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Thomas A. DeCapo, Esq.		Janey Ahn, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP		BlackRock Advisors, LLC
500 Boylston Street		55 East 52 nd Street
Boston, Massachusetts 02116		New York, New York 10055

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

Title of Securities Being Registered		Amount Being Registered		Proposed Maximum Offering Price per Unit		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee
Shares of Common Stock, $0.10 par value		N/A		N/A		$1,000,000(1)		$128.80

 

Sales load paid by you (as a percentage of offering price)	% (1)
Offering expenses borne by the Fund (as a percentage of offering price)	% (2)
Dividend reinvestment plan fees	None (3)

 

	Percentage of net assets attributable to common shares
Annual Expenses
Management fees (4)		0.82%
Interest expense (5)		0.37%
Other expenses (6)		0.19%
Total annual expenses (7)		1.38%

__________________

		As of February 28, 2014 (          )				Pro Forma (            )
						As adjusted
Common shares outstanding, $0.10 par value per share			186,913,216
Paid-in capital		$	1,114,730,225			$
Undistributed net investment income		$	(3,499,709	)		$
Accumulated net realized loss		$	(276,093,009	)		$
Net unrealized appreciation (depreciation)		$	(5,400,158	)		$
Net Assets		$	829,737,349			$
Net asset value per share		$	4.44			$

Investment Policies

Up to 20% of the Fund’s total assets may be invested in Distressed Securities, which includes publicly offered or privately placed debt securities and Corporate Loans 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 rating categories (Ca or lower by Moody’s and CC or lower by Standard & Poor’s) or which, if unrated, are in the judgment of the Investment Advisor of equivalent quality.   Up to 20% of the Fund’s total assets may be invested in financial instruments of issuers domiciled outside the United States or that are denominated in various foreign currencies and multinational foreign currency units, provided that the foreign issuers of any non-U.S. dollar denominated instruments purchased by the Fund are domiciled in a country that is a member of the OECD. For these reasons, an investment in the Fund may be speculative in that it involves a high degree of risk and should not constitute a complete investment program. Up to 20% of the Fund’s total assets can be invested in convertible debt instruments and preferred stock, each of which may be converted into common stock or other securities of the same or a different issuer, and non-convertible preferred stock. As a result of conversions of convertible securities or upon an exchange offer or bankruptcy plan of reorganization, a significant portion of the Fund’s total assets may be invested in common stock at certain points in time. Under normal market conditions, at least 65% of the Fund’s total assets will be invested in debt instruments.   The Fund may invest directly in debt instruments or synthetically through the use of derivatives.   The Fund’s investment policies permit investment in the following asset classes which are described in greater detail below: (i) senior and subordinated Corporate Loans, both secured and unsecured, issued either directly by the borrower or in the form of participation interests in Corporate Loans made by banks and other financial institutions; (ii) publicly offered and privately placed high-yield debt securities, senior and subordinated, both secured and unsecured; and (iii) convertible debt instruments and preferred stock, each of which may be converted into common stock or other securities of the same or a different issuer, and nonconvertible preferred stock. The debt securities and Corporate Loans in which the Fund invests may pay interest at fixed rates or at rates that float at a margin above a generally recognized base lending rate such as the prime rate of a designated U.S. bank, or that adjust periodically at a margin above the CD rate or LIBOR.   Subject to other investment restrictions applicable to the Fund, up to 10% of the Fund’s assets may be invested in debt instruments, including Corporate Loans, of investment companies (which may or may not be registered under the 1940 Act) whose portfolio securities consist entirely of (i) corporate debt or equity securities acceptable to the Fund’s Investment Advisor or (ii) money market instruments.   Under unusual market or economic conditions or for temporary or defensive or liquidity purposes, the Fund may invest up to 100% of its assets in securities issued or guaranteed by the U.S. Government or its instrumentalities or agencies, certificates of deposits, banker’s acceptances, and other bank obligations, commercial paper rated in the highest category by a nationally recognized statistical rating organization or other fixed-income securities deemed by the Investment Advisor to be consistent with a defensive posture. The yield on such securities may be lower than the yield on lower-rated fixed income securities.   Although the Fund will invest primarily in lower-rated securities, other than with respect to Distressed Securities (which are discussed below) it will not invest in

Item 4. Financial Highlights

1.

