UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21637
Name of Fund: BlackRock Diversified Income Strategies Fund, Inc. (DVF)
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: Donald C. Burke, 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, Option 4
Date of fiscal year end: 08/31/2008
Date of reporting period: 09/01/2007 - 02/29/2008
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Diversified Income BLACKROCK
Strategies Fund, Inc. (DVF)
SEMI-ANNUAL REPORT
FEBRUARY 29, 2008 | (UNAUDITED)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
- --------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Semi-Annual Report:
Fund Summary ............................................................. 4
The Benefits and Risks of Leveraging ..................................... 5
Swap Agreements .......................................................... 5
Financial Statements:
Schedule of Investments ................................................ 6
Statement of Assets and Liabilities .................................... 12
Statement of Operations ................................................ 12
Statements of Changes in Net Assets .................................... 13
Statement of Cash Flows ................................................ 14
Financial Highlights ..................................................... 15
Notes to Financial Statements ............................................ 16
Officers and Directors ................................................... 20
Additional Information ................................................... 21
2 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
A Letter to Shareholders
Dear Shareholder
Financial markets weathered intense bouts of volatility in 2007, only to enter
2008 with no relief. January and February proved to be trying months for
equities, but strong ones for some areas of the bond market, as fears of an
economic recession swelled. The Federal Reserve Board (the "Fed"), after cutting
the target federal funds rate 100 basis points (1%) between September 2007 and
year-end, more than matched those cuts in January alone. Responding to a slowing
economy and continued fallout from chaos in the credit markets, the Fed cut
interest rates 75 basis points in a rare unscheduled session on January 22, and
followed with a 50-basis-point cut at its regular meeting on January 30. Another
75-basis-point cut on March 18 brought the target rate to 2.25%.
Reverberations from the U.S. subprime mortgage collapse, and the associated
liquidity and credit crisis, continue to permeate global financial markets. The
S&P 500 Index of U.S. stocks was down in February, marking the fourth
consecutive month of negative returns. International markets, while not
unscathed, generally have outperformed their U.S. counterparts so far in 2008.
Emerging markets, benefiting from stronger economic growth rates, have done
particularly well. In fixed income markets, fears related to the economic
slowdown and related credit crisis have led to a prolonged flight to quality.
Investors have largely shunned bonds associated with the housing and credit
markets in favor of higher-quality government issues. The yield on 10-year
Treasury issues, which touched 5.30% in June 2007 (its highest level in five
years), fell to 4.04% by year-end and to 3.53% by the end of February, while
prices correspondingly rose.
After setting a new-issuance record in 2007, supply in the municipal bond market
has been on the decline for four consecutive months (measured year over year).
The market has struggled with concerns around the creditworthiness of monoline
bond insurers and the failure of auctions for auction rate securities, driving
yields higher and prices lower across the curve. By period-end, municipal bonds
were trading at higher yields than their Treasury counterparts, a very unusual
occurrence by historical standards.
Against this backdrop, the major benchmark indexes posted mixed results for the
current reporting period, generally reflecting heightened investor risk
aversion:
Total Returns as of February 29, 2008 6-month 12-month
============================================================================================================
U.S. equities (S&P 500 Index) - 8.79% - 3.60%
- ------------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) -12.91 -12.44
- ------------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) - 4.71 + 0.84
- ------------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) + 5.67 + 7.30
- ------------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) - 0.60 - 1.17
- ------------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Capped Index) - 1.39 - 3.08
- ------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index.
As you navigate today's volatile markets, we encourage you to review your
investment goals with your financial professional and to make portfolio changes,
as needed. For more up-to-date commentary on the economy and financial markets,
we invite you to visit www.blackrock.com/funds. As always, we thank you for
entrusting BlackRock with your investment assets, and we look forward to
continuing to serve you in the months and years ahead.
Sincerely,
/s/ Rob Kapito
Rob Kapito
President, BlackRock Advisors, LLC
3
THIS PAGE NOT PART OF YOUR FUND REPORT
Fund Summary as of February 29, 2008
Investment Objective
BlackRock Diversified Income Strategies Fund, Inc. (DVF) seeks to provide
investors with a high current income by investing primarily in a diversified
portfolio of floating rate debt securities and instruments, including floating
or variable rate loans, bonds, preferred securities (including convertible
preferred securities), notes or other debt securities or instruments that pay a
floating rate of interest.
Performance
For the six-month period ended February 29, 2008, the Fund returned -14.33%
based on market price, with dividends reinvested. The Fund's return based on net
asset value ("NAV") was -12.48%, with dividends reinvested. For the same period,
the Lipper High Current Yield Funds category posted an average return of -9.32%
on a NAV basis. Fund performance was negatively affected by being overweight in
CCC-rated issues, whose spreads widened more than higher-rated securities during
the period. The Fund's large leverage position (approximately 25% of total
assets invested) and the poor performance of bank loans also were significant
detractors from performance.
Fund Information
Symbol on New York Stock Exchange ............................. DVF
Initial Offering Date ......................................... January 31, 2005
Yield on Closing Market Price as of February 29, 2008 ($13.87)* 12.98%
Current Monthly Distribution per share of Common Stock** ...... $.15
Current Annualized Distribution per share of Common Stock** ... $1.80
Leverage as of February 29, 2008*** ........................... 26%
- --------------------------------------------------------------------------------
* Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
Past performance does not guarantee future results.
** The distribution is not constant and is subject to change.
*** 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:
- --------------------------------------------------------------------------------
2/29/08 8/31/07 Change High Low
- --------------------------------------------------------------------------------
Market Price ............ $13.87 $17.16 (19.17%) $17.40 $13.61
Net Asset Value ......... $14.45 $17.50 (17.43%) $18.03 $14.34
- --------------------------------------------------------------------------------
The following charts show the portfolio composition and credit quality
allocations of the Fund's long-term investments:
Portfolio Composition
Asset Mix 2/29/08 8/31/07
- --------------------------------------------------------------------------------
Corporate Bonds ....................................... 55% 60%
Floating Rate Loan Interests .......................... 43 38
Preferred Stocks ...................................... 1 1
Common Stocks ......................................... 1 1
- --------------------------------------------------------------------------------
Credit Quality Allocations*
Credit Rating 2/29/08 8/31/07
- --------------------------------------------------------------------------------
BB/Ba ................................................. 16% 13%
B/B ................................................... 51 59
CCC/Caa ............................................... 16 14
CC/Ca ................................................. 3 1
Not Rated ............................................. 11 11
Other** ............................................... 3 2
- --------------------------------------------------------------------------------
* Using the higher of Standard & Poor's or Moody's Investors Service
ratings.
** Includes portfolio holdings in common and preferred stocks.
4 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
The Benefits and Risks of Leveraging
BlackRock Diversified Income Strategies Fund, Inc. (the "Fund") utilizes
leverage through borrowings. The concept of leveraging is based on the premise
that the cost of assets to be obtained from leverage will be based on short-term
interest rates, which normally will be lower than the income earned by the Fund
on its longer-term portfolio investments. To the extent that the total assets of
the Fund (including the assets obtained from leverage) are invested in
higher-yielding portfolio investments, the Fund's Common Stock shareholders will
benefit from the incremental yield.
Leverage creates risks for Common Stock shareholders including the likelihood of
greater NAV and market price volatility. In addition, there is the risk that
fluctuations in interest rates on borrowings may reduce the Common Stock's yield
and negatively impact its NAV and market price. If the income derived from
securities purchased with assets received from leverage exceeds the cost of
leverage, the Fund's net income will be greater than if leverage had not been
used. Conversely, if the income from the securities purchased is not sufficient
to cover the cost of leverage, the Fund's net income will be less than if
leverage had not been used, and therefore the amount available for distribution
to Common Stock shareholders will be reduced.
Swap Agreements
The Fund may invest in swap agreements, which are over-the-counter contracts in
which one party agrees to make periodic payments based on the change in market
value of a specified bond, basket of bonds, or index, in return for periodic
payments based on a fixed or variable interest rate or the change in market
value of a different bond, basket of bonds or index. Swap agreements may be used
to obtain exposure to a bond or market without owning or taking physical custody
of securities. Swap agreements involve the risk that the party with whom the
Fund has entered into the swap will default on its obligation to pay the Fund
and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 5
Schedule of Investments as of February 29, 2008 (Unaudited)
(Percentages shown are based on Net Assets)
Par
Asset-Backed Securities (000) Value
============================================================================================
North Street Referenced Linked Notes 2000-1 Ltd.
