary of MLIM, FAM, FAM Distributors, Inc. and
1960 Princeton Services from 2004 to 2006.
- ------------------------------------------------------------------------------------------------------------------------------------
Howard Surloff Fund 2007 to Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at
P.O. Box 9011 Secretary present BlackRock, Inc. since 2006; General Counsel (U.S.), Goldman Sachs Asset
Princeton, NJ 08543-9011 Management from 1993 to 2006.
1965
---------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
24 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisers, banks or brokerages may offer this service.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007 25
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law or
as is necessary to respond to regulatory requests or to service Client accounts.
These non-affiliated third parties are required to protect the confidentiality
and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
26 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. AUGUST 31, 2007
BlackRock Diversified Income Strategies Fund, Inc. seeks a high current income
by investing primarily in a diversified portfolio of floating rate debt
securities and instruments.
This report, including the financial information herein, is transmitted for use
only to shareholders of BlackRock Diversified Income Strategies Fund, Inc. for
their information. It is not a prospectus, circular or representation intended
for use in the purchase of shares of the Fund or any securities mentioned in
this report. Past performance results shown in this report should not be
considered a representation of future performance. The Fund leverages its Common
Stock to provide Common Stock shareholders with a potentially higher rate of
return. Leverage creates risk for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price of Common
Stock shares, and the risk that fluctuations in short-term interest rates may
reduce the Common Stock's yield. Statements and other information herein are as
dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Diversified Income Strategies Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#DISP-8/07
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, applicable to the
registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. During the period covered by this report, there
have been no amendments to or waivers granted under the code of
ethics. A copy of the code of ethics is available without charge at
www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors or trustees, as applicable (the "board of directors") has
determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent: (1) Ronald W. Forbes, (2)
Richard R. West, and (3) Edward D. Zinbarg (retired as of December
31, 2006).
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
- -----------------------------------------------------------------------------------------------------------------------
(b) Audit-Related
(a) Audit Fees Fees(1) (c) Tax Fees(2) (d) All Other Fees(3)
- -----------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
Entity Name Year End Year End Year End Year End Year End Year End Year End Year End
- -----------------------------------------------------------------------------------------------------------------------
BlackRock
Diversified Income
Strategies Fund,
Inc. $38,500 $38,500 $0 $8,000 $6,100 $6,000 $1,042 $0
- -----------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services reasonably
related to the performance of the audit of financial statements not included in
Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax
planning.
3 The nature of the services include a review of compliance procedures and
attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). However, such services will only be deemed
pre-approved provided that any individual project does not exceed
$5,000 attributable to the registrant or $50,000 for all of the
registrants the Committee oversees. Any proposed services exceeding
the pre-approved cost levels will require specific pre-approval by
the Committee, as will any other services not subject to general
pre-approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
--------------------------------------------------------------------
Current Fiscal Year Previous Fiscal
Entity Name End Year End
--------------------------------------------------------------------
BlackRock Diversified
Income Strategies Fund, Inc. $291,642 $3,112,500
--------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $284,500, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg (retired as of December 31, 2006)
Item 6 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item 1
of this form.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - The registrant has delegated the
voting of proxies relating to Fund portfolio securities to its
investment adviser, BlackRock Advisors, LLC and its sub-adviser, as
applicable. The Proxy Voting Policies and Procedures of the adviser
and sub-adviser are attached hereto as Exhibit 99.PROXYPOL.
Information about how a Fund voted proxies relating to securities
held in the Fund's portfolio during the most recent 12 month period
ended June 30 is available without charge (1) at www.blackrock.com
and (2) on the Commission's web site at http://www.sec.gov.
Proxy Voting Policies and Procedures
For BlackRock Advisors, LLC
And Its Affiliated SEC Registered Investment Advisers
September 30, 2006
Table of Contents
Page
----
Introduction.................................................................
Scope of Committee Responsibilities..........................................
Special Circumstances........................................................
Voting Guidelines............................................................
Boards of Directors....................................................
Auditors...............................................................
Compensation and Benefits..............................................
Capital Structure......................................................
Corporate Charter and By-Laws..........................................
Corporate Meetings.....................................................
Investment Companies...................................................
Environmental and Social Issues........................................
Notice to Clients............................................................
Proxy Voting Policies and Procedures
These Proxy Voting Policies and Procedures ("Policy") for BlackRock
Advisors, LLC and its affiliated U.S. registered investment advisers(1)
("BlackRock") reflect our duty as a fiduciary under the Investment Advisers Act
of 1940 (the "Advisers Act") to vote proxies in the best interests of our
clients. BlackRock serves as the investment manager for investment companies,
other commingled investment vehicles and/or separate accounts of institutional
and other clients. The right to vote proxies for securities held in such
accounts belongs to BlackRock's clients. Certain clients of BlackRock have
retained the right to vote such proxies in general or in specific
circumstances.(2) Other clients, however, have delegated to BlackRock the right
to vote proxies for securities held in their accounts as part of BlackRock's
authority to manage, acquire and dispose of account assets.