The following table includes selected data for a common share outstanding throughout the period and other performance information derived from the Fund's financial statements. It should be read in conjunction with the Fund's financial statements and notes thereto, which are        .  The following information with respect to the fiscal years ended February 28, 2010, February 28, 2011, February 29, 2012, February 28, 2013 and February 28, 2014 has been audited by          , independent registered public accountants, whose report thereon is           . See Item 24.

 

2.	Not applicable.

3.	See Item 4.1., above.

1.	The Distributor has agreed to underwrite up to               shares of the Fund's common stock on a reasonable efforts basis.  See Item 5 in Part II for additional information regarding the Distributor.

2.	The Fund's common stock will only be sold on such days as shall be agreed to by the Fund and the Distributor.  The Fund's common stock will be sold at market prices, which shall be determined with reference to trades on the NYSE, subject to the Minimum Price.  See Item 1.1.g., above.

3.	The sum of all compensation paid to FINRA members in connection with this public offering of shares of common stock will not exceed 1.00% of the total public offering price of the shares of common stock sold in this offering. See Item 1.1g., above, and Item 5 in Part II.

4.	See Item 5 in Part II.

5.	Not applicable.

6.	See Item 5 in Part II.

7.	Not applicable.

8.	Not applicable.

9.	Not applicable.

10.	See Item 5 in Part II.

 

 

The net proceeds from the issuance of common shares hereunder will be invested in accordance with the Fund's investment objectives and policies as set forth in this Prospectus. It is presently anticipated that the Fund will be able to invest substantially all of the net proceeds in accordance with the Fund's investment objectives and policies within three months from the date on which the proceeds from an offering are received by the Fund. Such investments may be delayed if suitable investments are unavailable at the time or for other reasons, such as market volatility and lack of liquidity in the markets of suitable investments. Pending such investment, it is anticipated that the proceeds will be invested in short-term or long-term securities issued by the U.S. Government and its agencies or instrumentalities or in high quality, short-term money market instruments.

 

1.

The Fund was organized as a Maryland corporation on December 10, 1997, pursuant to its Articles of Incorporation, as subsequently amended, is governed by the laws of the State of Maryland and commenced operations on March 27, 1998. The Fund is registered under the 1940 Act as a diversified, closed-end management investment company.  The Fund was known as Debt Strategies Fund II, Inc. prior to November 2, 2000 and Debt Strategies Fund, Inc. prior to September 14, 2006. The Fund's principal office is located at 100 Bellevue Parkway, Wilmington, Delaware 19809, and its telephone number is (800) 882-0052.

 

 

Investment Objectives.   The Fund’s primary investment objective is to seek to provide current income by investing primarily in a diversified portfolio of U.S. companies’ debt instruments, including Corporate Loans (as defined below), which are rated in the lower rating categories of the established rating services (Baa or lower by Moody’s or BBB or lower by Standard & Poor’s) or unrated debt instruments which are in the judgment of the Investment Advisor of equivalent quality. Such investments generally involve greater volatility of price and risks to principal and income than securities in the higher rating categories. As a secondary objective, the Fund will seek to provide capital appreciation.  The Fund’s investment objectives are fundamental policies and may not be changed without the approval of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act). There can be no assurance that the investment objectives of the Fund will be realized.

Debt Instruments .  Under normal market conditions, at least 65% of the Fund’s total assets will be invested in debt instruments. The Fund may invest directly in debt instruments or synthetically through the use of derivatives.  The Fund has no restrictions on portfolio maturity.

The Fund’s investment policies permit investment in the following asset classes which are described in greater detail below: (i) senior and subordinated corporate loans, both secured and unsecured ("Corporate Loans"), issued either directly by the borrower or in the form of participation interests in Corporate Loans made by banks and other financial institutions; (ii) publicly offered and privately placed high-yield debt securities, senior and subordinated, both secured and unsecured; and (iii) convertible debt instruments and preferred stock, each of which may be converted into common stock or other securities of the same or a different issuer, and nonconvertible preferred stock. The debt securities and Corporate Loans in which the Fund invests may pay interest at fixed rates or at rates that float at a margin above a generally recognized base lending rate such as the prime rate of a designated U.S. bank, or that adjust periodically at a margin above the CD rate or LIBOR.

