DEBT
STRATEGIES
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
August 31, 1997
<PAGE>
DEBT STRATEGIES FUND, INC.
The Benefits and
Risks of
Leveraging
Debt Strategies Fund, Inc. has the ability to utilize leverage through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of assets
to be obtained from leverage will be based on short-term interest rates, which
normally will be lower than the return earned by the Fund on its longer-term
portfolio investments. Since 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 are the beneficiaries of the incremental
yield. Should the differential between the underlying interest rates narrow, the
incremental yield "pick up" will be reduced. Furthermore, if long-term interest
rates rise, the Common Stock's net asset value will reflect the full decline in
the entire portfolio holdings resulting therefrom since the assets obtained from
leverage do not fluctuate.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its 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. In this case, the
Fund may nevertheless decide to maintain its leveraged position in order to
avoid capital losses on securities purchased with leverage. However, the Fund
will not generally utilize leverage if it anticipates that its leveraged capital
structure would result in a lower rate of return for its Common Stock than would
be obtained if the Common Stock were unleveraged for any significant amount of
time.
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for Debt
Strategies Fund, Inc. The Fund's investment objective is to seek to provide
current income by investing primarily in a diversified portfolio of US
companies' debt instruments, including corporate loans made by banks and other
financial institutions and both publicly offered and privately placed corporate
bonds and notes. The securities are rated in the lower rating categories of the
established rating services (Baa or lower by Moody's Investors Service, Inc.
(Moody's) or BBB or lower by Standard & Poor's Ratings Service (S&P)) or unrated
debt instruments of comparable quality. As a secondary objective, the Fund will
seek capital appreciation. Up to 35% of the Fund's total assets may be invested
in debt instruments which, at the time of investment, are the subject of
bankruptcy proceedings or otherwise in default as to the repayment of principal
or payment of interest or are rated in the lowest categories (Ca or lower by
Moody's or CC or lower by S&P) or unrated debt instruments of comparable
quality.
Since inception (May 30, 1997) through August 31, 1997, the total investment
return on the Fund's Common Stock was +2.44%, based on a change in per share net
asset value from $10.00 to $10.12, and assuming reinvestment of $0.124 per share
income dividends. For the three-month period ended August 31, 1997, the Fund's
total investment return was +2.54%, based on a change in per share net asset
value from $9.99 to $10.12, and assuming reinvestment of $0.124 per share income
dividends. During the same period, the net annualized yield of the Fund's Common
Stock was 7.94%. At the end of the August quarter, the Fund was 11.0% leveraged,
having borrowed $40.1 million of its $160 million credit facility at an average
rate of 6.02%. (For a complete explanation of the benefits and risks of
leverage, see page 1 of this report to shareholders.)
The Environment
After raising the target Federal Funds rate by 25 basis points (0.25%) in March,
the Federal Reserve Board (FRB) held short-term interest rates steady throughout
the remainder of the August quarter. Strong economic growth failed to ignite
inflation, allowing the FRB to maintain stable monetary policy. However, the
Treasury bond market experienced significant volatility during the August
quarter. Treasury bonds responded negatively to economic strength and
inflationary fears in the early part of the period, pushing the ten-year
Treasury bond above 6.35% by late July. However, with increasing investor
confidence in the economy's ability to grow without sparking inflation and
bi-partisan efforts to balance the Federal budget, the ten-year Treasury bond
rallied again to 6.10% by the end of September. Increasing evidence of
noninflationary economic growth, together with continued strong corporate
earnings, helped produce a significant rally in the US stock market. The Dow
Jones Industrial Average and the Standard & Poor's 500 Index both traded to
record levels by late summer.
Current consensus expectations are for the US economy's rate of growth to
continue at a pace below the first quarter gross domestic product (GDP) growth
of 5.9%. However, the 3.3% rate generated in the second quarter still reflects a
strong economy. Currently, inflationary pressures remain contained, supported by
the recent labor and unemployment reports showing moderate growth in wages along
with a slight increase in unemployment. It remains to be seen whether economic
activity moderates enough to rule out future FRB monetary policy tightenings.
High-yield markets benefited from a strong economy and generally solid capital
markets during the August quarter. Growth enhanced credit quality, leading to
improving credit statistics and low default rates. Leveraged loan and high-yield
bond mutual funds experienced record inflows and institutional investors,
attracted by high yields and perceived low credit risk, increased their
allocations to both asset classes. Demand for bank loans again outpaced supply,
even though 1997 year-to-date leveraged loan new-issue volume of $65.5 billion
has surpassed 1996's volume by 6.0%. Insufficient new-issue supply caused many
loan buyers to turn to the secondary market, contributing to strong loan
liquidity and bids above par for performing term loans. Both London Interbank
Offered Rate spreads and upfront fees came down as a result. However, the actual
credit structures of the transactions brought to market continued to be strong
relative to transactions generated in the late 1980s, when compared on the basis
of equity invested and coverage ratios.