When BlackRock votes proxies for a client that has delegated to BlackRock
proxy voting authority, BlackRock acts as the client's agent. Under the Advisers
Act, an investment adviser is a fiduciary that owes each of its clients a duty
of care and loyalty with respect to all services the adviser undertakes on the
client's behalf, including proxy voting. BlackRock is therefore subject to a
fiduciary duty to vote proxies in a manner BlackRock believes is consistent with
the client's best interests,(3) whether or not the client's proxy voting is
subject to the fiduciary standards of the Employee Retirement Income Security
Act of 1974 ("ERISA").(4) When voting proxies for client accounts (including
investment companies), BlackRock's primary objective is to make voting decisions
solely in the best interests of clients and ERISA clients' plan beneficiaries
and participants. In fulfilling its obligations to clients, BlackRock will seek
to act in a manner that it believes is most likely to enhance the economic value
of the underlying securities held in client accounts.(5) It is imperative that
BlackRock considers the interests of its clients, and not the interests of
BlackRock, when voting proxies and that real (or perceived) material conflicts
that may arise between BlackRock's interest and those of BlackRock's clients are
properly addressed and resolved.
- ----------
(1) The Policy does not apply to BlackRock Asset Management U.K. Limited and
BlackRock Investment Managers International Limited, which are U.S. registered
investment advisers based in the United Kingdom.
(2) In certain situations, a client may direct BlackRock to vote in accordance
with the client's proxy voting policies. In these situations, BlackRock will
seek to comply with such policies to the extent it would not be inconsistent
with other BlackRock legal responsibilities.
(3) Letter from Harvey L. Pitt, Chairman, SEC, to John P.M. Higgins, President,
Ram Trust Services (February 12, 2002) (Section 206 of the Investment Advisers
Act imposes a fiduciary responsibility to vote proxies fairly and in the best
interests of clients); SEC Release No. IA-2106 (February 3, 2003).
(4) DOL Interpretative Bulletin of Sections 402, 403 and 404 of ERISA at 29
C.F.R. 2509.94-2.
(5) Other considerations, such as social, labor, environmental or other
policies, may be of interest to particular clients. While BlackRock is cognizant
of the importance of such considerations, when voting proxies it will generally
take such matters into account only to the extent that they have a direct
bearing on the economic value of the underlying securities. To the extent that a
BlackRock client desires to pursue a particular social, labor, environmental or
other agenda through the proxy votes made for its securities held through
BlackRock as investment adviser, BlackRock encourages the client to consider
retaining direct proxy voting authority or to appoint independently a special
proxy voting fiduciary other than BlackRock.
1
Advisers Act Rule 206(4)-6 was adopted by the SEC in 2003 and requires,
among other things, that an investment adviser that exercises voting authority
over clients' proxy voting adopt policies and procedures reasonably designed to
ensure that the adviser votes proxies in the best interests of clients,
discloses to its clients information about those policies and procedures and
also discloses to clients how they may obtain information on how the adviser has
voted their proxies.
In light of such fiduciary duties, the requirements of Rule 206(4)-6, and
given the complexity of the issues that may be raised in connection with proxy
votes, BlackRock has adopted these policies and procedures. BlackRock's Equity
Investment Policy Oversight Committee, or a sub-committee thereof (the
"Committee"), addresses proxy voting issues on behalf of BlackRock and its
clients.(6) The Committee is comprised of senior members of BlackRock's
Portfolio Management Group and advised by BlackRock's Legal and Compliance
Department.
- ----------
(6) Subject to the Proxy Voting Policies of Merrill Lynch Bank & Trust Company
FSB, the Committee may also function jointly as the Proxy Voting Committee for
Merrill Lynch Bank & Trust Company FSB trust accounts managed by personnel
dually-employed by BlackRock.
2
I. Scope of Committee Responsibilities
The Committee shall have the responsibility for determining how to address
proxy votes made on behalf of all BlackRock clients, except for clients who have
retained the right to vote their own proxies, either generally or on any
specific matter. In so doing, the Committee shall seek to ensure that proxy
votes are made in the best interests of clients, and that proxy votes are
determined in a manner free from unwarranted or inappropriate influences. The
Committee shall also oversee the overall administration of proxy voting for
BlackRock accounts.(7)
The Committee shall establish BlackRock's proxy voting guidelines, with
such advice, participation and research as the Committee deems appropriate from
portfolio managers, proxy voting services or other knowledgeable interested
parties. As it is anticipated that there will not necessarily be a "right" way
to vote proxies on any given issue applicable to all facts and circumstances,
the Committee shall also be responsible for determining how the proxy voting
guidelines will be applied to specific proxy votes, in light of each issuer's
unique structure, management, strategic options and, in certain circumstances,
probable economic and other anticipated consequences of alternative actions. In
so doing, the Committee may determine to vote a particular proxy in a manner
contrary to its generally stated guidelines.