Series 2005-8A Class D, 19.491%
due 6/15/2041 (a) USD 1,350 $ 243,000
- --------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost -- $1,350,000) -- 0.1% 243,000
============================================================================================
============================================================================================
Floating Rate Loan Interests
============================================================================================
Airlines -- 0.4%
US Airways Group, Inc. Term Loan B, 5.625%
due 3/23/2014 1,000 783,125
============================================================================================
Auto Components -- 1.2%
Allison Transmission Term Loan B,
5.92% - 7.90% due 8/07/2014 1,000 880,278
Intermet Corp.:
First Lien Term Loan, 10.146%
due 11/08/2010 358 318,354
Letter of Credit, 8.045% due 11/08/2010 518 461,481
Metaldyne Corp.:
Letter of Credit, 5.17% - 8.25%
due 1/15/2012 86 65,192
Term Loan B, 8.25% due 1/15/2014 588 443,308
------------
2,168,613
============================================================================================
Beverages -- 0.2%
Culligan International Second Lien Term Loan,
8.94% - 9.56% due 5/24/2013 EUR 500 432,670
============================================================================================
Biotechnology -- 0.2%
Talecris Biotherapeutics, Inc. First Lien Term Loan,
6.57% - 6.63% due 12/06/2013 USD 499 398,992
============================================================================================
Chemicals -- 2.2%
Edwards Ltd. Term Loan B, 5.085%
due 10/09/2015 497 323,375
Huish Detergents, Inc. First Lien Term Loan,
6.83% due 4/15/2014 497 402,353
ISP Chemco Term Loan B, 4.875% - 6.438%
due 5/25/2014 497 446,817
Viridian Group Plc Term Loan, 7.729% - 9.43%
due 12/21/2012 GBP 1,000 1,659,182
Wellman, Inc. Second Lien Term Loan, 9.989%
due 2/10/2010 (b)(g) USD 3,000 950,001
------------
3,781,728
============================================================================================
Commercial Services & Supplies -- 6.0%
ARAMARK Corp.:
Letter of Credit, 4.22% due 1/24/2014 158 146,222
Term Loan B, 6.705% due 1/24/2014 2,487 2,301,630
Brickman Group, Inc. Term Loan, 7.143%
due 1/23/2014 744 673,659
Euramax International Plc:
First Lien Term Loan, 7.813% due 6/29/2012 1,218 1,031,563
Second Lien Term Loan, 12.646%
due 6/29/2013 2,000 1,364,408
Evenflo Company, Inc. Term Loan, 7.50% - 7.581%
due 2/15/2013 495 420,750
Jason, Inc. Term Loan B, 5.621% due 4/30/2010 498 429,716
NES Rentals Holdings, Inc. Term Loan C, 10.625%
due 7/12/2013 1,726 1,501,370
Service Master Bridge Loan, 9.59%
due 7/24/2008 2,700 1,863,000
West Corp. Term Loan, 5.465% - 5.635%
due 10/24/2013 988 837,668
------------
10,569,986
============================================================================================
Communications Equipment -- 1.0%
Alltel Corp. Term Loan B3, 5.866% due 5/18/2015 2,000 1,812,954
============================================================================================
Computers & Peripherals -- 1.9%
Intergraph Corp. Term Loan, 9.09%
due 11/28/2014 500 455,000
Reynolds and Reynolds Co.:
First Lien Term Loan, 6.843% due 10/31/2012 1,810 1,584,070
Second Lien Term Loan, 10.343%
due 10/31/2013 1,500 1,372,500
------------
3,411,570
============================================================================================
Containers & Packaging -- 2.5%
Anchor Glass Container Corp. Term Loan B, 7.08%
due 5/03/2013 1,113 1,035,282
Berry Plastics Corp. Term Loan B,
11.646% - 11.97% due 6/15/2014 2,774 1,941,896
Graham Packaging Co. LP Term Loan B,
6.813% - 7.75% due 4/15/2011 1,485 1,344,313
------------
4,321,491
============================================================================================
Diversified Financial Services -- 0.8%
J.G. Wentworth Manufacturing Term Loan B, 7.093%
due 4/15/2014 2,000 1,330,000
============================================================================================
Diversified Telecommunication Services -- 1.5%
Hawaiian Telcom Term Loan C, 7.08%
due 5/30/2014 282 227,086
Wind Telecomunicazione SpA Term Loan B,
11.201% due 12/21/2011 2,563 2,351,727
------------
2,578,813
============================================================================================
Electrical Equipment -- 1.2%
Generac Power Systems, Inc. Second Lien
Term Loan, 10.703% due 5/15/2014 3,000 2,045,001
============================================================================================
Energy Equipment & Services -- 0.9%
Dresser, Inc. First Lien Term Loan, 5.565% - 5.621%
due 5/04/2014 982 904,364
MEG Energy Corp.:
Delayed Draw Term Loan, 6.73%
due 4/03/2013 164 147,938
Term Loan, 6.83% due 4/03/2013 491 446,301
------------
1,498,603
============================================================================================
Food & Staples Retailing -- 1.9%
Bolthouse Farms, Inc. Second Lien Term Loan,
10.33% due 12/01/2013 500 455,000
Dole Food Co., Inc.:
Letter of Credit, 4.247% due 4/12/2013 140 117,227
Term Loan B, 5.125% - 7.125%
due 4/12/2013 309 259,144
Term Loan C, 5.125% - 7.125%
due 4/04/2013 1,029 863,814
McJunkin Corp. Term Loan B, 8.08%
due 1/31/2014 743 699,806
See Notes to Financial Statements.
6 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (continued) (Percentages are shown based on Net Assets)
Par
Floating Rate Loan Interests (000) Value
============================================================================================
Food & Staples Retailing (concluded)
Sturm Foods, Inc.:
First Lien Term Loan, 5.813%
due 1/30/2014 USD 496 $ 365,571
Second Lien Term Loan, 9.313%
due 6/30/2014 1,000 656,667
------------
3,417,229
============================================================================================
Food Products -- 0.2%
Jetro Holdings, Inc. Term Loan, 7.19%
due 5/11/2014 484 431,094
============================================================================================
Health Care Equipment & Supplies -- 0.7%
Biomet, Inc. Term Loan B, 7.858% due 3/25/2015 500 477,875
ReAble Therapeutics Finance LLC Term Loan,
7.83% due 5/25/2015 750 705,000
------------
1,182,875
============================================================================================
Health Care Providers & Services -- 1.7%
CCS Medical First Lien Term Loan, 8.10%
due 9/30/2012 496 449,063
Community Health Systems, Inc. Term Loan B,
5.335% due 6/18/2014 952 869,916
Health Management Associates, Inc. Term Loan B,
6.58% due 2/28/2014 1,985 1,705,859
------------
3,024,838
============================================================================================
Hotels, Restaurants & Leisure -- 3.3%
Golden Nugget, Inc. Term Loan Second Lien, 7.21%
due 11/30/2014 500 375,000
Great Canadian Gaming Corp. Term Loan B, 4.57%
due 2/15/2014 495 467,775
Green Valley Ranch Gaming LLC Term Loan, 6.335%
due 8/16/2014 500 375,000
Harrah's Entertainment, Inc. Term Loan B2, 6.244%
due 1/29/2015 500 458,036
Lake Las Vegas Resort Revolving Credit, 11.75%
due 12/14/2012 (b) 120 44,537
Lake Las Vegas Resort Term Loan B, 11.75%
due 12/14/2012 (b) 910 336,581
Las Vegas Sands LLC Term Loan B, 6.58%
due 5/04/2014 796 706,948
QCE LLC Second Lien Term Loan, 10.58%
due 11/05/2013 1,000 845,714
Venetian Macau US Finance Co. LLC:
Delay Draw Term Loan, 7.08% due 5/25/2012 1,000 903,409
Term Loan B, 7.08% due 5/25/2013 1,500 1,355,114
------------
5,868,114
============================================================================================
Household Durables -- 0.6%
American Residential Services Second Lien
Term Loan, 12% due 4/17/2015 1,000 985,146
============================================================================================
Household Products -- 0.6%
Spectrum Brands, Inc.:
Letter of Credit, 2.994% due 3/30/2013 81 71,969
Term Loan B-2, 7.065% - 8.62%
due 3/30/2013 1,111 992,987
------------
1,064,956
============================================================================================
IT Services -- 3.4%
Activant Solutions Term Loan B, 6.75% - 7.50%
due 5/02/2013 1,639 1,384,431
Alliance Data Systems Term Loan, 8.058%
due 12/15/2014 2,000 1,860,000
Audio Visual Services Corp.:
Second Lien Term Loan, 8.77% due 8/28/2014 500 460,000
Term Loan B, 5.652% due 2/28/2014 998 897,750
First Data Corp.:
Term Loan B, 7.58% - 7.634% due 9/24/2014 499 452,786