In connection with its investments in corporate debt securities, or restructuring of investments owned by the Fund, the Fund may receive warrants or other non-income producing debt or equity securities. The Fund may retain such securities until the Investment Advisor determines it is appropriate in light of current market conditions to effect a disposition of such securities.

The Fund will not invest in Corporate Loans that would require the Fund to make any additional investments in connection with its obligation to make future advances to a borrower in connection with revolving credit facilities if such commitments would exceed 20% of the Fund’s total assets or would cause the Fund to fail to meet the diversification requirements described herein.

High Yield Securities .  The Fund may invest in high-yield corporate debt securities, including Corporate Loans, which are rated in the lower rating categories of the established rating services (Baa or lower by Moody’s and BBB or lower by Standard & Poor’s), or in unrated securities considered by the Investment Advisor to be of comparable quality. Securities rated below Baa by Moody’s or below BBB by Standard & Poor’s, and unrated securities of comparable quality, are commonly known as “junk bonds.” See Appendix—“Description of Securities Ratings” for additional information concerning rating categories.  Securities which subsequently are downgraded may continue to be held by the Fund and will be sold only if, in the judgment of the Investment Advisor, it is advantageous to do so.

Distressed Securities .  Up to 20% of the Fund’s total assets may be invested in Distressed Securities (defined below), which includes publicly offered or privately placed debt securities and Corporate Loans which, at the time of investment, are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or payment of interest or are rated in the lowest rating categories (Ca or lower by Moody’s and CC or lower by Standard & Poor’s) or which, if unrated, are in the judgment of the Investment Advisor of equivalent quality ("Distressed Securities").  Although the Fund will invest primarily in lower-rated securities, other than with respect to Distressed Securities (which are discussed below) it will not invest in securities in the lowest rating categories (Ca or below by Moody’s and CC or below by Standard & Poor’s) unless the Investment Advisor believes that the financial condition of the issuer or the protection afforded to the particular securities is stronger than would otherwise be indicated by such low ratings.  Securities which subsequently are downgraded may continue to be held by the Fund and will be sold only if, in the judgment of the Investment Advisor, it is advantageous to do so.

Non-U.S. Securities .  Up to 20% of the Fund’s total assets may be invested in financial instruments of issuers domiciled outside the United States or that are denominated in various foreign currencies and multinational foreign currency units, provided that the foreign issuers of any non-U.S. dollar denominated instruments purchased by the Fund are domiciled in a country that is a member of the OECD.

 

Convertible Securities and Preferred Stock .  Up to 20% of the Fund’s total assets can be invested in convertible debt instruments and preferred stock, each of which may be converted into common stock or other securities of the same or a different issuer, and non-convertible preferred stock. The types of preferred securities in which the Fund may invest include trust preferred securities.

As a result of conversions of convertible securities or upon an exchange offer or bankruptcy plan of reorganization, a significant portion of the Fund’s total assets may be invested in common stock at certain points in time.

Strategic Transactions .  The Fund may engage in various portfolio strategies to seek to increase its return and to hedge its portfolio against movements in interest rates or foreign currencies through the use of interest rate or foreign currency swap transactions, the purchase of call and put options on securities, the sale of covered call and put options on its portfolio securities and transactions in financial futures and related options on such futures.  There can be no assurance that the Fund will employ these strategies or that, if employed, they will be effective.

Short Sales .  The Fund may make short sales of securities, provided the market value of all securities sold short does not exceed 10% of its total assets. The Fund may make short sales both as a form of hedging to offset potential declines in long positions in similar securities and in order to seek to enhance return. The Fund's obligation to replace the borrowed security will be secured by collateral deposited with the broker dealer, usually cash, U.S. government securities or other liquid securities similar to those borrowed. The Fund also will be required to segregate similar collateral with its custodian or designate such collateral on its books and records  to the extent, if any, necessary so that the value of both collateral amounts in the aggregate is at all times equal to at least 100% of the current market value of the security sold short.  The Fund also may make short sales “against the box.” Short sales “against the box” are not subject to the foregoing 10% limitation.