The Committee may determine that the subject matter of certain proxy
issues are not suitable for general voting guidelines and requires a
case-by-case determination, in which case the Committee may elect not to adopt a
specific voting guideline applicable to such issues. BlackRock believes that
certain proxy voting issues - such as approval of mergers and other significant
corporate transactions - require investment analysis akin to investment
decisions, and are therefore not suitable for general guidelines. The Committee
may elect to adopt a common BlackRock position on certain proxy votes that are
akin to investment decisions, or determine to permit portfolio managers to make
individual decisions on how best to maximize economic value for the accounts for
which they are responsible (similar to normal buy/sell investment decisions made
by such portfolio managers).(8)
While it is expected that BlackRock, as a fiduciary, will generally seek
to vote proxies over which BlackRock exercises voting authority in a uniform
manner for all BlackRock clients, the Committee, in conjunction with the
portfolio manager of an account, may determine that the specific circumstances
of such account require that such account's proxies be voted differently due to
such account's investment objective or other factors that differentiate it from
other accounts. In addition, on proxy votes that are akin to investment
decisions, BlackRock believes portfolio managers may from time to time
- ----------
(7) The Committee may delegate day-to-day administrative responsibilities to
other BlackRock personnel and/or outside service providers, as appropriate.
(8) The Committee will normally defer to portfolio managers on proxy votes that
are akin to investment decisions except for proxy votes that involve a material
conflict of interest, in which case it will determine, in its discretion, the
appropriate voting process so as to address such conflict.
3
legitimately reach differing but equally valid views, as fiduciaries for
BlackRock's clients, on how best to maximize economic value in respect of a
particular investment.
The Committee will also be responsible for ensuring the maintenance of
records of each proxy vote, as required by Advisers Act Rule 204-2.(9) All
records will be maintained in accordance with applicable law. Except as may be
required by applicable legal requirements, or as otherwise set forth herein, the
Committee's determinations and records shall be treated as proprietary,
nonpublic and confidential.
The Committee shall be assisted by other BlackRock personnel, as may be
appropriate. In particular, the Committee has delegated to the BlackRock
Operations Department responsibility for monitoring corporate actions and
ensuring that proxy votes are submitted in a timely fashion. The Operations
Department shall ensure that proxy voting issues are promptly brought to the
Committee's attention and that the Committee's proxy voting decisions are
appropriately disseminated and implemented.
To assist BlackRock in voting proxies, the Committee may retain the
services of a firm providing such services. BlackRock has currently retained
Institutional Shareholder Services ("ISS") in that role. ISS is an independent
adviser that specializes in providing a variety of fiduciary-level proxy-related
services to institutional investment managers, plan sponsors, custodians,
consultants, and other institutional investors. The services provided to
BlackRock may include, but are not limited to, in-depth research, voting
recommendations (which the Committee is not obligated to follow), vote
execution, and recordkeeping.
- ----------
(9) The Committee may delegate the actual maintenance of such records to an
outside service provider. Currently, the Committee has delegated the maintenance
of such records to Institutional Shareholder Services.
4
II. Special Circumstances
Routine Consents. BlackRock may be asked from time to time to consent to
an amendment to, or grant a waiver under, a loan agreement, partnership
agreement, indenture or other governing document of a specific financial
instrument held by BlackRock clients. BlackRock will generally treat such
requests for consents not as "proxies" subject to these Proxy Voting Policies
and Procedures but as investment matters to be dealt with by the responsible
BlackRock investment professionals would, provided that such consents (i) do not
relate to the election of a board of directors or appointment of auditors of a
public company, and (ii) either (A) would not otherwise materially affect the
structure, management or control of a public company, or (B) relate to a company
in which BlackRock clients hold only interests in bank loans or debt securities
and are consistent with customary standards and practices for such instruments.
Securities on Loan. Registered investment companies that are advised by
BlackRock as well as certain of our advisory clients may participate in
securities lending programs. Under most securities lending arrangements,
securities on loan may not be voted by the lender (unless the loan is recalled).
BlackRock believes that each client has the right to determine whether
participating in a securities lending program enhances returns, to contract with
the securities lending agent of its choice and to structure a securities lending
program, through its lending agent, that balances any tension between loaning
and voting securities in a matter that satisfies such client. If client has
decided to participate in a securities lending program, BlackRock will therefore
defer to the client's determination and not attempt to seek recalls solely for
the purpose of voting routine proxies as this could impact the returns received
from securities lending and make the client a less desirable lender in a
marketplace. Where a client retains a lending agent that is unaffiliated with
BlackRock, BlackRock will generally not seek to vote proxies relating to
securities on loan because BlackRock does not have a contractual right to recall
such loaned securities for the purpose of voting proxies. Where BlackRock or an
affiliate acts as the lending agent, BlackRock will also generally not seek to
recall loaned securities for proxy voting purposes, unless the portfolio manager
responsible for the account or the Committee determines that voting the proxy is
in the client's best interest and requests that the security be recalled.
Voting Proxies for Non-US Companies. While the proxy voting process is
well established in the United States, voting proxies of non-US companies
frequently involves logistical issues which can affect BlackRock's ability to
vote such proxies, as well as the desirability of voting such proxies. These
issues include (but are not limited to): (i) untimely notice of shareholder
meetings, (ii) restrictions on a foreigner's ability to exercise votes, (iii)
requirements to vote proxies in person, (iv) "shareblocking" (requirements that
investors who exercise their voting rights surrender the right to dispose of
their holdings for some specified period in proximity to the shareholder
meeting), (v) potential difficulties in translating the proxy, and (vi)
requirements to provide local agents with unrestricted powers of attorney to
facilitate voting instructions.
