UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act File number 811-8603
Name of Fund: Debt Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Debt 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: (609) 282-2800
Date of fiscal year end: 02/28/2007
Date of reporting period: 03/01/06 - 05/31/06
Item 1 - Schedule of Investments
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
Face
Amount Corporate Bonds Value
-----------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 4.1% $ 5,000,000 Alliant Techsystems, Inc., 3% due 8/15/2024 (d)(k) $ 5,862,500
7,500,000 L-3 Communications Corp., 3% due 8/01/2035 (d)(k) 7,275,000
9,765,000 Standard Aero Holdings, Inc., 8.25% due 9/01/2014 8,593,200
8,120,000 Vought Aircraft Industries, Inc., 8% due 7/15/2011 7,632,800
-------------
29,363,500
-----------------------------------------------------------------------------------------------------------------------------------
Automotive - 3.3% 700,000 Advanced Accessory Systems LLC, 10.75% due 6/15/2011 707,000
3,150,000 Cooper-Standard Automotive, Inc., 8.375% due 12/15/2014 2,610,547
2,700,000 Delco Remy International, Inc., 9.068% due 4/15/2009 (a) 2,635,875
4,625,000 Exide Technologies, 10.50% due 3/15/2013 (d) 4,012,188
5,000,000 General Motors Acceptance Corp., 5.968% due 1/16/2007 (a) 4,951,420
9,050,000 Metaldyne Corp., 11% due 6/15/2012 7,783,000
925,000 Tenneco Automotive, Inc. Series B, 10.25% due 7/15/2013 1,017,500
4,450,000 Venture Holdings Co. LLC, 12% due 6/01/2009 (i) 0
1,800,000 Venture Holdings Co. LLC Series B, 9.50% due 7/01/2005 (m) 2,250
-------------
23,719,779
-----------------------------------------------------------------------------------------------------------------------------------
Broadcasting - 6.8% 5,000,000 Canadian Satellite Radio Holdings, Inc., 12.75% due 2/15/2014 (d) 4,975,000
1,100,000 LIN Television Corp. Series B, 6.50% due 5/15/2013 1,020,250
2,800,000 Paxson Communications Corp., 8.318% due 1/15/2012 (a)(d) 2,856,000
5,625,000 Paxson Communications Corp., 11.318% due 1/15/2013 (a)(d) 5,688,281
3,235,000 Sinclair Broadcast Group, Inc. Class A, 4.875% due 7/15/2018 (k) 2,834,669
13,300,000 Sirius Satellite Radio, Inc., 9.625% due 8/01/2013 12,568,500
10,000,000 Xm Satellite Radio, Inc., 9.649% due 5/01/2013 (a)(d) 9,400,000
8,500,000 Xm Satellite Radio, Inc., 9.75% due 5/01/2014 (d) 7,905,000
2,000,000 Young Broadcasting Inc., 10% due 3/01/2011 1,810,000
-------------
49,057,700
-----------------------------------------------------------------------------------------------------------------------------------
Cable - 750,000 NTL Cable Plc, 8.75% due 4/15/2014 753,750
International - 1.2% 3,500,000 New Skies Satellites NV, 10.414% due 11/01/2011 (a) 3,613,750
3,700,000 New Skies Satellites NV, 9.125% due 11/01/2012 3,959,000
-------------
8,326,500
-----------------------------------------------------------------------------------------------------------------------------------
Cable - U.S. - 9.1% 7,500,000 Adelphia Communications Corp., 6% due 2/15/2006 (k)(m) 75,000
3,450,000 CSC Holdings, Inc., 7.25% due 7/15/2008 3,475,875
4,225,000 Cablevision Systems Corp. Series B, 9.62% due 4/01/2009 (a) 4,489,063
3,750,000 Charter Communications Holdings LLC, 10% due 4/01/2009 2,887,500
2,000,000 Charter Communications Holdings LLC, 11.75% due 1/15/2010 1,330,000
2,000,000 Charter Communications Holdings LLC, 11.125% due 1/15/2011 1,260,000
725,000 Charter Communications Holdings LLC, 9.92% due 4/01/2011 435,000
3,000,000 Charter Communications Holdings LLC, 10% due 5/15/2011 1,800,000
2,500,000 Insight Midwest, LP, 9.75% due 10/01/2009 2,562,500
3,825,000 Intelsat Subsidiary Holding Co. Ltd., 9.614% due 1/15/2012 (a) 3,877,594
3,375,000 Intelsat Subsidiary Holding Co. Ltd., 8.25% due 1/15/2013 3,387,656
4,800,000 Intelsat Subsidiary Holding Co. Ltd., 8.625% due 1/15/2015 4,860,000
1,023,000 Loral Spacecom Corp., 14% due 10/15/2015 (b) 1,196,910
2,350,000 Mediacom Broadband LLC, 11% due 7/15/2013 2,479,250
3,875,000 Mediacom LLC, 9.50% due 1/15/2013 3,894,375
11,750,000 PanAmSat Holding Corp., 9.926% due 11/01/2014 (c) 8,548,125