Other Investment Companies .  Subject to other investment restrictions applicable to the Fund, up to 10% of the Fund’s assets may be invested in debt instruments, including Corporate Loans, of investment companies (which may or may not be registered under the 1940 Act) whose portfolio securities consist entirely of (i) corporate debt or equity securities acceptable to the Fund’s investment Advisor or (ii) money market instruments.

Illiquid Securities .  The Fund has no limitation on the amount of its investments which are not readily marketable or are subject to restrictions on resale.

1940 Act and Tax Diversification Requirements.   The Fund is classified as diversified within the meaning of the 1940 Act, which means that it is must satisfy the 5% and 10% requirements described in item (ii) below with respect to 75% of its total assets.  The Fund's investments will be limited so as to qualify the Fund as a "regulated investment company" for purposes of Federal tax laws.  Requirements for qualification as a "regulated investment company" include limiting its investments so that, at the close of each quarter of the taxable year, (i) not more than 25% of the market value of the Fund's total assets will be invested in (A) the securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies), (B) the securities of two or more issuers (other than securities of other regulated investment companies) controlled by the Fund and engaged in the same, similar or related trades or businesses, or (C) the securities of one or more qualified publicly traded partnerships, and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies).  Tax-related limitations may be changed by the Board to the extent appropriate in light of changes to applicable tax requirements.

Other Investment Policies .

Leverage . The Fund currently utilizes leverage for investment purposes in the form of a bank credit facility.  As of February 28, 2014, this leverage represented approximately 28% of the Fund's Managed Assets (which includes the amount obtained from such borrowings or debt issuance) (approximately 38% of the Fund's net assets).  The Fund will generally not utilize leverage if it anticipates that the Fund’s leveraged capital structure would result in a lower return to holders of the common stock than that obtainable if the common stock were unleveraged for any significant amount of time.  At times, the Fund could utilize leverage through borrowings, including the issuance of short term debt securities, the issuance of shares of preferred stock or a combination thereof.  The Fund has the ability to utilize leverage through borrowings or the issuance of short term debt securities in an amount up to 33 1/3% of the value of its Managed Assets (which includes the amount obtained from such borrowings or debt issuance).  The Fund also has the

ability to utilize leverage through the issuance of shares of preferred stock in an amount up to 50% of the value of its Managed Assets (which includes the amount obtained from such issuance).  The Fund may also utilize leverage through the use of reverse repurchase agreements.

The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which may otherwise require untimely dispositions of Fund securities. The Fund at times may borrow from affiliates of the Investment Advisor, provided that the terms of such borrowings are no less favorable than those available from comparable sources of funds in the marketplace.

There can be no assurance that the Fund will borrow in order to leverage its assets or, if it does, what percentage of the Fund's assets such borrowings will represent.  The Fund does not currently anticipate issuing any preferred stock.

Interest Rate Transactions .   In order to seek to hedge the value of the Fund's portfolio against interest rate fluctuations or to seek to enhance the Fund's income, the Fund may enter into various interest rate transactions, such as interest rate swaps and the purchase or sale of interest rate caps and floors.  The Fund may enter into these transactions to seek to preserve a return or spread on a particular investment or portion of its portfolio or to seek to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. However, the Fund may also invest in interest rate swaps to enhance income or increase the Fund’s yield, for example, during periods of steep interest rate yield curves (i.e., wide differences between short term and long term interest rates).

The Fund may also engage in interest rate transactions in the form of purchasing or selling interest rate caps or floors. The Fund will not enter into caps or floors if, on a net basis, the aggregate notional principal amount with respect to such agreements exceeds the net assets of the Fund.  The Fund will only enter into interest rate swap, cap or floor transactions with counterparties the Investment Advisor believes to be creditworthy at the time they enter into such transactions.

The Fund is not required to pursue these portfolio strategies and may choose not to do so.  The Fund cannot guarantee that any strategies it uses will work.