Demand for high-yield bonds continued the market rally that began early in the
year, interrupted briefly by a correction in April with a back up in both the
equity and bond markets. As in the loan market, continued steady inflows caused
demand to exceed supply, despite record new issuances of $79.6 billion in the
first eight months of 1997. The spread between the Merrill Lynch High Yield
Master Index II and the ten-year Treasury bond narrowed from 379 basis points in
March 1996 to 303 basis points at the beginning of March 1997 and 286 basis
points by August 31, 1997. With few investors willing to sell existing positions
into the secondary market for fear of not being able to replace them, the focus
was on new issues, often resulting in significant oversubscriptions, small
allocations and premium trading levels shortly after issuance.
Most industry groups shared in the strength exhibited by the high-yield loan and
bond markets. Bonds of issuers in all sectors reported positive year-to-date
1997 returns. Cyclicals, including chemicals, steel, housing, automotive,
aerospace and manufacturing, reported solid cash flow growth, resulting in bond
returns for these industries above the unmanaged Merrill Lynch High Yield Master
Index total return of +8.20%. Consumer products, food and drug and gaming and
leisure issues also performed well. The healthcare, chemical and energy sectors
underperformed the market, primarily because of already tight spreads early in
the year. Media and communications issuers initially extended the rally that
began with the 1996 Telecommunications Act. However, abundant supply driven by
huge capital needs for network development negatively impacted returns late in
the year. The domestic cable sector, previously under some pressure, benefited
from a $1 billion investment by Microsoft Corp. in Comcast Corp.
Most high-yield bonds appear fully valued as reflected by the historically tight
spreads to Treasury securities. However, continued low default rates and strong
technicals should keep spreads tight through the remainder of the year. In
addition to record mutual fund inflows, the high-yield market continued to
benefit from investment by pension funds. More importantly, the high-yield
market has benefited from demand from the numerous collateralized bond
obligations raised since the beginning of the year.
Investment Strategy
At August 31, 1997, floating rate investments totaled 48.4% of the Fund's total
assets, and fixed-rate investments totaled 51.6% of total assets. Approximately
$120 million was available for additional borrowing under the Fund's leverage
facility, based on its August 31, 1997 borrowing base. The Fund was fully
invested by mid-August, at which time the leverage facility was enlisted to seek
to enhance returns. We used leverage to seek to take advantage of the strong
new-issue calendar in both the loan and high-yield bond markets in the face of a
benign monetary policy by the FRB.
Since inception (May 30, 1997) through August 31, 1997, we focused on increasing
the Fund's floating rate exposure. Several market factors limited our success in
achieving a greater floating rate weighting. Investor demand for new issues
allowed underwriters to use aggressive pricing to compete for new business and
resulted in smaller allocations on attractively priced transactions.
Refinancings of Fund investments were undertaken at lower spreads and often
resulted in allocations smaller than the Fund's existing investments.
Tight loan market conditions and a favorable outlook for high-yield bonds caused
us to turn to the bond market. We invested in new issues of companies with
attractive fundamental outlooks at prices generally inexpensive relative to the
secondary market. As with the floating rate market, demand for new issues
resulted in small allocations, with add-on buying fueling price appreciation. We
also pursued secondary market purchases of companies with solid business
franchises that may have experienced short-term financial disappointments. These
investments were pursued only if the borrower exhibited signs of overcoming
short-term financial setbacks and if the bonds were priced at a discount to the
market. We sold bond issues that had achieved significant price appreciation and
spread compression and represented little additional upside potential, as well
as those of companies with potential credit problems.
At August 31, 1997, the Fund's floating rate investments were diversified across
32 borrowers in 19 industries. Fixed-rate investments were diversified across 68
borrowers in 31 industries. The largest industry concentrations were: paper
(8.5% of total assets); telephone communications (6.4%); building materials
(5.9%); metals & mining (5.7%); and automotive & equipment (5.3%).