10,000,000 Rainbow National Services LLC, 10.375% due 9/01/2014 (d) 11,175,000
10,350,000 Zeus Special Subsidiary Ltd., 9.25% due 2/01/2015 (c)(d) 7,477,875
-------------
65,211,722
-----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 8.8% 3,550,000 ArCo Chemical Co., 9.80% due 2/01/2020 4,260,000
4,000,000 Compass Minerals International, Inc. Series B, 12% 3,680,000
due 6/01/2013 (c)
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
Face
Amount Corporate Bonds Value
-----------------------------------------------------------------------------------------------------------------------------------
$ 9,783,000 GEO Specialty Chemicals, Inc., 13.50% due 12/31/2009 (k) $ 8,511,210
1,900,000 Huntsman International, LLC, 9.875% due 3/01/2009 1,980,750
1,199,000 Huntsman International, LLC, 10.125% due 7/01/2009 1,219,982
1,500,000 Innophos, Inc., 8.875% due 8/15/2014 1,526,250
2,400,000 Millennium America, Inc., 7.625% due 11/15/2026 2,070,000
18,000,000 Nova Chemicals Corp., 8.405% due 11/15/2013 (a) 18,135,000
10,000,000 Omnova Solutions, Inc., 11.25% due 6/01/2010 10,675,000
5,025,101 PCI Chemicals Canada, Inc., 10% due 12/31/2008 5,244,949
2,500,000 PolyOne Corp., 6.89% due 9/22/2008 2,375,000
2,612,000 Rockwood Specialties Group, Inc., 10.625% due 5/15/2011 2,820,960
450,000 Rockwood Specialties Group, Inc., 7.50% due 11/15/2014 447,750
-------------
62,946,851
-----------------------------------------------------------------------------------------------------------------------------------
Consumer - Durables - 1.6% 16,500,000 Simmons Co., 11.074% due 12/15/2009 (c) 11,591,250
-----------------------------------------------------------------------------------------------------------------------------------
Consumer - 9,000,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 8,640,000
Non-Durables - 1.6% 2,750,000 Levi Strauss & Co., 9.74% due 4/01/2012 (a) 2,842,812
-------------
11,482,812
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Media - 3.9% 2,350,000 AMC Entertainment, Inc., 11% due 2/01/2016 (d) 2,538,000
2,000,000 Cadmus Communications Corp., 8.375% due 6/15/2014 2,005,000
7,000,000 Houghton Mifflin Co., 12.031% due 5/15/2011 (a)(d) 6,921,250
7,500,000 Liberty Media Corp., 0.75% due 3/30/2023 (k) 7,931,250
2,675,000 Muzak Holdings, LLC, 13% due 3/15/2010 441,375
3,875,000 NBC Acquisition Corp., 11% due 3/15/2013 (c) 2,712,500
375,000 Universal City Florida Holding Co. I, 8.375% due 5/01/2010 382,500
5,300,000 Universal City Florida Holding Co. I, 9.899% due 5/01/2010 (a) 5,472,250
-------------
28,404,125
-----------------------------------------------------------------------------------------------------------------------------------
Energy - Exploration & 3,000,000 Chaparral Energy, Inc., 8.50% due 12/01/2015 (d) 3,037,500
Production - 2.0% 5,500,000 Compton Petroleum Finance Corp., 7.625% due 12/01/2013 5,362,500
6,000,000 Tronox Worldwide LLC, 9.50% due 12/01/2012 (d) 6,225,000
-------------
14,625,000
-----------------------------------------------------------------------------------------------------------------------------------
Energy - Other - 3.7% 6,150,000 Aventine Renewable Energy Holdings, Inc., 11.329% due 12/15/2011 (a)(d) 6,457,500
1,000,000 Dresser, Inc., 9.375% due 4/15/2011 1,035,000
2,045,000 Dresser-Rand Group, Inc., 7.375% due 11/01/2014 2,055,225
8,000,000 Ocean RIG ASA, 8.99% due 4/04/2011 7,960,000
6,950,000 SemGroup LP, 8.75% due 11/15/2015 (d) 7,054,250
2,000,000 VeraSun Energy Corp., 9.875% due 12/15/2012 (d) 2,150,000
-------------
26,711,975
-----------------------------------------------------------------------------------------------------------------------------------
Financial - 1.0% 5,743,690 Archimedes Funding III Ltd., 5.50% due 11/29/2011 (a)(d) 4,135,457
1,500,000 Investcorp SA, 7.54% due 10/21/2008 1,521,732
2,000,000 Pennant CBO Ltd., 13.43% due 3/14/2011 1,360,000
-------------
7,017,189
-----------------------------------------------------------------------------------------------------------------------------------