Foreign Currency Swaps .  The Fund may enter into foreign currency swaps in order to hedge non-U.S. dollar denominated portfolio investments.  The Fund will generally enter into a transaction subject to a foreign currency swap only if, at the time of entering into such swap, the outstanding debt obligations of the counterparty are investment grade; i.e., rated BBB or A-3 or higher by Standard & Poor’s, Baa or B3 or higher by Moody’s, BBB or F4 or higher by Fitch, Inc., or are determined to be of comparable quality in the judgment of the Investment Advisor.

Options on Portfolio Securities .

Call Options . The Fund may purchase call options on any of the types of securities in which it may invest. The Fund also is authorized to write (i.e., sell) covered call options on the securities in which it may invest and to enter into closing purchase transactions with respect to certain of such options. The Fund may also purchase and sell call options on indices.

Put Options . The Fund is authorized to purchase put options to hedge against a decline in the value of its securities. The Fund also has authority to write (i.e., sell) put options on the types of securities which may be held by the Fund, provided that such put options are covered, meaning that such options are secured by designating liquid assets on the Fund’s books and records. The Fund will not sell puts if, as a result, more than 50% of the Fund’s assets would be required to cover its potential obligations under its hedging and other investment transactions. The Fund may purchase and sell put options on indices.

Financial Futures and Options Thereon .  The Fund is authorized to engage in transactions in financial futures contracts (“futures contracts”) and related options on such futures contracts either as a hedge against

adverse changes in the market value of its portfolio securities and interest rates or to enhance the Fund’s income.  The Fund also has authority to purchase and write call and put options on futures contracts.

The Fund may engage in options and futures transactions on exchanges and options in the over-the-counter markets (“OTC options”).

The Fund will engage in transactions in OTC options only with banks or dealers the Investment Advisor believes to be creditworthy at the time they enter into such transactions.

The Fund intends to enter into options and futures transactions, on an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such options and futures.

Effective December 31, 2012, the Commodities Futures Trading Commission (the "CFTC") adopted certain regulatory changes that subject registered investment companies and advisers to registered investment companies to regulation by the CFTC if a fund invests more than a prescribed level of its net assets in CFTC-regulated futures, options and swaps ("CFTC Derivatives"), or if the fund markets itself as providing investment exposure to such instruments. To the extent the Fund uses CFTC Derivatives, it intends to do so below such prescribed levels and will not market itself as a "commodity pool" or a vehicle for trading such instruments. Accordingly, BlackRock Advisors, LLC has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act ("CEA") pursuant to Rule 4.5 under the CEA. BlackRock Advisors, LLC is not, therefore, subject to registration or regulation as a "commodity pool operator" under the CEA in respect of the Fund.

Other Investment Strategies .  The Fund will only enter into repurchase agreements with registered securities dealers or domestic banks that, in the opinion of the Investment Advisor, present minimal credit risk.  The Fund may enter into reverse repurchase agreements, or purchase securities on a “when-issued” basis or purchase or sell securities on a “forward commitment” basis in order to hedge against anticipated changes in interest rates and prices.  When-issued securities and forward commitments may be sold prior to the settlement date, but the Fund will generally enter into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be.  The Fund may sell or enter into when-issued and forward commitments when the Investment Advisor determines it is appropriate in light of current market conditions.

Lending of Portfolio Securities . The Fund may from time to time lend securities from its portfolio, with a value not exceeding 33 1/3% of its total assets, to banks, brokers and other financial institutions and receive collateral in cash or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities.

Temporary Defensive Strategies .  The Fund may vary its investment objective and policies for temporary defensive purposes during periods in which the Investment Advisor believes that conditions in the securities markets or other economic, financial or political conditions warrant and in order to keep the Fund's cash fully invested. The Fund may not achieve its investment objective when it does so.

Investment Process

In selecting debt instruments and other securities for the Fund, BlackRock will seek to identify issuers and industries that BlackRock believes are likely to experience stable or improving financial conditions. BlackRock's analysis will include:

·

credit research on the issuers' financial strength;

·

assessment of the issuers' ability to meet principal and interest payments;

·

general industry trends;

·

the issuers' managerial strength;

·

analysis of deal structure and covenants;

·

changing financial conditions;

·

borrowing requirements or debt maturity schedules; and

·

the issuers' responsiveness to changes in business conditions and interest rates.