5
As a consequence, BlackRock votes proxies of non-US companies only on a
"best-efforts" basis. In addition, the Committee may determine that it is
generally in the best interests of BlackRock clients not to vote proxies of
companies in certain countries if the Committee determines that the costs
(including but not limited to opportunity costs associated with shareblocking
constraints) associated with exercising a vote generally are expected to
outweigh the benefit the client will derive by voting on the issuer's proposal.
If the Committee so determines in the case of a particular country, the
Committee (upon advice from BlackRock portfolio managers) may override such
determination with respect to a particular issuer's shareholder meeting if the
Committee believes the benefits of seeking to exercise a vote at such meeting
outweighs the costs, in which case BlackRock will seek to vote on a best-efforts
basis.
Securities Sold After Record Date. With respect to votes in connection
with securities held on a particular record date but sold from a client account
prior to the holding of the related meeting, BlackRock may take no action on
proposals to be voted on in such meeting.
Conflicts of Interest. From time to time, BlackRock may be required to
vote proxies in respect of an issuer that is an affiliate of BlackRock (a
"BlackRock Affiliate"), or a money management or other client of BlackRock (a
"BlackRock Client").(10) In such event, provided that the Committee is aware of
the real or potential conflict, the following procedures apply:
o The Committee intends to adhere to the voting guidelines set forth
herein for all proxy issues including matters involving BlackRock
Affiliates and BlackRock Clients. The Committee may, in its
discretion for the purposes of ensuring that an independent
determination is reached, retain an independent fiduciary to advise
the Committee on how to vote or to cast votes on behalf of
BlackRock's clients; and
o if the Committee determines not to retain an independent fiduciary,
or does not desire to follow the advice of such independent
fiduciary, the Committee shall determine how to vote the proxy after
consulting with the BlackRock Legal and Compliance Department and
concluding that the vote cast is in the client's best interest
notwithstanding the conflict.
- ----------
(10) Such issuers may include investment companies for which BlackRock provides
investment advisory, administrative and/or other services.
6
III. Voting Guidelines
The Committee has determined that it is appropriate and in the best
interests of BlackRock's clients to adopt the following voting guidelines, which
represent the Committee's usual voting position on certain recurring proxy
issues that are not expected to involve unusual circumstances. With respect to
any particular proxy issue, however, the Committee may elect to vote differently
than a voting guideline if the Committee determines that doing so is, in the
Committee's judgment, in the best interest of its clients. The guidelines may be
reviewed at any time upon the request of any Committee member and may be amended
or deleted upon the vote of a majority of voting Committee members present at a
Committee meeting for which there is a quorum.
7
A. Boards of Directors
These proposals concern those issues submitted to shareholders relating to
the composition of the Board of Directors of companies other than investment
companies. As a general matter, the Committee believes that a company's Board of
Directors (rather than shareholders) is most likely to have access to important,
nonpublic information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee management. The
Committee therefore believes that the foundation of good corporate governance is
the election of qualified, independent corporate directors who are likely to
diligently represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over time.
In individual cases, the Committee may look at a Director nominee's history of
representing shareholder interests as a director of other companies, or other
factors to the extent the Committee deems relevant.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
# VOTE and DESCRIPTION
- --------------------------------------------------------------------------------
A.1 FOR nominees for director of United States companies in uncontested
elections, except for nominees who
o have missed at least two meetings and, as a result, attended less
than 75% of meetings of the Board of Directors and its committees
the previous year, unless the nominee missed the meeting(s) due to
illness or company business
o voted to implement or renew a "dead-hand" poison pill
o ignored a shareholder proposal that was approved by either a
majority of the shares outstanding in any year or by the majority of
votes cast for two consecutive years
o failed to act on takeover offers where the majority of the
shareholders have tendered their shares
o are corporate insiders who serve on the audit, compensation or
nominating committees or on a full Board that does not have such
committees composed exclusively of independent directors
o on a case-by-case basis, have served as directors of other companies
with allegedly poor corporate governance
o sit on more than six boards of public companies
- --------------------------------------------------------------------------------
A.2 FOR nominees for directors of non-U.S. companies in uncontested elections,
except for nominees from whom the Committee determines to withhold votes
due to the nominees' poor records of representing shareholder interests,
on a case-by-case basis
- --------------------------------------------------------------------------------
A.3 FOR proposals to declassify Boards of Directors, except where there exists
a legitimate purpose for classifying boards
- --------------------------------------------------------------------------------
A.4 AGAINST proposals to classify Boards of Directors, except where there
exists a legitimate purpose for classifying boards
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
A.5 AGAINST proposals supporting cumulative voting
- --------------------------------------------------------------------------------
A.6 FOR proposals eliminating cumulative voting
- --------------------------------------------------------------------------------