Term Loan B2, 7.58% due 9/24/2014 500 453,472
Term Loan B3, 7.58% due 9/24/2014 500 453,500
------------
5,961,939
============================================================================================
Independent Power Producers &
Energy Traders -- 1.0%
TXU Corp.:
Term Loan B-2, 6.478% - 6.596%
due 10/10/2014 998 909,803
Term Loan B-3, 6.478% - 6.596%
due 10/10/2014 998 909,426
------------
1,819,229
============================================================================================
Industrial Conglomerates -- 0.3%
Sequa Corp. Term Loan B, 8.08% due 12/03/2014 500 469,688
============================================================================================
Insurance -- 0.3%
Alliant Insurance Services Term Loan B, 7.83%
due 10/23/2014 499 443,888
============================================================================================
Machinery -- 1.7%
Navistar International Transportation Corp.:
Revolving Credit, 4.794% - 6.501%
due 6/30/2012 800 713,000
Term Loan, 6.501% due 6/30/2012 2,200 1,960,750
Rexnord Corp. Payment In Kind Term Loan,
12.131% due 3/02/2013 (c) 352 246,111
------------
2,919,861
============================================================================================
Media -- 14.6%
Affinion Group, Inc. Term Loan, 11.678%
due 3/01/2012 1,150 943,000
Alix Partners Term Loan B, 6.38% due 10/30/2013 520 476,871
Cequel Communications LLC:
Second Lien Term Loan, 7.739%
due 5/04/2014 2,000 1,505,000
Term Loan B, 5.07% - 7%
due 11/05/2013 801 669,698
Charter Communications, Inc. Term Loan B, 5.26%
due 4/30/2014 1,000 877,857
ClientLogic Holding Corp. Term Loan B,
5.744% - 7.343% due 1/30/2014 973 769,034
Easton-Bell Sports Inc. Term Loan B,
10.72% - 10.82% due 5/01/2012 1,202 1,022,007
Education Media and Publishing:
First Lien Term Loan, 9.141% due 5/15/2009 212 202,841
First Lien Term Loan B, 9.141%
due 11/14/2014 1,538 1,384,091
Second Lien Term Loan, 13.641%
due 11/14/2014 5,500 4,785,000
Ellis Communications Term Loan, 10%
due 12/30/2011 2,000 1,870,000
Idearc, Inc. Term Loan B, 6.83% due 11/15/2014 3,960 3,257,924
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 7
Schedule of Investments (continued) (Percentages are shown based on Net Assets)
Par
Floating Rate Loan Interests (000) Value
============================================================================================
Media (concluded)
Insight Midwest Holdings LLC Delay Draw
Term Loan, 7% due 4/03/2014 USD 2,025 $ 1,813,009
NEP Supershooters, LP Term Loan B, 7.108%
due 2/16/2014 992 872,569
National Cinemedia LLC Term Loan B, 6.87%
due 2/13/2015 1,500 1,279,220
Nielsen Finance LLC Term Loan B, 5.346%
due 8/09/2013 1,975 1,739,650
Penton Media Term Loan:
5.372% - 5.375% due 2/15/2013 993 709,638
8.122% due 2/15/2014 1,000 790,000
ProSiebenSat.1 Media AG Term Loan B, 6.77%
due 6/30/2015 EUR 500 609,534
------------
25,576,943
============================================================================================
Multi-Utilities -- 0.3%
Brand Energy & Infrastructure Services, Inc. Term
Loan B, 5.375% - 7.105% due 2/07/2014 USD 496 444,144
============================================================================================
Multiline Retail -- 0.7%
Neiman Marcus Group, Inc. Term Loan,
4.931% - 6.90% due 4/06/2013 1,250 1,153,795
============================================================================================
Oil, Gas & Consumable Fuels -- 2.0%
Petroleum Geo-Services ASA Term Loan B, 6.58%
due 6/28/2015 498 461,846
SandRidge Energy, Inc. Term Loan B, 8.354%
due 4/01/2014 1,000 905,000
Scorpion Drilling Ltd. Second Lien Term Loan,
12.406% due 5/08/2014 2,000 2,060,000
------------
3,426,846
============================================================================================
Paper & Forest Products -- 0.3%
Boise Cascade Holdings LLC Second Lien
Term Loan, 7.50% due 2/05/2015 500 491,875
============================================================================================
Pharmaceuticals -- 0.7%
Pharmaceutical Technologies & Services (PTS)
Term Loan, 7.08% due 4/10/2014 1,493 1,231,313
============================================================================================
Real Estate Management &
Development -- 1.2%
LNR Property Corp. Term Loan B, 5.86%
due 7/12/2011 2,640 2,151,600
============================================================================================
Road & Rail -- 0.4%
Swift Transportation Co., Inc. Term Loan B, 6.50%
due 5/10/2014 884 681,570
============================================================================================
Software -- 1.4%
Aspect Software Second Lien Term Loan, 11.50%
due 7/05/2012 3,000 2,550,000
============================================================================================
Specialty Retail -- 0.2%
Claire's Stores Term Loan B, 5.994% - 7.58%
due 5/24/2014 496 388,814
============================================================================================
Wireless Telecommunication Services -- 0.4%
IPC Systems First Lien Term Loan, 7.093%
due 5/25/2014 498 392,196
NG Wireless Term Loan, 6.021% - 7.593%
due 7/31/2014 406 386,096
------------
778,292
============================================================================================
Total Floating Rate Loan Interests
(Cost -- $120,626,160) -- 57.9% 101,597,595
============================================================================================
Corporate Bonds
============================================================================================
Aerospace & Defense -- 0.9%
Vought Aircraft Industries, Inc., 8%
due 7/15/2011 1,813 1,679,291
============================================================================================
Auto Components -- 0.4%
Allison Transmission, 11.25%
due 11/01/2015 (c)(d) 575 452,831
Lear Corp., 8.75% due 12/01/2016 385 332,062
------------
784,893
============================================================================================
Biotechnology -- 0.7%
Angiotech Pharmaceuticals, Inc., 6.826%
due 12/01/2013 (a) 1,500 1,185,000
============================================================================================
Building Products -- 1.5%
CPG International I, Inc., 11.468%
due 7/01/2012 (a) 2,500 2,075,000
Masonite International Corp., 11% due 4/06/2015 860 593,400
------------
2,668,400
============================================================================================
Capital Markets -- 1.7%
E*Trade Financial Corp., 12.50%
due 11/30/2017 (d)(j) 2,000 1,905,000
Marsico Parent Co., LLC, 10.625%
due 1/15/2016 (d) 724 651,600
Marsico Parent Holdco, LLC, 12.50%
due 7/15/2016 (c)(d)(j) 248 230,640
Marsico Parent Superholdco, LLC, 14.50%
due 1/15/2018 (c)(d)(j) 166 162,680
------------
2,949,920
============================================================================================
Chemicals -- 5.0%
American Pacific Corp., 9% due 2/01/2015 440 426,800
Ames True Temper, Inc., 8.258%
due 1/15/2012 (a) 3,425 2,705,750
Hexion U.S. Finance Corp., 7.565%
due 11/15/2014 (a) 1,000 895,000
MacDermid, Inc., 9.50% due 4/15/2017 (d) 420 369,600
NOVA Chemicals Corp., 7.863%
due 11/15/2013 (a) 2,745 2,333,250
PolyOne Corp., 6.89% due 9/22/2008 2,000 2,000,000
------------
8,730,400
============================================================================================
Commercial Services & Supplies -- 1.7%
PNA Intermediate Holding Corp., 10.065%
due 2/15/2013 (a)(c)(d) 330 290,949
Sally Holdings LLC, 10.50% due 11/15/2016 850 773,500
US Investigations Services, Inc., 10.50%
due 11/01/2015 (d) 1,000 830,000
West Corp., 11% due 10/15/2016 985 824,937
The Yankee Candle Company, Inc., 9.75%
due 2/15/2017 285 230,850
------------
2,950,236
============================================================================================
Containers & Packaging -- 6.6%
Berry Plastics Holding Corp.:
8.866% due 9/15/2014 (a) 3,175 2,508,250
8.875% due 9/15/2014 60 52,950
Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (d) 1,570 1,240,300
Smurfit Kappa Funding Plc, 7.75% due 4/01/2015 5,000 4,500,000
Smurfit-Stone Container Enterprises, Inc.,
8% due 3/15/2017 780 690,300
Wise Metals Group LLC, 10.25% due 5/15/2012 2,750 2,564,375
------------
11,556,175
============================================================================================
See Notes to Financial Statements.