BlackRock will consider relative values among issuers based on anticipated cash flow, interest or dividend coverage, asset coverage and earnings prospects. Using these tools, BlackRock will seek to add consistent value and control performance volatility consistent with the Fund's investment objectives and policies. BlackRock believes this strategy should enhance the Fund's ability to achieve its investment objectives.

BlackRock's analysis continues on an ongoing basis for any debt instruments or other securities in which the Fund has invested. Although BlackRock uses due care in making such analysis, there can be no assurance that such analysis will reveal factors that may impair the value of the debt instruments.

Fundamental Investment Restrictions :

The following investment restrictions are considered fundamental by the Fund, which means that they may not be changed without the approval of the holders of a majority of the Fund's outstanding shares of common stock (which for this purpose and under the 1940 Act means the lesser of (i) 66 2/3% of the shares of common stock represented at a meeting at which more than 50% of the outstanding shares of common stock are represented, or (ii) more than 50% of the outstanding shares).  Under the fundamental investment restrictions, the Fund may not:

(1)

make any investment inconsistent with the Fund's classification as a diversified company under the 1940 Act;

(2)

make investments for the purpose of exercising control or management;

(3)

purchase or sell real estate, commodities or commodity contracts; provided that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein, and the Fund may purchase and sell financial futures contracts and options thereon;

(4)

issue senior securities or borrow money except as permitted by Section 18 of the 1940 Act

(5)

underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act in selling portfolio securities;

(6)

make loans to other persons, except (i) to the extent that the Fund may be deemed to be making loans by purchasing Corporate Loans, as a Co-Lender or otherwise, and other debt securities and entering into repurchase agreements in accordance with its investment objectives, policies and limitations, and (ii) the Fund may lend its portfolio securities in an amount not in excess of 33 1/3% of its total assets, taken at market value, provided that such loans shall be made in accordance with the guidelines set forth herein;

(7)

invest more than 25% of its total assets in the securities of issuers in any one industry; provided that this limitation shall not apply with respect to obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities; and provided further that to the extent that the Fund invests in Corporate Loans the Fund may invest more than 25% and may invest up to 100% of its assets in securities of issuers in the industry group consisting of financial institutions and their holding companies, including commercial banks, thrift institutions, insurance companies and finance companies. For purposes of this restriction, the term "issuer" includes the Borrower, the Agent Bank and any Intermediate Participant (as defined herein).

The Fund interprets its policies with respect to borrowing and lending to permit such activities as may be lawful for the Fund, to the full extent permitted by the 1940 Act or by exemption from the provisions therefrom pursuant to exemptive order of the SEC.

Non-Fundamental Investment Restrictions :

Any policies of the Fund not described as fundamental in this Prospectus may be changed by its Board without stockholder approval.  Additional investment restrictions adopted by the Fund, which may be changed by the Board without stockholder approval, provide that the Fund:

 

(1)

may not purchase securities of other investment companies, except to the extent that such purchases are permitted by applicable law;

(2)

may not mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings mentioned in investment restriction (4) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon; or

(3)

may not purchase any securities on margin, except that the Fund may obtain such short term credit as may be necessary for the clearance of purchases and sales of portfolio securities (the deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts and options thereon is not considered the purchase of a security on margin); and

(4)

may make short sales of securities, except that the market value of all securities sold short may not exceed 10% of its total assets.

Percentage and Rating Limitations :

All percentage and ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered violated if an investment rating is subsequently downgraded to a rating that would have precluded the Fund's initial investment in such security.  In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.

All references to securities ratings by Moody's and S&P herein shall, unless otherwise indicated, include all securities within each such rating category (i.e., Ba1, Ba2 and Ba3 in the case of Moody's and BB+, BB and BB– in the case of S&P).

Subsidiary :

The Fund wholly owns DSU Subsidiary, LLC, a Delaware-domiciled entity (the "Subsidiary").  The Subsidiary enables the Fund to hold investments that are organized as an operating partnership and satisfy regulated investment company ("RIC") tax requirements.  Income earned and gains realized on the investments held by the Subsidiary are taxable to the Subsidiary.  The Fund may invest up to 25% of its total assets in the Subsidiary. The Subsidiary's assets are managed by the Investment Advisor and are subject to the same investment policies and restrictions that apply to the Fund.