Food & Drug - 0.2% 1,000,000 Stripes Acquisition LLC, 10.625% due 12/15/2013 (d) 1,085,000
-----------------------------------------------------------------------------------------------------------------------------------
Food & Tobacco - 0.2% 842,946 Archibald Candy Corp., 10% due 11/01/2007 (i) 53,687
1,175,000 Doane Pet Care Co., 10.75% due 3/01/2010 1,278,165
-------------
1,331,852
-----------------------------------------------------------------------------------------------------------------------------------
Gaming - 3.6% 9,250,000 Galaxy Entertainment Finance Co. Ltd., 10.42% due 12/15/2010 (a)(d) 9,666,250
1,250,000 Galaxy Entertainment Finance Co. Ltd., 9.875% due 12/15/2012 (d) 1,306,250
5,250,000 Inn of the Mountain Gods Resort & Casino, 12% due 11/15/2010 5,617,500
2,000,000 Jacobs Entertainment, Inc., 11.875% due 2/01/2009 2,122,500
3,275,000 Little Traverse Bay Bands of Odawa Indians, 10.25% due 2/15/2014 (d) 3,242,250
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
Face
Amount Corporate Bonds Value
-----------------------------------------------------------------------------------------------------------------------------------
$ 915,000 Penn National Gaming, Inc., 6.75% due 3/01/2015 $ 874,969
3,000,000 Tunica-Biloxi Gaming Authority, 9% due 11/15/2015 (d) 3,116,250
-------------
25,945,969
-----------------------------------------------------------------------------------------------------------------------------------
Health Care - 4.3% 3,525,000 CDRV Investors, Inc., 9.75% due 1/01/2015 (c) 2,538,000
5,000,000 Cinacalcet Royalty Corp., 8% due 3/30/2017 (d) 5,281,250
3,525,000 Elan Finance Plc, 7.75% due 11/15/2011 3,436,875
4,825,000 Elan Finance Plc, 9.17% due 11/15/2011 (a) 4,885,313
5,000,000 Risperdal Consta Pharma, 7% due 1/01/2018 4,575,000
6,000,000 Tenet Healthcare Corp., 7.375% due 2/01/2013 5,550,000
1,400,000 VWR International, Inc., 8% due 4/15/2014 1,407,000
4,100,000 Vanguard Health Holding Co. I, LLC, 11.25% due 10/01/2015 (c) 3,013,500
-------------
30,686,937
-----------------------------------------------------------------------------------------------------------------------------------
Housing - 4.2% 3,000,000 Compression Polymers Corp., 11.44% due 7/01/2012 (a)(d) 3,075,000
1,300,000 Compression Polymers Corp., 10.50% due 7/01/2013 (d) 1,352,000
3,190,000 Goodman Global Holding Co., Inc., 8.329% due 6/15/2012 (a) 3,229,875
8,200,000 Goodman Global Holding Co., Inc., 7.875% due 12/15/2012 8,036,000
2,500,000 Nortek, Inc., 8.50% due 9/01/2014 2,512,500
5,450,000 Ply Gem Industries, Inc., 9% due 2/15/2012 5,136,625
2,250,000 Stanley-Martin Communities LLC, 9.75% due 8/15/2015 1,991,250
5,000,000 Technical Olympic USA, Inc., 8.25% due 4/01/2011 (d) 4,887,500
-------------
30,220,750
-----------------------------------------------------------------------------------------------------------------------------------
Information 6,950,000 Amkor Technology, Inc., 9.25% due 2/15/2008 7,297,500
Technology - 5.6% 1,000,000 Cypress Semiconductor Corp., 1.25% due 6/15/2008 (k) 1,160,000
4,725,000 Freescale Semiconductor, Inc., 7.818% due 7/15/2009 (a) 4,819,500
1,375,000 MagnaChip Semiconductor SA, 8.579% due 12/15/2011 (a) 1,364,687
1,050,000 MagnaChip Semiconductor SA, 8% due 12/15/2014 913,500
7,075,000 Sungard Data Systems, Inc., 9.125% due 8/15/2013 (d) 7,419,906
3,825,000 Sungard Data Systems, Inc., 9.431% due 8/15/2013 (a)(d) 4,025,813
4,818,000 Sungard Data Systems, Inc., 10.25% due 8/15/2015 (d) 5,034,810
2,925,000 Telcordia Technologies, Inc., 10% due 3/15/2013 (d) 2,756,812
5,075,000 Viasystems, Inc., 10.50% due 1/15/2011 5,125,750
-------------
39,918,278
-----------------------------------------------------------------------------------------------------------------------------------
Leisure - 3.3% 6,600,000 Felcor Lodging LP, 9.57% due 6/01/2011 (a) 6,806,250
5,000,000 HRP Myrtle Beach Operations LLC, 9.829% due 4/01/2012 (a)(d) 5,006,250
5,000,000 HRP Myrtle Beach Operations LLC, 12.50% due 4/01/2013 (d) 5,012,500
5,000,000 HRP Myrtle Beach Holdings LLC, 14.50% due 4/01/2014 5,081,250