8 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (continued) (Percentages are shown based on Net Assets)
Par
Corporate Bonds (000) Value
============================================================================================
Diversified Financial Services -- 1.8%
Ford Motor Credit Co. LLC:
5.80% due 1/12/2009 USD 210 $ 202,988
7.127% due 1/13/2012 (a) 815 641,351
8.708% due 4/15/2012 (a) 2,500 2,393,390
------------
3,237,729
============================================================================================
Electric Utilities -- 0.9%
NSG Holdings LLC, 7.75% due 12/15/2025 (d) 1,570 1,520,937
============================================================================================
Electronic Equipment & Instruments -- 0.8%
NXP BV, 7.008% due 10/15/2013 (a) 1,675 1,352,562
============================================================================================
Energy Equipment & Services -- 1.7%
Ocean RIG ASA, 8.681% due 4/04/2011 (a) 3,000 2,940,000
============================================================================================
Food & Staples Retailing -- 0.3%
Rite Aid Corp., 9.375% due 12/15/2015 580 449,500
============================================================================================
Health Care Equipment & Supplies -- 3.1%
LVB Acquisition Merger Sub, Inc. (d):
10% due 10/15/2017 350 361,812
11.625% due 10/15/2017 480 472,200
10.375% due 10/15/2017 (c) 350 341,099
ReAble Therapeutics Finance LLC, 10.875%
due 11/15/2014 (d) 4,500 4,252,500
------------
5,427,611
============================================================================================
Health Care Providers & Services -- 0.9%
Community Health Systems, Inc. Series WI,
8.875% due 7/15/2015 1,085 1,064,656
Universal Hospital Services, Inc.:
8.288% due 6/01/2015 (a) 280 263,200
8.50% due 6/01/2015 (c) 300 293,521
------------
1,621,377
============================================================================================
Hotels, Restaurants & Leisure -- 7.7%
Harrah's Operating Co., Inc. (d):
10.75% due 2/01/2016 4,359 3,781,432
10.75% due 2/01/2018 (c) 1,278 1,017,089
Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (d) 800 801,000
Pinnacle Entertainment, Inc., 7.50%
due 6/15/2015 (d) 810 623,700
Shingle Springs Tribal Gaming Authority, 9.375%
due 6/15/2015 (d) 410 364,900
Snoqualmie Entertainment Authority, 6.936%
due 2/01/2014 (a)(d) 305 263,825
Travelport LLC, 7.701% due 9/01/2014 (a) 945 756,000
Tropicana Entertainment LLC Series WI, 9.625%
due 12/15/2014 495 237,600
Tunica-Biloxi Gaming Authority, 9%
due 11/15/2015 (d) 1,000 990,000
Universal City Florida Holding Co. I, 7.989%
due 5/01/2010 (a) 5,000 4,806,250
------------
13,641,796
============================================================================================
Household Durables -- 0.6%
Jarden Corp., 7.50% due 5/01/2017 525 460,031
Stanley-Martin Communities LLC, 9.75%
due 8/15/2015 1,250 600,000
------------
1,060,031
============================================================================================
Independent Power Producers &
Energy Traders -- 1.0%
Energy Future Holding Corp., 11.25%
due 11/01/2017 (c)(d) 1,000 951,886
Texas Competitive Electric Holdings Co. LLC,
10.50% due 11/01/2016 (c)(d) 800 772,000
------------
1,723,886
============================================================================================
Insurance -- 0.2%
USI Holdings Corp., 6.94% due 11/15/2014 (a)(d) 490 382,812
============================================================================================
Machinery -- 1.0%
Esco Corp., 8.866% due 12/15/2013 (a)(d) 920 814,200
RBS Global, Inc., 8.875% due 9/01/2016 505 429,250
Titan International, Inc., 8% due 1/15/2012 460 443,900
------------
1,687,350
============================================================================================
Marine -- 0.1%
Navios Maritime Holdings, Inc., 9.50%
due 12/15/2014 172 165,550
============================================================================================
Media -- 8.4%
Affinion Group, Inc.:
10.125% due 10/15/2013 80 78,400
11.50% due 10/15/2015 240 220,800
Cablevision Systems Corp. Series B, 9.644%
due 4/01/2009 (a) 3,000 3,000,000
Canadian Satellite Radio Holdings, Inc., 12.75%
due 2/15/2014 3,000 2,805,000
NTL Cable Plc, 9.125% due 8/15/2016 3,725 3,129,000
Paxson Communications Corp., 7.508%
due 1/15/2012 (a)(d) 875 726,250
TL Acquisitions, Inc., 10.50% due 1/15/2015 (d) 1,570 1,397,300
Windstream Regatta Holdings, Inc., 11%
due 12/01/2017 (d) 832 648,960
XM Satellite Radio, Inc., 7.739%
due 5/01/2013 (a) 1,120 957,600
Young Broadcasting, Inc., 10% due 3/01/2011 2,590 1,787,100
------------
14,750,410
============================================================================================
Metals & Mining -- 2.7%
Aleris International, Inc., 9% due 12/15/2014 (c) 850 618,863
Indalex Holding Corp. Series B, 11.50%
due 2/01/2014 1,076 850,040
RathGibson, Inc., 11.25% due 2/15/2014 1,425 1,360,875
Ryerson, Inc., 10.614% due 11/01/2014 (a)(d) 2,010 1,859,250
------------
4,689,028
============================================================================================
Paper & Forest Products -- 8.8%
Abitibi-Consolidated, Inc., 8.491%
due 6/15/2011 (a) 5,000 2,600,000
Ainsworth Lumber Co. Ltd. (a):
8.58% due 10/01/2010 3,495 2,516,400
8.83% due 4/01/2013 2,085 1,292,700
Lecta SA. (a):
7.20% due 2/15/2014 (d) EUR 1,000 1,062,699
8.575% due 2/15/2014 1,000 850,159
NewPage Corp.:
9.489% due 5/01/2012 (a) USD 3,000 2,940,000
10% due 5/01/2012 (d) 880 882,200
Verso Paper Holdings LLC Series B, 6.989%
due 8/01/2014 (a) 4,000 3,400,000
------------
15,544,158
============================================================================================
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 9
Schedule of Investments (continued) (Percentages are shown based on Net Assets)
Par
Corporate Bonds (000) Value
============================================================================================
Pharmaceuticals -- 1.0%
Elan Finance Plc, 7.065% due 11/15/2011 (a) USD 2,000 $ 1,835,000
============================================================================================
Real Estate Management & Development -- 3.2%
Realogy Corp.:
10.50% due 4/15/2014 1,430 1,015,300
11% due 4/15/2014 (c) 6,260 4,006,400
12.375% due 4/15/2015 1,260 667,800
------------
5,689,500
============================================================================================
Road & Rail -- 0.7%
Atlantic Express Transportation Corp., 12.455%
due 4/15/2012 (a) 1,000 650,000
Swift Transportation Co., Inc., 10.815%
due 5/15/2015 (a)(d) 1,520 653,600
------------
1,303,600
============================================================================================
Semiconductors & Semiconductor
Equipment -- 1.0%
Avago Technologies Finance Pte. Ltd., 8.576%
due 6/01/2013 (a) 400 397,000
Freescale Semiconductor, Inc., 9.125%
due 12/15/2014 (c) 350 266,000
Spansion, Inc., 6.201% due 6/01/2013 (a)(d) 1,410 1,029,300
------------
1,692,300
============================================================================================
Software -- 0.3%
BMS Holdings, Inc., 12.40%
due 2/15/2012 (a)(c)(d) 733 531,035
============================================================================================
Specialty Retail -- 4.0%
AutoNation, Inc., 6.258% due 4/15/2013 (a) 2,700 2,214,000
Buffets, Inc., 12.50% due 11/01/2014 (b) 360 9,000
General Nutrition Centers, Inc., 10.009%
due 3/15/2014 (a)(c) 1,670 1,331,825
Michaels Stores, Inc.:
10% due 11/01/2014 1,190 1,039,762
11.375% due 11/01/2016 2,555 2,114,262
United Auto Group, Inc., 7.75% due 12/15/2016 355 303,525
------------
7,012,374
============================================================================================
Wireless Telecommunication Services -- 5.7%
BCM Ireland Preferred Equity Ltd., 10.597%
due 2/15/2017 (c)(d) EUR 390 479,347
Centennial Communications Corp., 10.479%
due 1/01/2013 (a) USD 3,000 2,760,000
Cricket Communications, Inc.:
9.375% due 11/01/2014 825 734,250
9.375% due 11/01/2014 (d) 280 249,200
Digicel Group Ltd. (d):
8.875% due 1/15/2015 1,070 936,250
9.125% due 1/15/2015 (c) 2,129 1,815,967
FiberTower Corp. (f):
9% due 11/15/2012 (d) 650 569,563
9% due 11/15/2012 350 306,688
iPCS, Inc., 5.364% due 5/01/2013 (a) 380 304,000
Nordic Telephone Co. Holdings ApS (d):
8.875% due 5/01/2016 800 788,000
9.881% due 5/01/2016 (a) EUR 500 713,527
Orascom Telecom Finance SCA, 7.875%
due 2/08/2014 (d) USD 325 303,452
------------
9,960,244
- --------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost -- $155,219,752) -- 74.4% 130,723,105
============================================================================================
Common Stocks Shares Value
============================================================================================
Capital Markets -- 0.2%
E*Trade Financial Corp. 96,809 413,374
============================================================================================
Electrical Equipment -- 1.1%
Medis Technologies Ltd. (g) 176,126 1,907,445
- --------------------------------------------------------------------------------------------
Total Common Stocks (Cost -- $3,668,866) -- 1.3% 2,320,819
============================================================================================
============================================================================================
Preferred Stocks
============================================================================================
Capital Markets -- 0.0%
Marsico Parent Superholdco, LLC, 16.75% (d)(j) 48 47,952
============================================================================================
Oil, Gas & Consumable Fuels -- 1.7%
EXCO Resources, Inc., 7% (f) 54 594,000
EXCO Resources, Inc., 11% 221 2,431,000
------------
3,025,000
- --------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost -- $2,795,257) -- 1.7% 3,072,952
============================================================================================
============================================================================================
Beneficial Interest
Short-Term Securities (000)
============================================================================================
BlackRock Liquidity Series, LLC
Cash Sweep Series, 3.76% (h)(i) USD 2,664 2,663,751
- --------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost -- $2,663,751) -- 1.5% 2,663,751
============================================================================================
============================================================================================