In Conclusion
We welcome shareholders to Debt Strategies Fund, Inc., and we look forward to
reviewing the Fund's market environment and performance in our next report to
shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ R. Douglas Henderson
R. Douglas Henderson
Vice President and Portfolio Manager
October 13, 1997
2 & 3
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations**+ Cost (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advertising--1.0% B B1 $ 3,000,000 Outdoor Systems, Inc., 8.875% due 6/15/2007 (b) $ 2,975,815 $ 3,052,500
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace--1.5% Whittaker Corporation:
NR* NR* 2,658,165 Revolving Credit, due 4/09/2001 2,658,165 2,661,487
NR* NR* 1,967,195 Term Loan, due 4/09/2001 1,964,762 1,969,654
----------- -----------
4,622,927 4,631,141
- -----------------------------------------------------------------------------------------------------------------------------------
Agricultural NR* NR* 3,000,000 Sun World International Inc., 11.25% due 4/15/2004 (b) 3,146,250 3,217,500
Products--1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Amusement & B B2 2,000,000 AMC Entertainment Inc., 9.50% due 3/15/2009 (b) 2,082,500 2,000,000
Recreational AMF Group Inc.:
Services--5.5% NR* NR* 2,353,659 Revolving Credit, due 3/31/2002 2,353,659 2,353,659
NR* NR* 2,560,976 Term Loan C, due 3/31/2002 2,576,982 2,570,579
B- B3 1,000,000 Hollywood Theater Inc., 10.625% due 8/01/2007 (b) 1,000,000 1,032,500
NR* NR* 3,000,000 Marvel Entertainment Group Inc., Term Loan B, due 2/28/2002 2,001,778 1,980,000
Metro Goldwyn Mayer (MGM):
NR* NR* 2,278,571 Revolving Credit, due 9/30/2001 2,278,571 2,277,147
NR* NR* 1,785,714 Term Loan A, due 9/30/2001 1,777,106 1,784,598
B B2 3,350,000 Riddell Sports, Inc., Senior Notes, 10.50% due 7/15/2007 (b) 3,393,875 3,484,000
----------- -----------
17,464,471 17,482,483
- -----------------------------------------------------------------------------------------------------------------------------------
Apparel--1.3% B+ B2 3,000,000 Brazos Sportswear, Inc., 10.50% due 7/01/2007 (b) 2,977,417 2,970,000
B- B3 1,175,000 GFSI, Inc., 9.625% due 3/01/2007 (b) 1,198,500 1,204,375
----------- -----------
4,175,917 4,174,375
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Automotive & NR* NR* 3,000,000 AM General Corporation, 12.875% due 5/01/2002 3,037,500 3,165,000
Equipment--6.0% B B3 3,000,000 APS Inc., 11.875% due 1/15/2006 2,914,941 2,640,000
NR* NR* 5,000,000 Advanced Accessory, Term Loan B, due 10/30/2004 4,990,072 5,003,125
B- B3 2,000,000 Cambridge Industries, Inc., 10.25% due 7/15/2007 (b) 2,000,000 2,060,000
B- NR* 3,000,000 Oxford Automotive, Inc., 10.125% due 6/15/2007 (b) 2,995,580 3,082,500
B- B3 3,000,000 Safety Components International, Inc., 10.125% due 7/15/2007 (b) 3,000,000 3,030,000
----------- -----------
18,938,093 18,980,625
- -----------------------------------------------------------------------------------------------------------------------------------
Broadcast--Radio & B- NR* 4,000,000 Capstar Broadcasting Partner, 9.25% due 7/01/2007 (b) 3,984,441 4,050,000
Television--3.1% B- Caa 3,000,000 EchoStar DBS Communications Corporation, 12.50% due 7/01/2002 (b) 3,000,000 3,052,500
B+ B1 2,485,000 Telewest Communications PLC, 9.625% due 10/01/2006 2,612,963 2,596,825
----------- -----------
9,597,404 9,699,325
- -----------------------------------------------------------------------------------------------------------------------------------
Building NR* NR* 3,750,000 Amerimax Holding, Inc., Term Loan C, due 6/30/2004 3,745,373 3,750,000
Materials--6.7% NR* NR* 5,000,000 Dal-Tile International Inc., Term Loan B, due 12/31/2003 4,975,591 4,984,375
NR* NR* 2,521,031 Euramax International Ltd., Term Loan B, due 6/30/2004 2,517,920 2,521,031
NR* NR* 3,750,000 Falcon Building Products, Inc., Term Loan, due 6/30/2005 3,735,268 3,754,687
BB- Ba3 5,500,000 John's Manville International Group, 10.875% due 12/15/2004 6,181,250 6,153,125
----------- -----------
21,155,402 21,163,218
- -----------------------------------------------------------------------------------------------------------------------------------
Casinos--2.8% B+ B2 3,000,000 Autotote Corporation (Class A), 10.875% due 8/01/2004 (b) 3,000,000 3,060,000
BB Ba3 3,500,000 Grand Casinos, Inc., 10.125% due 12/01/2003 3,703,750 3,727,500
BB- B1 2,000,000 Trump Atlantic City Association/Funding Inc., 11.25%
due 5/01/2006 2,020,000 1,950,000
----------- -----------
8,723,750 8,737,500
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--5.1% B+ B1 2,000,000 DI Industries, Inc., 8.875% due 7/01/2007 1,990,271 1,992,500
B+ B2 6,000,000 Huntsman Corporation (Floater), 9.093% due 7/01/2007 (b) 6,000,000 6,195,000
NR* NR* 5,000,000 Pioneer American Holding Corporation, Term Loan, due 12/05/2006 4,995,061 5,028,125
BB- NR* 3,000,000 Trikem S.A., 10.625% due 7/24/2007 (b) 2,996,034 3,030,000
----------- -----------
15,981,366 16,245,625
- -----------------------------------------------------------------------------------------------------------------------------------
Computer NR* NR* 10,000,000 DecisionOne Corporation, Term Loan B, due 8/07/2005 9,985,089 9,987,500
Equipment--3.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer NR* NR* 2,187,500 Hedstrom Corp., Term Loan B, due 6/30/2005 2,179,452 2,190,234
Products--0.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified--2.2% B- B3 3,000,000 Ameriserve Food Company, 10.125% due 7/15/2007 (b) 3,000,000 3,075,000
NR* NR* 1,711,900 Ameriserve Food Company, Term Loan A, due 6/30/2003 1,720,459 1,721,529
B+ B3 2,000,000 Insilco Corporation, 10.25% due 8/15/2007 (b) 2,000,000 2,022,500
----------- -----------
6,720,459 6,819,029
- -----------------------------------------------------------------------------------------------------------------------------------