2,000,000 True Temper Sports, Inc., 8.375% due 9/15/2011 1,870,000
-------------
23,776,250
-----------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 2.2% 4,000,000 CPI Holdco, Inc., 10.561% due 2/01/2015 (a) 4,120,000
4,525,000 EaglePicher Inc., 9.75% due 9/01/2013 (i) 2,997,812
5,875,000 Invensys Plc, 9.875% due 3/15/2011 (d) 6,374,375
2,500,000 Propex Fabrics, Inc., 10% due 12/01/2012 2,350,000
-------------
15,842,187
-----------------------------------------------------------------------------------------------------------------------------------
Metal - Other - 2.8% 1,100,000 Aleris International, Inc., 9% due 11/15/2014 1,141,250
5,000,000 Indalex Holding Corp., 11.50% due 2/01/2014 (d) 5,250,000
8,500,000 James River Coal Co., 9.375% due 6/01/2012 8,776,250
4,550,000 RathGibson, Inc., 11.25% due 2/15/2014 (d) 4,879,875
-------------
20,047,375
-----------------------------------------------------------------------------------------------------------------------------------
Packaging - 1.4% 1,100,000 Graham Packing Co., Inc., 9.875% due 10/15/2014 1,122,000
4,000,000 Packaging Dynamics Finance Corp., 10% due 5/01/2016 (d) 4,030,000
6,325,000 Wise Metals Group LLC, 10.25% due 5/15/2012 5,297,188
-------------
10,449,188
-----------------------------------------------------------------------------------------------------------------------------------
Paper - 9.4% 6,500,000 Abitibi-Consolidated, Inc., 8.829% due 6/15/2011 (a) 6,516,250
9,725,000 Ainsworth Lumber Co. Ltd., 8.71% due 10/01/2010 (a) 9,725,000
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
Face
Amount Corporate Bonds Value
-----------------------------------------------------------------------------------------------------------------------------------
$ 8,000,000 Ainsworth Lumber Co. Ltd., 9.068% due 4/01/2013 (a)(d) $ 7,940,000
2,150,000 Boise Cascade LLC, 7.943% due 10/15/2012 (a) 2,160,750
900,000 Boise Cascade LLC, 7.125% due 10/15/2014 814,500
7,600,000 Bowater, Inc., 8.329% due 3/15/2010 (a) 7,676,000
3,775,000 Domtar, Inc., 7.125% due 8/15/2015 3,284,250
2,000,000 Graphic Packaging International Corp., 9.50% due 8/15/2013 2,010,000
13,625,000 JSG Funding Plc, 7.75% due 4/01/2015 12,466,875
8,000,000 NewPage Corp., 11.399% due 5/01/2012 (a) 8,700,000
4,725,000 NewPage Corp., 12% due 5/01/2013 5,055,750
1,600,000 Smurfit-Stone Container Enterprises, Inc., 8.375% due 7/01/2012 1,512,000
-------------
67,861,375
-----------------------------------------------------------------------------------------------------------------------------------
Retail - 1.6% 6,000,000 Neiman-Marcus Group, Inc., 9% due 10/15/2015 (d) 6,247,500
5,000,000 Neiman-Marcus Group, Inc., 10.375% due 10/15/2015 (d) 5,262,500
-------------
11,510,000
-----------------------------------------------------------------------------------------------------------------------------------
Service - 3.8% 250,000 Avis Budget Car Rental LLC, 7.576% due 5/15/2014 (a)(d) 253,750
2,000,000 Buhrmann US, Inc., 7.875% due 3/01/2015 2,000,000
7,500,000 HydroChem Industrial Services, Inc., 9.25% due 2/15/2013 (d) 7,462,500
3,000,000 Neff Rental LLC, 11.25% due 6/15/2012 (d) 3,315,000
14,825,000 United Rentals North America, Inc., 7.75% due 11/15/2013 14,528,500
-------------
27,559,750
-----------------------------------------------------------------------------------------------------------------------------------
Telecommunications - 5.5% 5,000,000 ADC Telecommunications, Inc., 5.795% due 6/15/2013 (a)(k) 4,856,250
7,500,000 Cincinnati Bell, Inc., 8.375% due 1/15/2014 7,575,000
2,600,000 Nordic Telephone Co. Holdings ApS, 8.875% due 5/01/2016 (d) 2,684,500
7,900,000 Qwest Communications International, Inc., 8.67%
due 2/15/2009 (a)
8,038,250
2,675,000 Qwest Corp., 8.579% due 6/15/2013 (a) 2,885,656
7,000,000 Time Warner Telecom Holdings, Inc., 9.17% due 2/15/2011 (a) 7,105,000
6,000,000 Time Warner Telecom Holdings, Inc., 9.25% due 2/15/2014 6,397,500
-------------
39,542,156
-----------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.8% 3,000,000 Progress Rail Services Corp., 7.75% due 4/01/2012 (d) 3,300,000