The Subsidiary is organized as a Delaware limited liability company and taxed as a corporation for Federal income tax purposes. The Subsidiary’s limited liability company agreement provides that the business and affairs of the Subsidiary shall be managed by the Investment Advisor, as the manager of the Subsidiary within the meaning of the Delaware Limited Liability Company Act, subject to the supervision of the Board. The Investment Advisor does not receive separate compensation from the Subsidiary for providing investment management or administrative services. The Fund can remove the manager of the Subsidiary at any time. The Subsidiary does not make investments that Section 17 of the 1940 Act would prohibit the Fund or the Subsidiary from making. State Street Bank and Trust Company serves as the Subsidiary´s custodian.

Additional Information :

Additional information regarding the foregoing securities, instruments and investment techniques are included in "Portfolio Contents and Techniques" under Item 8 in Part II.

3.a.

The risk factors associated with an investment in the Fund are set forth in "Risk Factors" under Item 8 in Part II.  Due to the nature of the Fund's investment program, the Fund is particularly susceptible to the risks of fixed-income securities (such as interest rate risk and credit risk), high-yield and distressed securities, Corporate Loans, asset-backed securities, leveraging, illiquid securities, foreign investing, credit and other derivatives (such as options, credit default swaps and interest rate transactions), currency instruments and counterparty default.

 

3.b.	The Fund currently utilizes leverage for investment purposes in the form of a bank credit facility.  As of February 28, 2014, this leverage represented approximately 28% of the Fund's Managed Assets (approximately 38% of the Fund's net assets).

Assuming the utilization of leverage by borrowings in the amount of approximately 28% of the Fund's Managed Assets, and an annual interest rate of       % payable on such leverage based on market rates as of the date of this Prospectus, the annual return that the Fund's portfolio must experience (net of expenses) in order to cover such interest payments would be       %.

The following table is designed to illustrate the effect on the return to a holder of common stock of the leverage obtained by borrowings in the amount of approximately 28% of the Fund's Managed Assets, assuming hypothetical annual returns on the Fund's portfolio of minus 10% to plus 10%.  As the table shows, leverage generally increases the return to stockholders when portfolio return is positive and greater than the cost of leverage and decreases the return when portfolio return is negative or less than the cost of leverage.  The figures appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table.

Common share total return is composed of two elements: the common share dividends paid by the Fund (the amount of which is largely determined by the net investment income of the Fund) and gains or losses on the value of the securities the Fund owns.  As required by SEC rules, the table assumes that the Fund is more likely to suffer capital losses than to enjoy capital appreciation.  For example, to assume a total return of 0% the Fund must assume that the interest it receives on its securities investments is entirely offset by losses in the value of those securities.

Additional information regarding the risks of the Fund's use of leverage is contained under "Item 8:  Description of the Fund—Leverage" in Part II.

5.

The following tables set forth the high and low market prices for shares of common stock of the Fund on the NYSE, for each full quarterly period within the Fund's two most recent fiscal years and each full quarter since the beginning of the Fund's current fiscal year, along with the NAV and discount or premium to NAV for each quotation.

 

As of May 31, 2014, the NAV per common share of the Fund was $4.45 and the market price per common share was $4.12, representing a discount to NAV of 7.42%. Common shares of the Fund have historically traded at both a premium and discount to NAV.

See "Repurchase of Common Shares" under Item 8 in Part II for additional information.

6.             Not applicable.

Item 9. Management

1.

BlackRock Advisors, LLC acts as the investment adviser for the Fund.  Pursuant to an investment management agreement between the Investment Advisor and the Fund (the "Investment Management Agreement"), the Fund pays the Investment Advisor a monthly fee at an annual rate of 0.55% of the Fund's average daily Managed Assets (82% of the Fund's net assets, assuming leverage of approximately 28% of the Fund's Managed Assets).  Because the management fee is calculated on the basis of Managed Assets, which includes assets attributable to leverage, the fee paid to the Investment Advisor will be higher than if the Fund did not use leverage.