A.7 FOR proposals supporting confidential voting
- --------------------------------------------------------------------------------
A.8 FOR proposals seeking election of supervisory board members
- --------------------------------------------------------------------------------
A.9 AGAINST shareholder proposals seeking additional representation of women
and/or minorities generally (i.e., not specific individuals) to a Board of
Directors
- --------------------------------------------------------------------------------
A.10 AGAINST shareholder proposals for term limits for directors
- --------------------------------------------------------------------------------
A.11 FOR shareholder proposals to establish a mandatory retirement age for
directors who attain the age of 72 or older
- --------------------------------------------------------------------------------
A.12 AGAINST shareholder proposals requiring directors to own a minimum amount
of company stock
- --------------------------------------------------------------------------------
A.13 FOR proposals requiring a majority of independent directors on a Board of
Directors
- --------------------------------------------------------------------------------
A.14 FOR proposals to allow a Board of Directors to delegate powers to a
committee or committees
- --------------------------------------------------------------------------------
A.15 FOR proposals to require audit, compensation and/or nominating committees
of a Board of Directors to consist exclusively of independent directors
- --------------------------------------------------------------------------------
A.16 AGAINST shareholder proposals seeking to prohibit a single person from
occupying the roles of chairman and chief executive officer
- --------------------------------------------------------------------------------
A.17 FOR proposals to elect account inspectors
- --------------------------------------------------------------------------------
A.18 FOR proposals to fix the membership of a Board of Directors at a specified
size
- --------------------------------------------------------------------------------
A.19 FOR proposals permitting shareholder ability to nominate directors
directly
- --------------------------------------------------------------------------------
A.20 AGAINST proposals to eliminate shareholder ability to nominate directors
directly
- --------------------------------------------------------------------------------
A.21 FOR proposals permitting shareholder ability to remove directors directly
- --------------------------------------------------------------------------------
A.22 AGAINST proposals to eliminate shareholder ability to remove directors
directly
- --------------------------------------------------------------------------------
9
B. Auditors
These proposals concern those issues submitted to shareholders related to
the selection of auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests of
shareholders and provide an independent view on the propriety of financial
reporting decisions of corporate management. While the Committee will generally
defer to a corporation's choice of auditor, in individual cases, the Committee
may look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
B.1 FOR approval of independent auditors, except for
o auditors that have a financial interest in, or material association
with, the company they are auditing, and are therefore believed by
the Committee not to be independent
o auditors who have rendered an opinion to any company which in the
Committee's opinion is either not consistent with best accounting
practices or not indicative of the company's financial situation
o on a case-by-case basis, auditors who in the Committee's opinion
provide a significant amount of non-audit services to the company
- --------------------------------------------------------------------------------
B.2 FOR proposals seeking authorization to fix the remuneration of auditors
- --------------------------------------------------------------------------------
B.3 FOR approving internal statutory auditors
- --------------------------------------------------------------------------------
B.4 FOR proposals for audit firm rotation, except for proposals that would
require rotation after a period of less than 5 years
- --------------------------------------------------------------------------------
10
C. Compensation and Benefits
These proposals concern those issues submitted to shareholders related to
management compensation and employee benefits. As a general matter, the
Committee favors disclosure of a company's compensation and benefit policies and
opposes excessive compensation, but believes that compensation matters are
normally best determined by a corporation's board of directors, rather than
shareholders. Proposals to "micro-manage" a company's compensation practices or
to set arbitrary restrictions on compensation or benefits will therefore
generally not be supported.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
C.1 IN ACCORDANCE WITH THE RECOMMENDATION OF ISS on compensation plans if the
ISS recommendation is based solely on whether or not the company's plan
satisfies the allowable cap as calculated by ISS. If the recommendation of
ISS is based on factors other than whether the plan satisfies the
allowable cap the Committee will analyze the particular proposed plan.
This policy applies to amendments of plans as well as to initial
approvals.
- --------------------------------------------------------------------------------
C.2 FOR proposals to eliminate retirement benefits for outside directors
- --------------------------------------------------------------------------------
C.3 AGAINST proposals to establish retirement benefits for outside directors
- --------------------------------------------------------------------------------
C.4 FOR proposals approving the remuneration of directors or of supervisory
board members
- --------------------------------------------------------------------------------
C.5 AGAINST proposals to reprice stock options
- --------------------------------------------------------------------------------
C.6 FOR proposals to approve employee stock purchase plans that apply to all
employees. This policy applies to proposals to amend ESPPs if the plan as
amended applies to all employees.