Drilling--2.3% B+ Ba3 3,000,000 Falcon Drilling Company, Inc., 9.75% due 1/15/2001 3,172,500 3,142,500
NR* NR* 4,000,000 Key Energy Group, Inc., Term Loan, due 6/30/2004 3,992,196 4,030,000
----------- -----------
7,164,696 7,172,500
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics/
Electrical Amphenol Corporation:
Components--4.0% NR* NR* 2,275,000 Term Loan B, due 3/31/2002 2,317,656 2,302,727
NR* NR* 2,161,250 Term Loan C, due 3/31/2003 2,201,773 2,188,941
B- B3 2,000,000 Federal Data Corp., 10.125% due 8/01/2005 (b) 2,000,000 2,040,000
B+ B3 1,000,000 High Voltage Engineering Corp., 10.50% due 8/15/2004 (b) 1,000,000 1,007,500
NR* NR* 5,000,000 International Wire Group, Inc., Term Loan B, due 9/30/2003 4,995,128 5,010,000
----------- -----------
12,514,557 12,549,168
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--4.5% B- B3 3,000,000 Belden & Blake Energy Company, 9.875% due 6/15/2007 (b) 3,000,000 2,977,500
B B2 2,000,000 Forcenergy Inc., 8.50% due 2/15/2007 1,975,402 1,972,500
B+ B2 4,000,000 Snyder Oil Corporation, 8.75% due 6/15/2007 3,978,224 4,020,000
Transamerican Energy Corp. (b):
B+ B3 1,500,000 11.50% due 6/15/2002 1,500,000 1,458,750
B+ B3 2,500,000 13% due 6/15/2002 (d) 1,996,161 1,906,250
B- B2 2,000,000 United Refining Company, 10.75% due 6/15/2007 (b) 2,000,000 2,010,000
----------- -----------
14,449,787 14,345,000
- -----------------------------------------------------------------------------------------------------------------------------------
Financial B+ B1 3,000,000 Delta Financial Corporation, 9.50% due 8/01/2004 2,985,670 2,977,500
Services--0.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Food & Kindred B- B3 2,500,000 B & G Foods Inc., 9.625% due 8/01/2007 (b) 2,500,000 2,475,000
Products--3.7% B- B3 4,000,000 Envirodyne Industries, Inc., 10.25% due 12/01/2001 4,030,000 4,010,000
</TABLE>
4 & 5
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations**+ Cost (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Food & Kindred International HomeFoods, Inc.:
Products NR* NR* $ 162,562 Revolving Credit, due 3/31/2003 $ 162,562 $ 162,714
(concluded) NR* NR* 3,982,759 Term Loan A, due 3/31/2003 4,002,672 3,993,960
B B2 1,000,000 SC International Services, Inc., 9.25% due 9/01/2007 (b) 998,681 1,001,250
----------- -----------
11,693,915 11,642,924
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign--0.6% BB- B1 2,000,000 Republic of Brazil, 10.125% due 5/15/2027 1,864,825 1,945,000
- -----------------------------------------------------------------------------------------------------------------------------------
Forest Products-- B B3 3,000,000 Ainsworth Lumber Company, 12.50% due 7/15/2007 (b)(c) 2,917,740 2,914,261
1.4% BB B1 1,500,000 Tembec Finance Corp., 9.875% due 9/30/2005 1,556,250 1,571,250
----------- -----------
4,473,990 4,485,511
- -----------------------------------------------------------------------------------------------------------------------------------
Furniture & NR* NR* 5,000,000 Furniture Brands International Inc., Term Loan, due 6/27/2007 5,000,000 5,025,000
Fixtures--2.6% B- B3 3,000,000 Omega Cabinets Ltd., 10.50% due 6/15/2007 (b) 3,000,000 3,033,750
----------- -----------
8,000,000 8,058,750
- -----------------------------------------------------------------------------------------------------------------------------------
General Merchandise Specialty Retailers, Inc. (b):
Stores--1.0% BB- Ba3 1,500,000 8.50% due 7/15/2005 1,500,000 1,526,250
B- B2 1,500,000 9% due 7/15/2007 1,494,966 1,515,000
----------- -----------
2,994,966 3,041,250
- -----------------------------------------------------------------------------------------------------------------------------------
Grocery Stores--4.2% Bruno's Inc.:
NR* NR* 4,053,333 Revolving Credit, due 6/02/2003 4,053,333 3,946,933
NR* NR* 4,000,000 Term Loan A, due 6/02/2005 4,010,000 3,980,000
NR* NR* 5,333,333 Itaperuna Participacoes S.A., Term Loan, due 6/02/2002 5,293,987 5,346,667
----------- -----------
13,357,320 13,273,600
- -----------------------------------------------------------------------------------------------------------------------------------
Health Services-- NR* NR* 3,000,000 FPA Medical Management, Inc., Term Loan, due 9/30/2001 2,995,609 3,000,000
5.7% B- B3 3,000,000 Graham-Field Health Products, Inc., 9.75% due 8/15/2007 (b) 3,000,000 3,022,500
NR* NR* 5,000,000 Sterling Diagnostic Imaging, Inc., Term Loan B, due 9/30/2005 4,987,519 4,987,500
B- B2 3,000,000 Sun Healthcare Group, Inc., 9.50% due 7/01/2007 (b) 3,000,000 3,082,500
B B1 4,000,000 Vencor, Inc., 8.625% due 7/15/2007 (b) 4,050,000 3,990,000
----------- -----------
18,033,128 18,082,500
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing--1.4% B- B3 500,000 Roller Bearing Co. of America, 9.625% due 6/15/2007 (b) 500,000 510,000
B- B3 3,500,000 Tokheim Corporation, 11.50% due 8/01/2006 3,928,750 3,946,250
----------- -----------
4,428,750 4,456,250
- -----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining-- NR* NR* 2,952,381 Adience, Inc., Holdco, Term Loan, due 10/17/2005 2,941,521 2,952,381
6.5% B+ B1 625,000 Americold Corporation, 11.50% due 3/01/2005 673,438 670,312
NR* B1 3,000,000 CSN Iron S.A., 9.125% due 6/01/2007 (b) 2,986,655 2,902,500
BB B1 3,000,000 The Carbide/Graphite Group, Inc., 11.50% due 9/01/2003 3,292,500 3,270,000
B B2 5,000,000 G.S. Technologies Operating Co., 12% due 9/01/2004 5,425,000 5,512,500
BB- Ba3 2,000,000 Murrin, Murrin Holdings Party, 9.375% due 8/31/2007 (b) 2,000,000 1,991,384
B B3 3,000,000 Westmin Resources Ltd., 11% due 3/15/2007 3,166,250 3,210,000
----------- -----------
20,485,364 20,509,077
- -----------------------------------------------------------------------------------------------------------------------------------