Number of
Options Purchased Contracts
============================================================================================
Call Options
Marsico Parent Superholdco LLC, expiring
December 2009 at USD 942.86,
Broker, Goldman Sachs & Co. (j) -- (e) 22,750
- --------------------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid -- $12,711) -- 0.0% 22,750
============================================================================================
Total Investments (Cost -- $286,336,497*) -- 136.9% 240,643,972
Liabilities in Excess of Other Assets -- (36.9%) (64,886,567)
------------
Net Assets -- 100.0% $175,757,405
============
See Notes to Financial Statements.
10 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Schedule of Investments (concluded) (Percentages are shown based on Net Assets)
* The cost and unrealized appreciation (depreciation) of investments as of
February 29, 2008, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $ 286,380,109
=============
Gross unrealized appreciation .......................... $ 977,128
Gross unrealized depreciation .......................... (46,713,265)
-------------
Net unrealized depreciation ............................ $ (45,736,137)
=============
(a) Floating rate security. Rate is as of report date.
(b) Issuer filed for bankruptcy or is in default of interest payments.
(c) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. Unless otherwise
indicated, these securities are not considered to be illiquid.
(e) Amount is less than 1 contract.
(f) Convertible security.
(g) Non-income producing security.
(h) 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 $134,986 $60,869
--------------------------------------------------------------------------
(i) Represents the current yield as of report date.
(j) Illiquid security.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry's sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease.
o Forward foreign exchange contracts as of February 29, 2008 were as
follows:
--------------------------------------------------------------------------
Unrealized
Settlement Appreciation
Currency Purchased Currency Sold Date (Depreciation)
--------------------------------------------------------------------------
EUR 1,345,000 USD 1,989,950 4/23/08 $ 48,262
GBP 125,000 GBP 245,104 4/23/08 2,312
USD 8,780,607 EUR 5,989,500 4/23/08 (295,880)
USD 1,176,909 GBP 599,000 4/23/08 (8,705)
--------------------------------------------------------------------------
Total Unrealized Net Depreciation on Forward
Foreign Exchange Contracts $ (254,011)
===========
o Swaps outstanding as of February 29, 2008 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
(000) (Depreciation)
--------------------------------------------------------------------------
Sold credit default protection on
General Motors Corp. and receive 5.25%
Broker, Morgan Stanley Capital Services, Inc.
Expires June 2008 USD 3,000 $ 1,053
Sold credit default protection on
D.R.Horton, Inc. and receive 4.65%
Broker, Lehman Brother Special Finance
Expires March 2009 USD 1,000 (2,363)
Sold credit default protection on
Ford Motor Co. and receive 4.2%
Broker, Deutsche Bank AG London
Expires March 2010 USD 4,000 (388,368)
Sold credit default protection on
ACES High Yield Index (10 - 13% Tranche)
and receive 5.0%
Broker, Morgan Stanley Capital Services, Inc.
Expires March 2010 USD 7,000 (391,767)
Sold credit default protection on
PagesJaunes SA and receive 2.10%
Broker, Lehman Brother Special Finance
Expires March 2012 EUR 2,000 (328,901)
Sold credit default protection on BAA
Ferovial Junior Term Loan and receive 2.0%
Broker, Deutsche Bank AG London
Expires June 2012 GBP 300 (65,515)
Sold credit default protection on
LCDX Index and receive 2.25%
Broker, UBS AG
Expires December 2012 USD 1,000 5,492
Sold credit default protection on
LCDX.NA.9.V1 and receive 2.25%
Broker, JPMorgan Chase
Expires December 2012 USD 1,000 (11,008)
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 (1,339,258)
Pay a fixed rate of 4.853% and receive a
floating rate based on 3-month LIBOR
Broker, Lehman Brother Special Finance
Expires March 2013 USD 31,000 (2,113,260)
--------------------------------------------------------------------------
Total $(4,633,895)
===========
o Currency Abbreviations:
EUR Euro
GBP British Pound
USD U.S. Dollar
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 11
Statement of Assets and Liabilities
As of February 29, 2008 (Unaudited)
===============================================================================
Assets
- -------------------------------------------------------------------------------
Investments at value -- unaffiliated
(identified cost -- $283,660,035) ......................... $ 237,957,471
Investments at value -- affiliated
(identified cost -- $2,663,751) ........................... 2,663,751
Option purchased at value (cost -- $12,711) .................. 22,750
Cash ......................................................... 1,136,007
Unrealized appreciation on swaps ............................. 6,545
Unrealized appreciation on forward foreign exchange contracts 50,574
Foreign cash (cost -- $2,834,513) ............................ 2,949,410
Interest receivable .......................................... 5,075,799
Investments sold receivable .................................. 889,785
Swaps receivable ............................................. 167,837
Dividends receivable ......................................... 16,823
Commitment fees receivable ................................... 732
Prepaid expenses and other assets ............................ 7,858
-------------
Total assets ................................................. 250,945,342
-------------
===============================================================================
Liabilities
- -------------------------------------------------------------------------------
Loan payable ................................................. 63,000,000
Unrealized depreciation on unfunded loan commitments ......... 58,796
Unrealized depreciation on swaps ............................. 4,640,440
Unrealized depreciation on forward foreign exchange contracts 304,585
Swap premiums received ....................................... 157,315
Deferred income .............................................. 5,116
Investments purchased payable ................................ 6,085,534
Swaps payable ................................................ 415,745
Income dividends payable ..................................... 218,391
Investment advisory fees payable ............................. 153,320
Interest on loans payable .................................... 50,553
Directors payable ............................................ 10,725
Other affiliates payable ..................................... 1,427
Other accrued expenses payable ............................... 85,990
-------------
Total liabilities ............................................ 75,187,937
-------------
===============================================================================
Net Assets
- -------------------------------------------------------------------------------
Net Assets ................................................... $ 175,757,405
=============
===============================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------
Common Stock, par value $.10 per share;
(12,162,985 shares issued and outstanding) ................ $ 1,216,299
Paid-in capital in excess of par ............................. 230,596,638
Undistributed net investment income .......................... 1,549,966
Accumulated net realized loss ................................ (7,060,730)
Net unrealized depreciation .................................. (50,544,768)
-------------
Net assets, $14.45 net asset value per share of Common Stock . $ 175,757,405
=============
Statement of Operations
For the Six Months Ended February 29, 2008 (Unaudited)
===============================================================================
Investment Income
- -------------------------------------------------------------------------------
Interest (including $60,869 from affiliates) ................. $ 13,490,678
Dividends .................................................... 114,668
Other income ................................................. 101,910
-------------
Total income ................................................. 13,707,256
-------------
===============================================================================
Expenses
- -------------------------------------------------------------------------------
Investment advisory .......................................... 1,008,293
Borrowing costs .............................................. 61,302
Professional fees ............................................ 40,313
Accounting services .......................................... 34,879
Pricing ...................................................... 12,532
Custodian .................................................... 12,368
Directors .................................................... 11,947
Transfer agent ............................................... 9,417
Miscellaneous ................................................ 51,487
-------------
Total expenses excluding interest expense .................... 1,242,538
Interest expense ............................................. 1,873,551
-------------
Total expenses ............................................... 3,116,089
-------------
Net investment income ........................................ 10,591,167
-------------
===============================================================================
Realized and Unrealized Gain (Loss)
- -------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................... (3,022,385)
Swaps ..................................................... 613,267
Foreign currency transactions ............................. (296,557)
-------------
(2,705,675)
-------------
Net change in unrealized appreciation/depreciation on:
Investments ............................................... (28,766,520)
Unfunded loan commitments ................................. (25,184)
Swaps ..................................................... (4,923,191)
Foreign currency transactions ............................. (258,531)
-------------
(33,973,426)
-------------
Total net realized and unrealized loss ....................... (36,679,101)
-------------
Net Decrease in Net Assets Resulting from Operations ......... $ (26,087,934)
=============
See Notes to Financial Statements.