- --------------------------------------------------------------------------------
C.7 FOR proposals to pay retirement bonuses to directors of Japanese companies
unless the directors have served less than three years
- --------------------------------------------------------------------------------
C.8 AGAINST proposals seeking to pay outside directors only in stock
- --------------------------------------------------------------------------------
C.9 FOR proposals seeking further disclosure of executive pay or requiring
companies to report on their supplemental executive retirement benefits
- --------------------------------------------------------------------------------
C.10 AGAINST proposals to ban all future stock or stock option grants to
executives
- --------------------------------------------------------------------------------
C.11 AGAINST option plans or grants that apply to directors or employees of
"related companies" without adequate disclosure of the corporate
relationship and justification of the option policy
- --------------------------------------------------------------------------------
C.12 FOR proposals to exclude pension plan income in the calculation of
earnings used in determining executive bonuses/compensation
- --------------------------------------------------------------------------------
11
D. Capital Structure
These proposals relate to various requests, principally from management,
for approval of amendments that would alter the capital structure of a company,
such as an increase in authorized shares. As a general matter, the Committee
will support requests that it believes enhance the rights of common shareholders
and oppose requests that appear to be unreasonably dilutive.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
D.1 AGAINST proposals seeking authorization to issue shares without preemptive
rights except for issuances up to 10% of a non-US company's total
outstanding capital
- --------------------------------------------------------------------------------
D.2 FOR management proposals seeking preemptive rights or seeking
authorization to issue shares with preemptive rights
- --------------------------------------------------------------------------------
D.3 FOR management proposals approving share repurchase programs
- --------------------------------------------------------------------------------
D.4 FOR management proposals to split a company's stock
- --------------------------------------------------------------------------------
D.5 FOR management proposals to denominate or authorize denomination of
securities or other obligations or assets in Euros
- --------------------------------------------------------------------------------
D.6 FOR proposals requiring a company to expense stock options (unless the
company has already publicly committed to do so by a certain date).
- --------------------------------------------------------------------------------
12
E. Corporate Charter and By-Laws
These proposals relate to various requests for approval of amendments to a
corporation's charter or by-laws, principally for the purpose of adopting or
redeeming "poison pills". As a general matter, the Committee opposes poison pill
provisions.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
E.1 AGAINST proposals seeking to adopt a poison pill
- --------------------------------------------------------------------------------
E.2 FOR proposals seeking to redeem a poison pill
- --------------------------------------------------------------------------------
E.3 FOR proposals seeking to have poison pills submitted to shareholders for
ratification
- --------------------------------------------------------------------------------
E.4 FOR management proposals to change the company's name
- --------------------------------------------------------------------------------
13
F. Corporate Meetings
These are routine proposals relating to various requests regarding the
formalities of corporate meetings.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
F.1 AGAINST proposals that seek authority to act on "any other business that
may arise"
- --------------------------------------------------------------------------------
F.2 FOR proposals designating two shareholders to keep minutes of the meeting
- --------------------------------------------------------------------------------
F.3 FOR proposals concerning accepting or approving financial statements and
statutory reports
- --------------------------------------------------------------------------------
F.4 FOR proposals approving the discharge of management and the supervisory
board
- --------------------------------------------------------------------------------
F.5 FOR proposals approving the allocation of income and the dividend
- --------------------------------------------------------------------------------
F.6 FOR proposals seeking authorization to file required documents/other
formalities
- --------------------------------------------------------------------------------
F.7 FOR proposals to authorize the corporate board to ratify and execute
approved resolutions
- --------------------------------------------------------------------------------
F.8 FOR proposals appointing inspectors of elections
- --------------------------------------------------------------------------------
F.9 FOR proposals electing a chair of the meeting
- --------------------------------------------------------------------------------
F.10 FOR proposals to permit "virtual" shareholder meetings over the Internet
- --------------------------------------------------------------------------------
F.11 AGAINST proposals to require rotating sites for shareholder meetings
- --------------------------------------------------------------------------------
14
G. Investment Companies
These proposals relate to proxy issues that are associated solely with
holdings of shares of investment companies, including, but not limited to,
investment companies for which BlackRock provides investment advisory,
administrative and/or other services. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee management.
However, the Committee opposes granting Boards of Directors authority over
certain matters, such as changes to a fund's investment objective, that the
Investment Company Act of 1940 envisions will be approved directly by
shareholders.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
G.1 FOR nominees for director of mutual funds in uncontested elections, except
for nominees who
o have missed at least two meetings and, as a result, attended less
than 75% of meetings of the Board of Directors and its committees
the previous year, unless the nominee missed the meeting due to
illness or fund business
o ignore a shareholder proposal that was approved by either a majority
of the shares outstanding in any year or by the majority of votes
cast for two consecutive years
o are interested directors who serve on the audit or nominating
committees or on a full Board that does not have such committees
composed exclusively of independent directors
o on a case-by-case basis, have served as directors of companies with
allegedly poor corporate governance
- --------------------------------------------------------------------------------
G.2 FOR the establishment of new series or classes of shares
- --------------------------------------------------------------------------------
G.3 AGAINST proposals to change a fund's investment objective to
nonfundamental
- --------------------------------------------------------------------------------
G.4 FOR proposals to establish a master-feeder structure or authorizing the
Board to approve a master-feeder structure without a further shareholder
vote
- --------------------------------------------------------------------------------
G.5 AGAINST a shareholder proposal for the establishment of a director
ownership requirement
- --------------------------------------------------------------------------------
G.6 FOR classified boards of closed-end investment companies
- --------------------------------------------------------------------------------
15
H. Environmental and Social Issues
These are shareholder proposals to limit corporate conduct in some manner
that relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are inappropriate
forums for the discussion of larger social issues, and opposes shareholder
resolutions "micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an investment in the
corporation as an economic matter. While the Committee is generally supportive
of proposals to require corporate disclosure of matters that seem relevant and
material to the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate matters for other
purposes.