Paper--9.7% B B3 5,000,000 Gaylord Container Corp., 9.75% due 6/15/2007 (b) 5,000,000 5,075,000
BB- Ba3 2,000,000 PT Indah Kiat Financial Mauritius, 10% due 7/01/2007 (b) 1,987,066 1,907,500
BB Ba3 4,000,000 PT Pabrik Kertas Tjiwi Kimia, 10% due 8/01/2004 (b) 3,978,383 3,875,000
CCC B2 4,000,000 Repap New Brunswick, Inc., 9.062% due 7/15/2000 3,958,220 3,930,000
NR* NR* 5,678,010 Riverwood International, Inc., Term Loan A, due 2/28/2003 5,685,107 5,692,205
NR* NR* 9,946,809 Stone Container Corporation, Term Loan B, due 4/01/2000 9,865,633 10,027,627
----------- -----------
30,474,409 30,507,332
- -----------------------------------------------------------------------------------------------------------------------------------
Printing & NR* NR* 5,000,000 21st Century Newspapers, Inc., Term Loan B, due 9/15/2005 4,995,013 5,031,250
Publishing--4.2% NR* NR* 2,000,000 Big Flower Press Holdings Inc., 8.875% due 7/01/2007 (b) 1,983,784 1,960,000
Foamex International, Inc.:
NR* NR* 2,619,048 Term Loan B, due 6/30/2005 2,638,690 2,637,054
NR* NR* 2,380,952 Term Loan C, due 6/30/2006 2,398,810 2,399,554
NR* NR* 1,250,000 Von Hoffman Press Inc., Term Loan A, due 5/22/2003 1,256,250 1,256,250
----------- -----------
13,272,547 13,284,108
- -----------------------------------------------------------------------------------------------------------------------------------
Retail
Specialty--0.6% B- B3 2,000,000 United Auto Group, Inc., 11% due 7/15/2007 (b) 1,970,758 2,020,000
- -----------------------------------------------------------------------------------------------------------------------------------
Shipping--2.0% B+ B3 4,000,000 Equimar Shipholdings, Ltd., 9.875% due 7/01/2007 (b) 4,000,000 3,870,000
B+ B2 2,500,000 Global Ocean Carriers Ltd., 10.25% due 7/15/2007 (b) 2,462,289 2,490,625
----------- -----------
6,462,289 6,360,625
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications-- Brooks Fiber Properties, Inc.:
2.3% NR* NR* 3,000,000 10.501% due 3/01/2006 (d) 2,125,972 2,182,500
NR* NR* 1,250,000 10% due 6/01/2007 (b) 1,267,187 1,315,625
NR* NR* 3,500,000 Metronet Communications, Inc., 12% due 8/15/2007 (b)(e) 3,500,000 3,745,000
----------- -----------
6,893,159 7,243,125
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone B+ B2 2,500,000 Grupo Iusacell S.A., 10% due 7/15/2004 (b) 2,500,000 2,565,625
Communications-- Nextel Communications, Inc.:
7.3% NR* NR* 1,352,060 Revolving Credit, due 3/31/2003 1,352,060 1,338,962
NR* NR* 936,329 Term Loan C, due 3/31/2003 923,678 927,259
NR* NR* 5,000,000 Term Loan E, due 6/30/2003 4,995,005 4,995,000
NR* NR* 10,000,000 Sprint Spectrum L.P., Term Loan, due 6/30/1998 10,125,000 10,050,000
B- Caa1 2,000,000 Telesystems International Wireless, Inc., 13.246% due
6/30/2007 (b)(d) 1,076,526 1,175,000
NR* NR* 2,000,000 Unifi Communications, Inc., 14% due 3/01/2004 (b) 1,830,132 1,930,000
----------- -----------
22,802,401 22,981,846
- -----------------------------------------------------------------------------------------------------------------------------------
Textile Mill B+ B3 1,250,000 Delta Mills, Inc., 9.625% due 9/01/2007 (b) 1,250,000 1,250,000
Products--2.2% Joan Fabrics:
NR* NR* 3,618,421 Term Loan B, due 6/30/2005 3,612,999 3,661,390
NR* NR* 1,881,579 Term Loan C, due 6/30/2006 1,878,759 1,903,923
----------- -----------
6,741,758 6,815,313
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 & 7
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations**+ Cost (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Transportation NR* NR* $ 5,000,000 Atlas Freight, Term Loan, due 5/29/2004 $ 4,987,823 $ 5,015,625
Services--4.0% Autopistas del Sol S.A. (b):
BB- NR* 1,250,000 9.35% due 8/01/2004 1,250,000 1,253,125
BB- NR* 3,000,000 10.25% due 8/01/2009 3,000,000 3,067,500
B+ B1 3,000,000 Coach USA, Inc., 9.375% due 7/01/2007 (b) 3,000,000 3,000,000
B+ B2 500,000 TFM S.A. de C.V., 10.25% due 6/15/2007 (b) 500,000 513,750
------------ -----------
12,737,823 12,850,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Debt Obligations--111.2% 349,468,507 350,982,434
- -----------------------------------------------------------------------------------------------------------------------------------
Shares
Held Preferred Stocks & Warrants
- -----------------------------------------------------------------------------------------------------------------------------------
Cable Television 12,500 Adelphia Communications Corp. (Class A) (b) 1,250,000 1,346,875
Services--0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone 2,000 Unifi Communications, Inc. (Warrants) (a)(b) 113,180 40,000
Communications--
0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks & Warrants--0.4% 1,363,180 1,386,875
- -----------------------------------------------------------------------------------------------------------------------------------
Face
Amount Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial $ 87,000 General Motors Acceptance Corp., 5.69% due 9/02/1997 87,000 87,000
Paper***--0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities--0.0% 87,000 87,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments--111.6% $350,918,687 352,456,309
============
Liabilities in Excess of Other Assets--(11.6%) (36,590,181)
------------
Net Assets--100.0% $315,866,128
============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock/face amount of bonds. The purchase price and number of
shares/face amount are subject to adjustments under certain conditions
until the expiration date.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(d) Represents a zero coupon bond or step bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
(e) Each $1,000 face amount contains one warrant of Metronet Communications,
Inc.
* Not Rated.
** Floating or Variable Rate Corporate Debt--The interest rates on floating
or variable rate corporate debt are subject to change periodically based