2,500,000 Titan Petrochemicals Group Ltd., 8.50% due 3/18/2012 (d) 2,150,000
-------------
5,450,000
-----------------------------------------------------------------------------------------------------------------------------------
Utility - 1.3% 4,142,000 Centerpoint Energy, Inc. Series B, 3.75% due 5/15/2023 (k) 4,618,330
3,375,000 Dynegy Holdings, Inc., 8.375% due 5/01/2016 (d) 3,358,125
1,425,000 Williams Cos., Inc., 8.625% due 6/01/2010 1,503,375
-------------
9,479,830
-----------------------------------------------------------------------------------------------------------------------------------
Wireless 2,500,000 iPCS Escrow Co., 11.50% due 5/01/2012 2,850,000
Communications - 1.6% 1,600,000 Rural Cellular Corp., 9.41% due 3/15/2010 (a) 1,632,000
6,600,000 US Unwired, Inc., 9.579% due 6/15/2010 (a) 6,765,000
-------------
11,247,000
-----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost - $723,088,166) - 98.9% 710,412,303
-----------------------------------------------------------------------------------------------------------------------------------
Floating Rate Loan Interests**
-----------------------------------------------------------------------------------------------------------------------------------
Airlines - 1.1% 3,000,000 Delta Air Lines Term Loan B, 11.01% due 3/16/2008 3,047,412
3,000,000 Delta Air Lines Term Loan B, 13.51% due 3/16/2008 3,086,025
250,000 United Air Lines Delay Draw Term Loan, 8.875% due 2/01/2012 253,813
1,750,000 United Air Lines Term Loan B, 8.625% due 2/01/2012 1,776,687
-------------
8,163,937
-----------------------------------------------------------------------------------------------------------------------------------
Automotive - 2.4% 7,775,042 Delphi Automotive Systems Term Loan B, 13.50% due 6/14/2011 8,074,381
1,685,185 Intermet Corp. Letter of Credit, 8.49% due 11/08/2010 1,558,796
4,814,815 Intermet Corp. Term Loan B, 9.87% due 11/08/2010 4,477,778
2,185,236 Tenneco Automotive, Inc. Term Loan B, 7.19% due 12/12/2010 2,204,084
959,936 Tenneco Automotive, Inc. Tranche B-1 Credit Linked Deposit, 7.052%
due 12/12/2010 968,215
-------------
17,283,254
-----------------------------------------------------------------------------------------------------------------------------------
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
-----------------------------------------------------------------------------------------------------------------------------------
Cable - U.S. - 7.8% $10,000,000 Adelphia Communications Corp. Term Loan B, 10% due 6/30/2009 $ 9,745,830
4,310,344 Cebridge Connections Term Loan B, 7.319% due 11/05/2013 4,293,025
7,000,000 Century Cable Holdings LLC, Discretionary Term Loan, 10% due 12/31/2009 6,813,660
20,000,000 Charter Communications, Inc. Term Loan B, 7.776% due 4/28/2013 20,116,956
7,820,000 Insight Midwest Holdings LLC Term Loan C, 7% due 12/31/2009 7,867,984
6,000,000 Olympus Cable Holdings LLC Term Loan B, 10% due 9/30/2010 5,856,426
1,500,000 Olympus Cable Holdings LLC Tranche 2 Term Loan A, 9.25% due 6/30/2010 1,457,461
-------------
56,151,342
-----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 2.3% 2,876,190 Huntsman ICI Holdings Term Loan B, 6.831% due 8/16/2012 2,880,910
3,168,000 Rockwood Specialties Group, Inc. Tranche D Term Loan, 7.126% due 12/10/2012 3,193,987
10,000,000 Wellman, Inc. Second Lien Term Loan, 11.899% due 2/10/2010 10,229,690
-------------
16,304,587
-----------------------------------------------------------------------------------------------------------------------------------
Energy - Exploration & 1,250,000 MEG Energy Corp. Term Loan B, 7% due 4/03/2013 1,261,086
Production - 0.2%
-----------------------------------------------------------------------------------------------------------------------------------
Energy - Other - 1.6% 377,915 Dresser, Inc. Term Loan C, 7.60% due 4/10/2009 383,584
2,500,000 Dresser, Inc. Term Loan Unsecured, 8.65% due 2/25/2010 2,556,250
6,000,000 Scorpion Drilling Ltd. Second Lien Term Loan, 12.581% due 5/05/2015 6,240,000
2,000,000 Scorpion Drilling Ltd. Second Lien Term Loan, 12.581% due 5/05/2015 2,080,000