12 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Statements of Changes in Net Assets
For the Six
Months Ended For the
February 29, Year Ended
2008 August 31,
Increase (Decrease) in Net Assets: (Unaudited) 2007
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .......................................................................... $ 10,591,167 $ 22,055,888
Net realized loss .............................................................................. (2,705,675) (1,329,450)
Net change in unrealized depreciation .......................................................... (33,973,426) (13,696,073)
-------------------------------
Net increase (decrease) in net assets resulting from operations ................................ (26,087,934) 7,030,365
-------------------------------
===================================================================================================================================
Dividends to Shareholders from
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .......................................................................... (10,946,687) (21,741,425)
-------------------------------
===================================================================================================================================
Common Stock Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from shares issued in reinvestment of dividends ........... -- 3,347,551
-------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................................................... (37,034,621) (11,363,509)
Beginning of period ............................................................................ 212,792,026 224,155,535
-------------------------------
End of period .................................................................................. $ 175,757,405 $ 212,792,026
===============================
End of period undistributed net investment income .............................................. $ 1,549,966 $ 1,905,486
===============================
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 13
Statement of Cash Flows
For the Six Months Ended February 29, 2008 (Unaudited)
===================================================================================================================================
Cash Provided by Operating Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations .............................................................. $(26,087,934)
Adjustments to reconcile net decrease in net assets resulting from operations to net
cash provided by operating activities:
Decrease in receivables ........................................................................................... 403,198
Decrease in other liabilities ..................................................................................... (154,993)
Net realized and unrealized loss .................................................................................. 37,513,669
Amortization of premium and discount .............................................................................. 25,906
Paid-in-kind income ............................................................................................... (254,938)
Realized loss on foreign currency transactions .................................................................... (296,557)
Proceeds from sales and paydowns of long-term investments ......................................................... 57,873,485
Purchases of long-term investments including options purchased .................................................... (45,048,978)
Net purchases of short-term investments ........................................................................... (134,986)
------------
Net cash provided by operating activities ......................................................................... 23,837,872
------------
===================================================================================================================================
Cash Used for Financing Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Cash receipts from loan ........................................................................................... 35,000,000
Cash payments on loan ............................................................................................. (44,000,000)
Cash dividends paid ............................................................................................... (10,974,619)
------------
Net cash used for financing activities ............................................................................ (19,974,619)
------------
===================================================================================================================================
Cash Impact from Foreign Exchange Fluctuations
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ........................................................................... 114,897
------------
===================================================================================================================================
Cash
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash .............................................................................................. 3,978,150
Cash at beginning of period ....................................................................................... 107,267
------------
Cash at end of period ............................................................................................. $ 4,085,417
============
===================================================================================================================================
Cash Flow Information
- -----------------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for interest .......................................................................... $ 1,937,520
============
See Notes to Financial Statements.
14 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Financial Highlights
For the
For the Six For the Period
Months Ended Year Ended January 31,
February 29, August 31, 2005 1 to
2008 August 31,
(Unaudited) 2007 2006 2005
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............................. $ 17.50 $ 18.70 $ 18.38 $ 19.10
-----------------------------------------------------------
Net investment income 2 .......................................... .87 1.83 1.77 .84
Net realized and unrealized gain (loss) .......................... (3.02) (1.23) .25 (.77)
-----------------------------------------------------------
Net increase (decrease) from investment operations ............... (2.15) .60 2.02 .07
-----------------------------------------------------------
Dividends from net investment income ............................. (.90) (1.80) (1.70) (.75)
-----------------------------------------------------------
Capital charges with respect to issuance of shares ............... -- -- -- 3 (.04)
-----------------------------------------------------------
Net asset value, end of period ................................... $ 14.45 $ 17.50 $ 18.70 $ 18.38
===========================================================
Market price, end of period ...................................... $ 13.87 $ 17.16 $ 18.85 $ 17.53
===========================================================
=================================================================================================================================
Total Investment Return 4
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ......................................... (12.48%) 5 3.00% 11.99% .42% 5
===========================================================
Based on market price ............................................ (14.33%) 5 .19% 18.36% (8.53%) 5
===========================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and excluding interest expense ..... 1.24% 6 1.30% 1.29% 1.00% 6
===========================================================
Total expenses, net of waiver .................................... 3.10% 6 3.66% 3.17% 2.20% 6
===========================================================
Total expenses ................................................... 3.10% 6 3.66% 3.17% 2.48% 6
===========================================================
Net investment income ............................................ 10.54% 6 9.63% 9.57% 7.88% 6
===========================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) .................................. $ 175,757 $ 212,792 $ 224,156 $ 219,748
===========================================================
Portfolio turnover ............................................... 19% 72% 64% 17%
===========================================================
Amount of loan outstanding, end of period (000) .................. $ 63,000 $ 72,000 $ 88,800 $ 101,400
===========================================================
Average amount of loan outstanding during the period (000) ....... $ 69,254 $ 95,465 $ 86,132 $ 75,543
===========================================================
Asset coverage, end of period, per $1,000 of loan outstanding .... $ 3,790 $ 3,955 $ 3,524 $ 3,167
===========================================================
1 Commencement of operations.
2 Based on average shares outstanding.
3 Amount is less than $(.01) per share.
4 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.
5 Aggregate total investment return.
6 Annualized.
See Notes to Financial Statements.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 15
Notes to Financial Statements (Unaudited)
1. Significant Accounting Policies:
BlackRock Diversified Income Strategies Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified, closed-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to present a fair statement of the
results for the interim period. All such adjustments are of a normal, recurring
nature.The Fund determines, and makes available for publication, the net asset
value of its Common Stock on a daily basis.
The following is a summary of significant accounting policies followed by the
Fund:
Valuation of Investments: The Fund values most of its corporate bond investments
on the basis of last available bid price or current market quotations provided
by dealers or pricing services selected under the supervision of the Fund's
Board of Directors (the "Board"). In determining the value of a particular
investment, pricing services may use certain information with respect to
transactions in such investments, quotations from dealers, market transactions
in comparable investments, various relationships observed in the market between
investments and calculated yield measures based on valuation technology commonly
employed in the market for such investments.