on the change in the prime rate of a US bank, LIBOR (London Interbank
Offered Rate), or, in some cases, another base lending rate.
*** Commercial Paper is traded on a discount basis; the interest rate shown is
the discount rate paid at the time of purchase by the Fund.
+ Corporate loans represent 49.5% of the Fund's net assets.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of August 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets: Investments, at value (identified cost--$350,918,687) (Note 1b) $352,456,309
Cash........................................................... 2,113,436
Receivables:
Interest..................................................... $ 4,800,468
Investment adviser (Note 2).................................. 53,528 4,853,996
-----------
Deferred facility fees......................................... 36,052
Deferred organization expenses (Note 1f) ...................... 50,379
Prepaid expenses and other assets ............................. 325,758
-----------
Total assets................................................... 359,835,930
-----------
- ---------------------------------------------------------------------------------------------------------
Liabilities: Loans (Note 6)................................................. 40,100,000
Payables:
Securities purchased......................................... 3,124,444
Interest on loans (Note 6)................................... 64,267
Commitment fees.............................................. 12,900 3,201,611
-----------
Accrued expenses and other liabilities......................... 668,191
-----------
Total liabilities.............................................. 43,969,802
-----------
- ---------------------------------------------------------------------------------------------------------
Net Assets: Net assets..................................................... $315,866,128
============
- ---------------------------------------------------------------------------------------------------------
Capital: Common stock, $.10 par value, 200,000,000 shares authorized.... $ 3,121,022
Paid-in capital in excess of par............................... 308,540,527
Undistributed investment income--net........................... 2,583,516
Undistributed realized capital gains on investments--net....... 83,441
Unrealized appreciation on investments--net.................... 1,537,622
------------
Total Capital--Equivalent to $10.12 per share based on
31,210,217 shares of capital stock outstanding
(market price--$10.0625)....................................... $315,866,128
============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period May 30, 1997+ to August 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income Interest and discount earned.......................... $ 6,571,011
(Note 1e): Facility and other fees............................... 35,017
-----------
Total income.......................................... 6,606,028
-----------
- --------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)..................... $ 477,930
Loan interest expense (Note 6)........................ 64,267
Professional fees..................................... 42,567
Borrowing costs (Note 6).............................. 19,386
Custodian fees........................................ 15,276
Directors' fees and expenses.......................... 13,804
Accounting services (Note 2).......................... 13,731
Printing and shareholder reports...................... 11,465
Transfer agent fees (Note 2).......................... 9,139
Amortization of organization expenses (Note 1f)....... 2,900
Pricing services...................................... 814
Other................................................. 7,945
----------
Total expenses before reimbursement................... 679,224
Reimbursement of expenses (Note 2).................... (529,724)
----------
Expenses after reimbursement.......................... 149,500
-----------
Investment income--net................................ 6,456,528
-----------
- --------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net..................... 83,441
Unrealized Gain on Unrealized appreciation on investments--net........... 1,537,622
Investments-Net -----------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations.. $ 8,077,591
===========
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Period
May 30, 1997+ to
Increase (Decrease) in Net Assets: August 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operations: Investment income--net........................................ $ 6,456,528
Realized gain on investments--net............................. 83,441
Unrealized appreciation on investments--net................... 1,537,622
---------------
Net increase in net assets resulting from operations......... 8,077,591
---------------
- --------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net........................................ (3,873,012)
Shareholders ---------------
(Note 1g): Net decrease in net assets resulting from dividends
to shareholders............................................... (3,873,012)
---------------
- --------------------------------------------------------------------------------------------------------------------------
Capital Share Net proceeds from issuance of Common Stock................... 311,561,549
Transactions (Note 4): ---------------
Net increase in net assets resulting from capital
share transactions........................................... 311,561,549
---------------
- --------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets................................. 315,766,128
Beginning of period.......................................... 100,000
---------------
End of period*............................................... $ 315,866,128