-------------
11,259,834
-----------------------------------------------------------------------------------------------------------------------------------
Financial - 0.8% 3,000,000 JG Wentworth Manufacturing Term Loan, 8.545% due 4/12/2011 3,039,375
3,000,000 JG Wentworth Manufacturing Term Loan, 8.545% due 4/14/2011 3,039,375
-------------
6,078,750
-----------------------------------------------------------------------------------------------------------------------------------
Food & Tobacco - 2.1% 1,000,000 Bolthouse Farms, Inc. Second Lien Term Loan, 10.37% due 12/01/2013 1,022,500
2,860,000 Commonwealth Brands Term Loan, 7.438% due 12/22/2012 2,881,092
465,116 Dole Food Co., Inc. Letter of Credit, 4.92% due 4/12/2013 462,754
1,046,512 Dole Food Co., Inc. Term Loan B, 6.875%-8.75% due 4/12/2013 1,041,197
3,488,372 Dole Food Co., Inc. Term Loan C, 6.875%-8.75% due 4/04/2013 3,470,658
6,000,000 QCE LLC Second Lien Term Loan, 10.938% due 10/24/2013 6,008,748
-------------
14,886,949
-----------------------------------------------------------------------------------------------------------------------------------
Housing - 2.3% 4,672,338 Headwaters, Inc. Term Loan B-1, 7.08% due 4/30/2011 4,701,540
2,157,110 LNR Property Corp. Tranche B Term Loan, 8.04%-8.08% due 2/03/2008 2,161,830
10,000,000 Stile U.S. Acquisition Corp. Bridge Loan, 11% due 4/06/2015 9,887,500
-------------
16,750,870
-----------------------------------------------------------------------------------------------------------------------------------
Information 3,960,000 Activant Solutions Term Loan B, 7.188% due 5/02/2013 3,973,614
Technology - 1.4% 3,071,250 Fidelity National Information Solutions, Inc. Term Loan B, 6.83%
due 3/09/2013 3,079,647
3,341,250 Telcordia Technologies, Inc. Term Loan, 7.668%-7.727% due 9/15/2012 3,337,768
-------------
10,391,029
-----------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.7% 5,000,000 Invensys International Holdings Ltd. Second Lien Term Loan, 9.431%
due 12/04/2009 5,075,000
-----------------------------------------------------------------------------------------------------------------------------------
Metal - Other - 1.2% 1,989,474 Euramax International Plc Second Lien Term Loan, 12% due 6/29/2013 2,019,316
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,551,265 Euramax International Plc Tranche 3 Term Loan B, 7.688% due 6/29/2012 $ 2,575,183
4,010,526 Euramax International Plc Tranche 4 Second Lien Term Loan, 12%
due 6/29/2013 4,070,684
-------------
8,665,183
-----------------------------------------------------------------------------------------------------------------------------------
Packaging - 1.8% 4,285,714 Anchor Glass Container Corp. Term Loan B, 7.309% due 5/03/2013 4,296,429
2,000,000 Graham Packaging Co. LP Second Lien Term Loan, 9.25% due 4/07/2012 2,040,834
6,774,814 Owens-Illinois Group, Inc. Tranche Term Loan C, 6.78% due 4/01/2008 6,779,050
-------------
13,116,313
-----------------------------------------------------------------------------------------------------------------------------------
Service - 0.9% 2,160,000 Waste Services, Inc. Term Loan B, 8.09%-8.34% due 3/31/2011 2,184,300
3,920,000 Waste Services, Inc. Term Loan B, 8.33%-8.34% due 3/31/2011 3,971,450
-------------
6,155,750
-----------------------------------------------------------------------------------------------------------------------------------
Steel - 0.0% 7,000,072 Acme Metals, Inc. Term Loan, 11.75%-12% due 12/01/2005 (m) 0
711,758 Acme Metals, Inc. Term Loan, 12.25% due 12/01/2005 (m) 0
-------------
0
-----------------------------------------------------------------------------------------------------------------------------------
Telecommunications - 0.6% 3,161,871 Winstar Communications Debtor In Possession, 6.366% due 12/31/2006 (i) 4,658,489
-----------------------------------------------------------------------------------------------------------------------------------
Utility - 1.5% 2,000,000 Calpine Corp. Delay Draw Term Loan, 8.979% due 12/20/2007 2,036,666