Floating rate loans are valued in accordance with guidelines established by the
Board. Floating rate loan interests are valued at the mean between the last
available bid prices from one or more brokers or dealers as obtained from Loan
Pricing Corporation ("LPC"). For the limited number of floating rate loans for
which no reliable price quotes are available, such loan interests may be valued
by LPC 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 "Advisor"), an indirect, wholly owned subsidiary of
BlackRock, Inc., will value the floating rate loan at fair value, which is
intended to approximate market value.
Equity investments traded on a national securities exchange or on the NASDAQ
Global Market System are valued at the last reported sale price that day or the
NASDAQ official closing price, if applicable. Equity investments traded on a
national securities exchange for which there were no sales on that day and
equity investments traded on other over-the-counter markets for which market
quotations are readily available are valued at the last available bid price.
Effective September 4, 2007, exchange-traded options are valued at the mean
between the last bid and asked prices at the close of the options market in
which the options trade and previously were valued at the last sales price as of
the close of options trading on applicable exchanges. Over-the-counter ("OTC")
options quotations are provided by dealers or pricing services selected under
the supervision of the Board. Considerations utilized by dealers or pricing
services in valuing OTC options include, but are not limited to, volatility
factors of the underlying security, price movement of the underlying security in
relation to the strike price and the time left until expiration of the option.
Swap agreements are valued by quoted fair values received daily by the Fund's
pricing service. Short-term securities may be valued at amortized cost.
In the event that application of these methods of valuation results in a price
for an investment which is deemed not to be representative of the market value
of such investment, the investment will be valued by, under the direction of, or
in accordance with, a method approved by the Board as reflecting fair value
("Fair Value Assets"). When determining the price for Fair Value Assets, the
Advisor and/or sub-advisor seeks to determine the price that the Fund might
reasonably expect to receive from the current sale of that asset in an
arm's-length transaction. Fair value determinations shall be based upon all
available factors that the Advisor and/or sub-advisor deems relevant. The
pricing of all Fair Value Assets is subsequently reported to the Board or a
committee thereof.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Fund are determined as of such times. Foreign currency exchange rates will be
determined as of the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund's net assets. If
events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities will be valued at their fair value as
determined in good faith by the Board or by the Advisor using a pricing service
and/or procedures approved by the Board.
Floating Rate Loans: The Fund invests in floating rate loans, which are
generally non-investment grade, made by banks, other financial institutions and
privately and publicly offered corporations. Floating rate loans generally pay
interest at rates that are periodically determined by reference to a base
lending rate plus a premium. The base lending rates are generally (i) the
lending rate offered by one or more European banks, such as LIBOR (London
InterBank Offered Rate), (ii) the prime rate offered by one or more U.S. banks
or (iii) the certificate of deposit rate. The Fund considers these investments
to be investments in debt securities for purposes of its investment policies.
The Fund earns and/or pays facility and other fees on floating rate loans. Other
fees earned/paid include commitment, amendment, consent, commissions and
prepayment penalty fees. Facility, amendment and consent fees are typically
amortized as premium and/or accreted as discount over
16 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Notes to Financial Statements (continued)
the term of the loan. Commitment, commission and various other fees are recorded
as income. Prepayment penalty fees are recorded as gains or losses. When the
Fund buys a floating rate loan it may receive a facility fee and when it sells a
floating rate loan it may pay a facility fee. On an ongoing basis, a fund may
receive a commitment fee based on the undrawn portion of the underlying line of
credit portion of a floating rate loan. In certain circumstances, the Fund may
receive a prepayment penalty fee upon the prepayment of a floating rate loan by
a borrower. Other fees received by the Fund may include covenant waiver fees and
covenant modification fees.
The Fund may invest in multiple series or tranches of a loan. A different series
or tranche may have varying terms and carry different associated risks.
Floating rate loans are usually freely callable at the issuer's option. The Fund
may invest in such loans in the form of participations in loans
("Participations") and assignments of all or a portion of loans from third
parties. Participations typically will result in the Fund having a contractual
relationship only with the lender, not with the borrower. The Fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the lender selling the Participation and only upon receipt by
the lender of the payments from the borrower.
In connection with purchasing Participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the loans, nor any rights of offset against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased the Participation.
As a result, the Fund will assume the credit risk of both the borrower and the
lender that is selling the Participation. The Fund's investments in loan
participation interests involve the risk of insolvency of the financial
intermediaries who are parties to the transactions. In the event of the
insolvency of the lender selling the Participation, the Fund may be treated as a
general creditor of the lender and may not benefit from any offset between the
lender and the borrower.
Preferred Stock: The Fund may invest in preferred stocks. Preferred stock has a
preference over common stock in liquidation (and generally in receiving
dividends as well) but is subordinated to the liabilities of the issuer in all
respects. As a general rule, the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates and
perceived credit risk, while the market price of convertible preferred stock
generally also reflects some element of conversion value. Because preferred
stock is junior to debt securities and other obligations of the issuer,
deterioration in the credit quality of the issuer will cause greater changes in
the value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.
Derivative Financial Instruments: The Fund may engage in various portfolio
investment strategies to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise if the value of the contract decreases due to an
unfavorable change in price of the underlying security or index, or if the
counterparty does not perform under the contract. For certain instruments, the
counterparty may pledge cash or securities as collateral.
o Forward foreign exchange contracts -- The Fund may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. Forward currency contracts, when used by the Fund,
help to manage the overall exposure to the foreign currency backing some
of the investments held by the Fund. The contract is marked-to-market
daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed.
o Options -- The Fund may purchase and write call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium received or paid). Written and purchased options are non-income
producing investments. If an option is exercised, the premium paid or
received is added to the cost of the purchase or the proceeds from the
sale in determining whether the Fund has realized a gain or a loss on
investment transactions.
A call option gives the purchaser of the option the right (but not the
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or
at a specified time during the option period. A put option gives the
holder the right to sell and obligates the writer to buy the underlying
position at the exercise price at any time or at a specified time during
the option period.
o Credit default swaps -- The Fund may invest in credit default swaps, which
are OTC contracts in which one party pays fixed periodic payments to a
counterparty in consideration for a guarantee from the counterparty to
make a specific payment should a negative credit event take place. These
periodic payments received or made by the Fund are recorded in the
accompanying Statement of Operations as realized
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 17
Notes to Financial Statements (continued)
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 arise from the possible inability of the counterparties to meet the
terms of their contracts. The Fund is exposed to credit loss in the event
of non-performance by the other party to the swap.
The Fund may utilize credit default swaps for the purpose of reducing the
interest rate sensitivity of the portfolio and decreasing the Fund's
exposure to interest rate risk.
Foreign Currency Transactions: Foreign currency amounts are translated into
United States dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the current rate of exchange; and (ii)
purchases and sales of investment securities, income and expenses at the rates
of exchange prevailing on the respective dates of such transactions.
The Fund reports foreign currency related transactions as components of realized
gains for financial reporting purposes, whereas such components are treated as
ordinary income for federal income tax purposes.
Income Taxes: It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax laws, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
Effective February 29, 2008, the Fund implemented Financial Accounting Standards
Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity, including investment companies, before being
measured and recognized in the financial statements. The Advisor has evaluated
the application of FIN 48 to the Fund, and has determined that the adoption of
FIN 48 does not have a material impact on the Fund's financial statements. The
Fund files U.S. federal and various state and local tax returns. No income tax
returns are currently under examination. The statute of limitations on the
Fund's U.S. federal tax returns remain open for the years ended August 31, 2005
through August 31, 2006. The statutes of limitations on the Fund's state and
local tax returns may remain open for an additional year depending upon the
jurisdiction.
Investment Transactions and Investment Income: Investment transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
Dividends and Distributions: Dividends from net investment income are declared
and paid monthly. Distributions of capital gains are recorded on the ex-dividend
dates.
Recent Accounting Pronouncements: In September 2006, Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), was issued
and is effective for fiscal years beginning after November 15, 2007. FAS 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The impact on the Fund's financial
statement disclosures, if any, is currently being assessed.
In addition, in February 2007, FASB 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. The impact on the Fund's financial
statement disclosures, if any, is currently being assessed.
Segregation: In cases in which the 1940 Act and the interpretive positions of
the Securities and Exchange Commission ("SEC") require that the Fund segregate
assets in connection with certain investments (e.g., swaps), the Fund will,
consistent with certain interpretive letters issued by the SEC, designate on its
books and records cash or other liquid debt securities having a market value at
least equal to the amount that would otherwise be required to be physically
segregated.