The Committee's general policy is to vote:
- --------------------------------------------------------------------------------
H.1 AGAINST proposals seeking to have companies adopt international codes of
conduct
- --------------------------------------------------------------------------------
H.2 AGAINST proposals seeking to have companies provide non-required reports
on:
o environmental liabilities;
o bank lending policies;
o corporate political contributions or activities;
o alcohol advertising and efforts to discourage drinking by minors;
o costs and risk of doing business in any individual country;
o involvement in nuclear defense systems
- --------------------------------------------------------------------------------
H.3 AGAINST proposals requesting reports on Maquiladora operations or on CERES
principles
- --------------------------------------------------------------------------------
H.4 AGAINST proposals seeking implementation of the CERES principles
- --------------------------------------------------------------------------------
16
Notice to Clients
BlackRock will make records of any proxy vote it has made on behalf of a
client available to such client upon request.(11) BlackRock will use its best
efforts to treat proxy votes of clients as confidential, except as it may decide
to best serve its clients' interests or as may be necessary to effect such votes
or as may be required by law.
BlackRock encourage clients with an interest in particular proxy voting
issues to make their views known to BlackRock, provided that, in the absence of
specific written direction from a client on how to vote that client's proxies,
BlackRock reserves the right to vote any proxy in a manner it deems in the best
interests of its clients, as it determines in its sole discretion.
These policies are as of the date indicated on the cover hereof. The
Committee may subsequently amend these policies at any time, without notice.
- ----------
(11) Such request may be made to the client's portfolio or relationship manager
or addressed in writing to Secretary, BlackRock Equity Investment Policy
Oversight Committee, Legal and Compliance Department, BlackRock Inc., 40 East
52nd Street, New York, New York 10022.
17
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of August 31, 2007.
(a)(1) The Fund is managed by a team of investment professionals
that is responsible for the day-to-day management of the Fund's
portfolio. The lead members of this team are Mark J. Williams,
Managing Director at BlackRock, and Kevin J. Booth, Managing
Director at BlackRock. Mr. Williams and Mr. Booth each has been a
portfolio manager of the Fund since 2006. Mr. Williams is
responsible for setting the Fund's overall investment strategy and
overseeing the management of the Fund. Mr. Booth is responsible for
the day-to-day management of the Fund's portfolio and the selection
of its investments.
Mr. Williams is the head of BlackRock's bank loan group and a member
of the Investment Strategy Group. His primary responsibility is
originating and evaluating bank loan investments for the firm's
collateralized bond obligations. He is also involved in the
evaluation and sourcing of mezzanine investments. Prior to joining
BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged
Finance Group. In that capacity he was responsible for structuring
proprietary middle market leveraged deals and sourcing and
evaluating broadly syndicated leveraged loans in the primary and
secondary markets for PNC Bank's investment portfolio. From 1984
until 1990, Mr. Williams worked in PNC Bank's Philadelphia office in
a variety of marketing and corporate finance positions.
Mr. Booth is a member of BlackRock's bank loan group. He joined
BlackRock in 2006. Prior to joining BlackRock, Mr. Booth was a
Managing Director (Global Fixed Income) of Merrill Lynch Investment
Managers, L.P. ("MLIM") since 2006 and a member of MLIM's bank loan
group from 2000 to 2006. He was a Director of MLIM from 2000 to 2006
and was a Vice President of MLIM from 1994 to 2000. He has been
portfolio manager with BlackRock or MLIM since 2000.
(a)(2) As of August 31, 2007:
-------------------------------------------------------------------------------------------------------------------
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
-------------------------------------------------------------------------------------------------------------------
Other Other Pooled
(i) Name of Registered Other Pooled Other Registered
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
-------------------------------------------------------------------------------------------------------------------
Mark Williams 9 16 2 0 11 1
-------------------------------------------------------------------------------------------------------------------
$ 4,358,407,203 $5,753,879,192 $ 178,074,057 $0 $4,071,710,403 $ 27,207,438
-------------------------------------------------------------------------------------------------------------------
Kevin Booth 22 9 7 0 4 3
-------------------------------------------------------------------------------------------------------------------
$11,187,701,781 $3,305,024,401 $1,224,383,989 $0 $1,483,112,004 $539,887,685
-------------------------------------------------------------------------------------------------------------------
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address
the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have
performance or higher fees paid to BlackRock, or in which portfolio
managers have a personal interest in the receipt of such fees),
which may be the same as or different from those made to the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the
securities whose purchase and sale BlackRock recommends to the Fund.