5,000,000 Covanta Energy Corp. Second Lien Term Loan, 10.47%-10.581% due 6/24/2013 5,112,500
1,500,000 El Paso Corp. Deposit Account, 4.29% due 11/23/2009 1,510,104
1,940,000 El Paso Corp. Term Loan, 7.75% due 11/23/2009 1,953,877
-------------
10,613,147
-----------------------------------------------------------------------------------------------------------------------------------
Wireless 5,500,000 Centennial Cellular Operating Co. Term Loan, 7.21%-7.57% due 2/09/2011 5,541,250
Communications - 0.8%
-----------------------------------------------------------------------------------------------------------------------------------
Total Floating Rate Loan Interests (Cost - $210,608,166) - 29.5% 212,356,770
-----------------------------------------------------------------------------------------------------------------------------------
Shares
Held Common Stocks
-----------------------------------------------------------------------------------------------------------------------------------
Cable - U.S. - 0.6% 142,475 Loral Space & Communications Ltd. (j) 3,989,300
-----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 339,340 GEO Specialty Chemicals, Inc. (j) 678,680
-----------------------------------------------------------------------------------------------------------------------------------
Financial - 0.3% 35,000 Preferred Term Securities VI (d) 2,307,550
-----------------------------------------------------------------------------------------------------------------------------------
Food & Tobacco - 0.5% 1,428,423 Viskase Cos., Inc. (j) 3,592,484
-----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.2% 173,918 New World Pasta Co. (l) 1,243,514
-----------------------------------------------------------------------------------------------------------------------------------
Leisure - 0.0% 27,787 Lodgian, Inc. (j) 319,828
-----------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 1.1% 724,291 ACP Holding Co. (j) 1,158,866
286,757 Medis Technologies Ltd. (j) 6,950,990
-------------
8,109,856
-----------------------------------------------------------------------------------------------------------------------------------
Paper - 0.1% 211,149 Western Forest Products, Inc. Restricted Shares (j) 329,875
-----------------------------------------------------------------------------------------------------------------------------------
Service - 0.5% 90,876 Outsourcing Solutions, Inc. (j) 3,816,782
-----------------------------------------------------------------------------------------------------------------------------------
Steel - 0.0% 41,149 Acme Package Corp. Senior Holdings (j)(l) 0
-----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost - $26,722,494) - 3.4% 24,387,869
-----------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
-----------------------------------------------------------------------------------------------------------------------------------
Automotive - 0.6% 200,000 General Motors Corp. Series C, 6.25% (k) 3,998,000
-----------------------------------------------------------------------------------------------------------------------------------
Broadcasting - 0.0% 2 Paxson Communications Corp., 9.75% (b)(d)(k) 12,390
-----------------------------------------------------------------------------------------------------------------------------------
Cable - U.S. - 0.2% 5,000 Adelphia Communications Corp. Series B, 13% (j) 1,250
8,956 Loral Spacecom Corp. Series A, 12% 1,773,288
-------------
1,774,538
-----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost - $7,130,961) - 0.8% 5,784,928
-----------------------------------------------------------------------------------------------------------------------------------
Warrants (h)
-----------------------------------------------------------------------------------------------------------------------------------
Broadcasting - 0.0% 15,000 Sirius Satellite Radio, Inc. (expires 5/15/2009) 6,750
-----------------------------------------------------------------------------------------------------------------------------------
Debt Strategies Fund, Inc.