Deferred Compensation and BlackRock Closed-End Share Equivalent Investment Plan:
Under the deferred compensation plan approved by the Fund's Board,
non-interested Directors ("Independent Directors") defer a portion of their
annual complex-wide compensation. Deferred amounts earn an approximate return as
though equivalent dollar amounts had been invested in common shares of other
certain BlackRock Closed-End Funds selected by the Independent Directors. This
has approximately the same economic effect for the Independent Directors as if
the Independent Directors had invested the deferred amounts directly in other
certain BlackRock Closed-End Funds. The deferred compensation, if any, is
included in other assets in the Statement of Assets and Liabilities.
18 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Notes to Financial Statements (concluded)
The deferred compensation plan is not funded and obligations thereunder
represent general unsecured claims against the general assets of the Fund. Each
Fund may, however, elect to invest in common shares of other certain BlackRock
Closed-End Funds selected by the Independent Directors in order to match its
deferred compensation obligations.
Other: Expenses that are directly related to one of the Funds are charged to
that Fund. Other operating expenses are pro-rated to certain Funds on the basis
of relative net assets.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with the Advisor to
provide investment advisory and administration services. Merrill Lynch & Co.,
Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. are principal
owners of BlackRock, Inc.
The Advisor is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays the Advisor a monthly fee at an annual rate of 0.75% of the average daily
value of the Fund's net assets plus the proceeds of any outstanding borrowings
used for leverage. In addition, the Advisor has entered into a separate
sub-advisory agreement with BlackRock Financial Management, Inc. ("BFM"), an
affiliate of the Advisor, under which the Advisor pays BFM for services it
provides, a monthly fee that is a percentage of the management fee paid by the
Fund to the Advisor. For the six months ended February 29, 2008, the Fund
reimbursed the Advisor for certain accounting services. The reimbursements,
which are included in accounting services expenses in the Statement of
Operations, was $1,944.
Certain officers and/or directors of the Fund are officers and/or directors of
BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended February 29, 2008 were $50,333,410 and
$55,952,330, respectively.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock par value
$0.10, all of which are initially classified as Common Stock. The Board is
authorized, however, to classify and reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Shares issued and outstanding for the six months ended February 29, 2008
remained constant. Shares issued and outstanding for the year ended August 31,
2007 increased 177,522 as a result of dividend reinvestment.
5. Commitments:
The Fund may invest in floating rate loans. In connection with these
investments, the Fund may, with its Advisor, also enter into unfunded corporate
loans ("commitments"). Commitments may obligate the Fund to furnish temporary
financing to a borrower until permanent financing can be arranged. At February
29, 2008, the Fund had outstanding commitments of approximately $677,000. In
connection with these commitments, the Fund earns a commitment fee, typically
set as a percentage of the commitment amount. Such fee income, which is
classified in the Statement of Operations as facility and other fees, is
recognized ratably over the commitment period. As of February 29, 2008, the Fund
had the following unfunded loan commitments:
- --------------------------------------------------------------------------------
Value of
Unfunded Underlying
Commitment Loan
Borrower (000) (000)
- --------------------------------------------------------------------------------
MEG Energy Delay Draw ................................ $335 $303
Las Vegas Sands Delay Draw ........................... $200 $178
NG Wireless .......................................... $ 94 $ 89
Community Health ..................................... $ 48 $ 48
- --------------------------------------------------------------------------------
6. Short-Term Borrowings:
The Fund is a party to a revolving credit and security agreement funded by a
commercial paper asset securitization program with Citicorp North America, Inc.
("Citicorp"), as Agent, certain secondary backstop lenders and certain asset
securitization conduits, as lenders (the "Lenders"). On May 16, 2007, the
agreement was renewed for one year and has a maximum limit of $125,000,000.
Under the Citicorp administered program, the conduits will fund advances to the
Fund through highly rated commercial paper. The Fund has granted a security
interest in substantially all of its assets to, and in favor of, the Lenders as
security for its obligations to the Lenders. The interest rate on the Fund
borrowings is based on the interest rate carried by the commercial paper plus a
program fee. In addition, the Fund pays a liquidity fee to the secondary
backstop lenders and the agent. The weighted average annual interest rate was
5.45% for the six months ended February 29, 2008.
7. Capital Loss Carryforward:
As of August 31, 2007, the Fund had capital loss carryforwards 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 future realized capital gains.
8. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $0.150000 per share
on March 31, 2008 to shareholders of record on March 14, 2008.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 19
Officers and Directors
G. Nicholas Beckwith, III, Director
Richard E. Cavanagh, Director
Richard S. Davis, Director
Kent Dixon, Director
Frank J. Fabozzi, Director
Kathleen F. Feldstein, Director
James T. Flynn, Director
Henry Gabbay, Director
Jerrold B. Harris, Director
R. Glenn Hubbard, Director
W. Carl Kester, Director
Karen P. Robards, Director
Robert S. Salomon, Jr., Director
Donald C. Burke, Fund President and Chief Executive Officer
Anne F. Ackerley, Vice President
Neal J. Andrews, Chief Financial Officer
Jay M. Fife, Treasurer
Brian P. Kindelan, Chief Compliance Officer
Howard Surloff, Secretary
Custodian
State Street Bank and Trust Company
Boston, MA 02101
Transfer Agent
Computershare Trust Company, N.A.
Providence, RI 02940
Accounting Agent
State Street Bank and Trust Company
Princeton, NJ 08540
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Princeton, NJ 08540
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
New York, NY 10036
20 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
Additional Information
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov. and may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling (800) SEC-0330. The Fund's Forms N-Q
may also be obtained upon request and without charge by calling (800) 441-7762.
Electronic Delivery
Electronic copies of most financial reports are available on the Fund's website
or shareholders can sign up for e-mail notifications of quarterly statements,
annual and semi-annual reports and prospectuses by enrolling in the Fund's
electronic delivery program.
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisors, banks or brokerages may offer this service.
General Information
The Fund will mail only one copy of shareholder documents, including annual and
semi-annual reports and proxy statements, to shareholders with multiple accounts
at the same address. This practice is commonly called "householding" and it is
intended to reduce expenses and eliminate duplicate mailings of shareholder
documents. Mailings of your shareholder documents may be householded
indefinitely unless you instruct us otherwise. If you do not want the mailing of
these documents to be combined with those for other members of your household,
please contact the Fund at (800) 441-7762.
Quarterly performance, semi-annual and annual reports and other information
regarding the Fund may be found on BlackRock's website, which can be accessed at
http://www.blackrock.com. This reference to BlackRock's website is intended to
allow investors public access to information regarding the Fund and does not,
and is not intended to, incorporate BlackRock's website into this report.
BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008 21
Additional Information (concluded)
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law or
as is necessary to respond to regulatory requests or to service Client accounts.
These non-affiliated third parties are required to protect the confidentiality
and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
22 BLACKROCK DIVERSIFIED INCOME STRATEGIES FUND, INC. FEBRUARY 29, 2008
This report, including the financial information herein, is transmitted to
shareholders of BlackRock Diversified Income Strategies Fund, Inc. for their
information. It is not a prospectus. The Fund leverages its Common Stock, which
creates risk for Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of Common Stock shares, and the
risk that fluctuations in short-term interest rates may reduce the Common
Stock's yield. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free (800) 441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's website
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available upon request and without charge (1) at
www.blackrock.com or by calling (800) 441-7762 and (2) on the Securities and
Exchange Commission's website at http://www.sec.gov.
BlackRock Diversified Income Strategies Fund, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
BLACKROCK
#DISP-2/08
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item 1
of this form
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable to this semi-annual report
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating and Governance Committee will consider
nominees to the Board recommended by shareholders when a vacancy
becomes available. Shareholders who wish to recommend a nominee
should send nominations which include biographical information and
set forth the qualifications of the proposed nominee to the
registrant's Secretary. There have been no material changes to these
procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
13a-15(b) under the Securities Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Diversified Income Strategies Fund, Inc.
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer of
BlackRock Diversified Income Strategies Fund, Inc.
Date: April 23, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer (principal executive officer) of
BlackRock Diversified Income Strategies Fund, Inc.
Date: April 23, 2008
By: /s/ Neal J. Andrews
-----------------------------------
Neal J. Andrews
Chief Financial Officer (principal financial officer) of
BlackRock Diversified Income Strategies Fund, Inc.
Date: April 23, 2008