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