Schedule of Investments asf May 31, 2006 (in U.S. dollars)
Shares
Held Warrants (h) Value
-----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 128,828 New World Pasta Co. Series A (expires 12/07/2010) (l) $ 347,836
143,142 New World Pasta Co. Series B (expires 12/07/2010) (l) 271,970
-------------
619,806
-----------------------------------------------------------------------------------------------------------------------------------
Health Care - 0.0% 126,761 HealthSouth Corp. (expires 1/16/2014) 221,832
-----------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.2% 652,739 ACP Holding Co. (expires 9/30/2013) 1,044,382
-----------------------------------------------------------------------------------------------------------------------------------
Paper - 0.0% 17 Cellu Tissue Holdings, Inc. Series A (expires 9/28/2011) 0
7,000 MDP Acquisitions Plc (expires 10/01/2013) 70,000
-------------
70,000
-----------------------------------------------------------------------------------------------------------------------------------
Wireless 1,325 American Tower Corp. (expires 8/01/2008) 577,657
Communications - 0.1%
-----------------------------------------------------------------------------------------------------------------------------------
Total Warrants (Cost - $1,490,560) - 0.4% 2,540,427
-----------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Other Interests (e)
-----------------------------------------------------------------------------------------------------------------------------------
Automotive - 0.0% $ 3,614,601 Cambridge Industries, Inc. (Litigation Trust Certificates) (j) 0
-----------------------------------------------------------------------------------------------------------------------------------
Cable - U.S. - 0.1% 9,500,000 Pegasus Satellite Communications, Inc. (Litigation Trust Certificates) (j) 938,125
-----------------------------------------------------------------------------------------------------------------------------------
Total Other Interests (Cost - $1,440,678) - 0.1% 938,125
-----------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
-----------------------------------------------------------------------------------------------------------------------------------
15,935 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I, 4.85% (f)(g) 15,935
-----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost - $15,935) - 0.0% 15,935
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $970,496,960*) - 133.1% 956,436,357
Liabilities in Excess of Other Assets - (33.1%) (237,769,502)
-------------
Net Assets - 100.0% $ 718,666,855
=============
* The cost and unrealized appreciation (depreciation) of investments as of
May 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 970,754,900
=============
Gross unrealized appreciation $ 33,691,657
Gross unrealized depreciation (48,010,200)
-------------
Net unrealized depreciation $ (14,318,543)
=============
** Floating rate loan interests in which the Fund invests generally pay
interest at rates that are periodically redetermined by reference to a
base lending rate plus a premium. The base lending rates are generally (i)
the lending rate offered by one or more 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.
(a) Floating rate note.
(b) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(c) Represents a step bond; the interest rate shown reflects the effective
yield at the time of purchase.
(d) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(e) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(f) 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
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $15,935 $34,651
--------------------------------------------------------------------------
(g) Represents the current yield as of 5/31/2006.
(h) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(i) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(j) Non-income producing security.
(k) Convertible security.
Debt Strategies Fund, Inc.
Schedule of Investments as of May 31, 2006 (in U.S. dollars)
(l) Restricted securities as to resale, representing 0.3% of net assets, were
as follows:
----------------------------------------------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
----------------------------------------------------------------------------------------------------------------
Acme Package Corp. Senior Holdings 11/25/2002 -- --
New World Pasta Co. 5/19/2006 $ 4,580,411 $ 1,243,514
New World Pasta Co. Series A (expires 12/07/2010) 5/19/2006 347,836 347,836
New World Pasta Co. Series B (expires 12/07/2010) 5/19/2006 271,970 271,970
----------------------------------------------------------------------------------------------------------------
Total $ 5,200,217 $ 1,863,320
===========================
(m) As a result of bankruptcy proceedings, the company did not repay the
principal amount of the security upon maturity and is non-income
producing.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
o Swaps outstanding as of May 31, 2006 were as follows:
---------------------------------------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
---------------------------------------------------------------------------------------------------------
Sold credit default protection on General Motors Corp.
and receive 5%
Broker, Citibank N.A.
Expires December 2006 $ 8,000,000 $ 411,736
Sold credit default protection on General Motors Corp.
and receive 5%
Broker, Lehman Brothers Special Finance
Expires December 2006 $ 7,000,000 412,769
---------------------------------------------------------------------------------------------------------
Total $ 824,505
==========
Item 2 - Controls and Procedures
2(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to the
filing date of this report.
2(b) - There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 3 - Exhibits
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.
Debt Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.
Chief Executive Officer
Debt Strategies Fund, Inc.
Date: July 21, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.
Chief Executive Officer
Debt Strategies Fund, Inc.
Date: July 21, 2006
By: /s/ Donald C. Burke
--------------------------
Donald C. Burke
Chief Financial Officer
Debt Strategies Fund, Inc.
Date: July 21, 2006