===============
- --------------------------------------------------------------------------------------------------------------------------
* Undistributed investment income--net.......................... $ 2,583,516
===============
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF CASH FLOWS
For the Period
May 30, 1997+ to
August 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash Provided by Net increase in net assets resulting from operations......... $ 8,077,591
Operating Activities: Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Increase in receivables.................................... (4,853,996)
Increase in other assets................................... (162,189)
Increase in other liabilities.............................. 495,358
Realized and unrealized gain on investments--net............ (1,621,063)
Amortization of discount................................... (1,552,563)
---------------
Net cash provided by operating activities.................... 383,138
---------------
- --------------------------------------------------------------------------------------------------------------------------
Cash Used for Proceeds from sales of long-term investments................. 39,383,333
Investing Activities: Purchases of long-term investments........................... (386,854,623)
Purchases of short-term investments.......................... (2,446,073,317)
Proceeds from sales and maturities of short-term
investments.................................................. 2,447,386,368
---------------
Net cash used for investing activities....................... (346,158,239)
---------------
- --------------------------------------------------------------------------------------------------------------------------
Cash Provided by Cash receipts on capital shares sold......................... 311,561,549
Financing Activities: Cash receipts from borrowings................................ 40,100,000
Dividends paid to shareholders............................... (3,873,012)
---------------
Net cash provided by financing activities.................... 347,788,537
---------------
- --------------------------------------------------------------------------------------------------------------------------
Cash: Net increase in cash......................................... 2,013,436
Cash at beginning of period.................................. 100,000
---------------
Cash at end of period........................................ $ 2,113,436
---------------
- --------------------------------------------------------------------------------------------------------------------------
Cash Flow Cash paid for interest....................................... $ --
Information: ===============
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
10 & 11
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
May 30, 1997+ to
Increase (Decrease) in Net Asset Value: August 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Net asset value, beginning of period........................................ $ 10.00
Operating ---------
Performance: Investment income--net...................................................... .20
Realized and unrealized gain on investments--net ........................... .04
---------
Total from investment operations............................................ .24
---------
Less dividends from investment income--net.................................. (.12)
---------
Net asset value, end of period.............................................. $ 10.12
=========
Market price per share, end of period....................................... $ 10.0625
=========
- -----------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share............................................. 1.86%++
Return:** =========
Based on net asset value per share.......................................... 2.44%++
=========
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement and excluding interest expense............... .11%*
Net Assets: =========
Expenses, net of reimbursement.............................................. .19%*
=========
Expenses.................................................................... .86%*
=========
Investment income--net...................................................... 8.17%*
=========
- -----------------------------------------------------------------------------------------------------------------
Leverage: Amount of borrowings, end of period (in thousands).......................... $ 40,100
=========
Average amount of borrowings outstanding during the period (in thousands)... $ 4,100
=========
Average amount of borrowings outstanding per share during the period ....... $ .14
=========
- -----------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands).................................... $ 315,866
Data: =========
Portfolio turnover.......................................................... 19.43%
=========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
* Annualized.
** Total investment returns exclude the effect of
sales loads. Total investment returns based on
market value, which can be significantly greater
or lesser than the net asset value, may result in
substantially different returns.
++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Debt Strategies Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
Prior to commencement of operations on May 30, 1997, the Fund had no operations
other than those relating to organizational matters and the issuance of 10,000
shares of common stock to Fund Asset Management, L.P. ("FAM") for $100,000.
These unaudited financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period presented. 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 weekly basis. The Fund's Common Stock is listed on the New
York Stock Exchange under the symbol DBS.