BlackRock, or any of its affiliates, or any officer, director,
stockholder, employee or any member of their families may take
different actions than those recommended to the Fund by BlackRock
with respect to the same securities. Moreover, BlackRock may refrain
from rendering any advice or services concerning securities of
companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors
and employees of any of them has any substantial economic interest
or possesses material non-public information. Each portfolio manager
also may manage accounts whose investment strategies may at times be
opposed to the strategy utilized for the Fund. In this connection,
it should be noted that certain portfolio managers currently manage
certain accounts that are subject to performance fees. In addition,
certain portfolio managers assist in managing certain hedge funds
and may be entitled to receive a portion of any incentive fees
earned on such funds and a portion of such incentive fees may be
voluntarily or involuntarily deferred. Additional portfolio managers
may in the future manage other such accounts or funds and may be
entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock attempts
to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve
reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that
is consistent with the particular investment discipline and client
base.
(a)(3) As of August 31, 2007:
Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as its
Long-Term Retention and Incentive Plan and Restricted Stock Program.
Base compensation
Generally, portfolio managers receive base compensation based on
their seniority and/or their position with the firm.
Discretionary compensation
In addition to base compensation, portfolio managers may receive
discretionary compensation, which can be a substantial portion of
total compensation. Discretionary compensation can include a
discretionary cash bonus as well as one or more of the following:
Long-Term Retention and Incentive Plan (LTIP)
The LTIP is a long-term incentive plan that seeks to reward certain
key employees. The plan provides for the grant of awards that are
expressed as an amount of cash that, if properly vested and subject
to the attainment of certain performance goals, will be settled in
cash and/or in BlackRock, Inc. common stock.
Deferred Compensation Program
A portion of the compensation paid to each portfolio manager may be
voluntarily deferred by the portfolio manager into an account that
tracks the performance of certain of the firm's investment products.
Each portfolio manager is permitted to allocate his deferred amounts
among various options, including to certain of the firm's hedge
funds and other unregistered products. In addition, prior to 2005, a
portion of the annual compensation of certain senior managers was
mandatorily deferred in a similar manner for a number of years.
Beginning in 2005, a portion of the annual compensation of certain
senior managers was paid in the form of BlackRock, Inc. restricted
stock units which vest ratably over a number of years.
Options and Restricted Stock Awards
While incentive stock options are not currently being awarded to
BlackRock employees, BlackRock, Inc. previously granted stock
options to key employees, including certain portfolio managers who
may still hold unexercised or unvested options. BlackRock, Inc. also
has a restricted stock award program designed to reward certain key
employees as an incentive to contribute to the long-term success of
BlackRock. These awards vest over a period of years.
Incentive Savings Plans
BlackRock, Inc. has created a variety of incentive savings plans in
which BlackRock employees are eligible to participate, including an
Employee Stock Purchase Plan (ESPP) and a 401(k) plan. The 401(k)
plan may involve a company match of 50% of the employee's pre-tax
contribution of up to 6% of the employee's salary, limited to $4,000
per year. BlackRock also offers a Company Retirement Contribution
equal to 3% to 5% of eligible compensation, depending on BlackRock,
Inc.'s overall net operating income. The company match is made in
cash. The firm's 401(k) plan offers a range of investment options,
including registered investment companies managed by the firm. Each
portfolio manager is eligible to participate in these plans.
Annual incentive compensation for each portfolio manager is a
function of several components: the performance of BlackRock, Inc.,
the performance of the portfolio manager's group within BlackRock,
the investment performance, including risk-adjusted returns and
income generation, of the firm's assets under management or
supervision by that portfolio manager relative to predetermined
benchmarks, and the individual's teamwork and contribution to the
overall performance of these portfolios and BlackRock. Unlike many
other firms, portfolio managers at BlackRock compete against
benchmarks rather than each other. In most cases, including for the
portfolio managers of the Registrant, these benchmarks are the same
as the benchmark or benchmarks against which the investment
performance, including risk-adjusted returns and income generation,
of the Registrant or other accounts are measured. These benchmarks
include customized benchmarks, Lipper peer groups and a subset of
other closed-end taxable debt funds. A group of BlackRock, Inc.'s
officers determines which benchmarks against which to compare the
performance of funds and other accounts managed by each portfolio
manager. With respect to the Registrant, such benchmarks include the
Credit Suisse Leveraged Loan Index and the Credit Suisse High Yield
Index.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. This
determination may take into consideration the fact that a benchmark
may not perfectly correlate to the way the Registrant or other
accounts are managed, even if it is the benchmark that is most
appropriate for the Registrant or other account. For example, a
benchmark's return may be based on the total return of the
securities comprising the benchmark, but the Registrant or other
account may be managed to maximize income and not total return.
Senior portfolio managers who perform additional management
functions within BlackRock may receive additional compensation for
serving in these other capacities.
(a)(4) Beneficial Ownership of Securities. As of August 31, 2007,
Mr.Williams did not beneficially own any stock issued by the Fund.
As of August 31, 2007, Mr. Booth owned stock issued by the Fund
valued in the range: $100,001-$500,000.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable due to no such
purchases during the period covered by this report.
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and set forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
13a-15(b) under the Securities and Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Diversified Income Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer (principal executive officer) of
BlackRock Diversified Income Strategies Fund, Inc.
Date: October 22, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer (principal executive officer) of
BlackRock Diversified Income Strategies Fund, Inc.
Date: October 22, 2007
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer (principal financial officer) of
BlackRock Diversified Income Strategies Fund, Inc.
Date: October 22, 2007