(a) Corporate debt obligations--The Fund invests principally in debt obligations
of companies, including corporate loans made by banks and other financial
institutions and both privately and publicly offered corporate bonds and notes.
Because agents and intermediaries are primarily commercial banks, the Fund's
investment in corporate loans could be considered concentrated in financial
institutions.
(b) Valuation of investments--Corporate loans will be valued in accordance with
guidelines established by the Board of Directors. Under the Fund's current
guidelines, corporate loans will be valued at the average of the mean between
the bid and asked quotes received by one or more brokers, if available.
Other portfolio securities may be valued on the basis of prices furnished by one
or more pricing services which determine prices for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the exchange that is
the primary market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The value of
interest rate swaps, caps, and floors is determined in accordance with a formula
and then confirmed periodically by obtaining a bank quotation. Positions in
options are valued at the last sale price on the market where any such option is
principally traded. Short-term securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market value.
Securities and assets for which market price quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund.
(c) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell interest rate
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Interest rate transactions--The Fund is authorized to enter into interest rate
swaps and purchase or sell interest rate caps and
12 & 13
<PAGE>
Debt Strategies Fund, Inc., August 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
floors. In an interest rate swap, the Fund exchanges with another party their
respective commitments to pay or receive interest on a specified notional
principal amount. The purchase of an interest rate cap (or floor) entitles the
purchaser, to the extent that a specified index exceeds (or falls below) a
predetermined interest rate, to receive payments of interest equal to the
difference between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) 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.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
Facility fees are accreted to income over the term of the related loan.
(f) Deferred organization expenses--Deferred organization expenses are amortized
on a straight-line basis over a five-year period.
(g) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services the Fund pays a monthly fee at
an annual rate of 0.60% of the Fund's average weekly net assets plus the
proceeds of any outstanding borrowings used for leverage. For the period May 30,
1997 to August 31, 1997, FAM earned fees of $477,930, all of which was
voluntarily waived. In addition, FAM reimbursed the Fund $51,794 for additional
expenses.
Accounting services are provided to the Fund by FAM at cost.
The Fund's leverage facility is currently provided by Merrill Lynch
International Bank Limited, an affiliate of FAM (as further described in
Note 6).
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period May 30, 1997 to August 31, 1997 were $389,979,067 and $39,383,333,
respectively.
Net realized and unrealized gains as of August 31, 1997 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $ 83,380 $1,537,622
Short-term investments .................. 61 --
--------- ----------
Total ................................... $ 83,441 $1,537,622
========= ==========
- --------------------------------------------------------------------------------
As of August 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $1,537,622, of which $3,168,723 related to appreciated
securities and $1,631,101 related to depreciated securities. The aggregate cost
of investments at August 31, 1997 for Federal income tax purposes was
$350,918,687.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of Common Stock, par value
$.10 per share. For the period May 30, 1997 to August 31, 1997, 31,200,217
shares were sold from the issuance of Common Stock.
5. Unfunded Loan Interests:
As of August 31, 1997, the Fund had unfunded loan commitments of $19,266,135,
which would be extended at the option of the borrower, pursuant to the following
loan agreements:
- --------------------------------------------------------------------------------
Unfunded
Commitment
Borrower (in thousands)
- --------------------------------------------------------------------------------
AMF Group Inc. ............................................... $ 122
Ameriserve Food Company ...................................... 3,288
Bruno's Inc. ................................................. 1,946
International HomeFoods, Inc. ................................ 1,355
Metro Goldwyn Mayer (MGM) .................................... 936
Nextel Communications, Inc. .................................. 2,494
Viasystems Tech .............................................. 5,000
Von Hoffman Press Inc. ....................................... 3,750
Whittaker Corporation ........................................ 375
- --------------------------------------------------------------------------------
6. Short-Term Borrowings:
On August 7, 1997, the Fund entered into a credit agreement with Merrill Lynch
International Bank Limited, an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Inc. and of FAM. The agreement is a $160,000,000 credit facility bearing
interest at the Federal Funds rate plus 0.25% and/or LIBOR plus 0.25%, with a
maturity date of August 7, 1998. For the period May 30, 1997 to August 31, 1997,
the maximum amount borrowed was $40,100,000, the average amount borrowed was
approximately $4,100,000 and the daily weighted average interest rate was 6.02%.
For the period May 30, 1997 to August 31, 1997, facility and commitment fees
aggregated approximately $19,000.
7. Subsequent Event:
On September 16, 1997, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.082777 per share,
payable on September 29, 1997 to shareholders of record as of September 18,
1997.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Joseph T. Monagle Jr., Senior Vice President
R. Douglas Henderson, Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
110 Washington Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street
New York, NY 10286
NYSE Symbol
DBS
This report, including the financial information herein, is transmitted to the
shareholders of Debt Strategies Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a representation of future
performance. The Fund has leveraged its Common Stock to provide Common Stock
shareholders with a potentially higher rate of return. Leverage creates risk for
Common Stock shareholders, including the likelihood of greater volatility of net
asset value and market price of Common Stock shares, and the risk that
fluctuations in short-term interest rates may reduce the Common Stock's yield.
Statements and other information herein are as dated and are subject to change.
Debt Strategies
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #DEBT01--8/97
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