BlackRock Financial Management, Inc. acts as the sub-adviser for the Fund.  BlackRock Advisors, LLC has entered into a separate sub-advisory agreement with the Sub-Advisor (the "Sub-Advisory Agreement," and together with the Investment Management Agreement, the "Advisory Agreements") which states that the Investment Advisor agrees to pay the Sub-Advisor for services it provides, a monthly fee equal to 59% of the investment advisory fees paid by the Fund to the Investment Advisor with respect to the assets of the Fund allocated to the Sub-Advisor. Effective July 1, 2014, the Sub-Advisory Agreement will expire and not be renewed.

A discussion regarding the basis for the approval of the Investment Management Agreement and the Sub-Advisory Agreement by the Board is available in the Fund's Semi-Annual Report to shareholders for the period ended August 31, 2013.

The Fund is managed by a team of investment professionals comprised of Leland Hart, Managing Director at BlackRock, James E. Keenan, Managing Director at BlackRock and C. Adrian Marshall, Managing Director at BlackRock, each of whom is jointly and primarily responsible for the day-to-day management of the Fund's portfolio and the selection of its investments.

 

Additional information regarding the Board, the Advisors and the portfolio managers, including the portfolio managers' compensation, other accounts managed and ownership of Fund securities, is included under Item 21, below, and under Item 9, Item 18 and Item 21 in Part II.

State Street Bank and Trust Company provides certain administration and accounting services to the Fund pursuant to an Administrative Services Agreement (the "Administration Agreement").  State Street Bank and Trust Company is paid a monthly fee at an annual rate ranging from 0.0075% to 0.015% of the Fund's Managed Assets, along with an annual fixed fee ranging from $0 to $10,000 for the services it provides to the Fund.

Certain legal matters will be passed upon by Miles & Stockbridge P.C., which serves as special Maryland counsel to the Fund.

See "Other Service Providers" under Item 9 in Part II for additional information about State Street Bank and Trust Company, the Fund's other service providers and other matters relevant to the Fund's management.

Item 10. Capital Stock, Long-Term Debt and Other Securities

1.

The Fund is authorized to issue 400,000,000 shares of capital stock, par value $0.10 per share, all of which shares currently are classified as common stock.  The Fund intends to make regular monthly cash distributions of all or a portion of its net investment income to holders of the Fund's shares of common stock.  The Fund reserves the right to change its distribution policy and the basis for establishing the rate of its monthly distributions at any time and may do so without prior notice to common shareholders.  For additional information about the Fund's common stock, see Item 10 in Part II.

The Fund is party to a senior committed secured, 360-day rolling line of credit facility and a separate security agreement (the "SSB Agreement") with State Street Bank and Trust Company ("SSB").  The SSB Agreement allows for a maximum commitment amount of $405,000,000 for the Fund.  At February 28, 2014, the Fund had drawn $315,000,000 on the SSB credit facility.  For the year ended February 28, 2014, the Fund's weighted daily average interest rate under the SSB Agreement was 0.93%.  See "Item 10:  Capital Stock, Long-Term Debt and Other Securities—Credit Facility" in Part II for additional information regarding the SSB Agreement.

The Fund does not have any preferred stock outstanding.

2.	See Item 10.1, above, and Item 10 in Part II.

3.	See Item 10.1, above, and Item 10 in Part II.

4.	See "Tax Matters" under Item 10 in Part II.

5.	Outstanding Securities, as of April 30, 2014:

6.	Not applicable.

Item 11. Defaults and Arrears on Senior Securities

Not applicable.

 

Not applicable.

 

 

1.	See Item 8.2 and Item 8.3, above, and Item 8 in Part II.

2.	See Item 8.2 and Item 8.3, above, and Item 8 in Part II.

3.	See Item 8.2 and Item 8.3, above, and Item 8 in Part II.

4.	Not applicable.

1.	See Item 18 in Part II.

2.	See Item 18 in Part II.

3.	See Item 18 in Part II.

4.	See Item 18 in Part II.

5.	During the Fund's fiscal year ended February 28, 2014, the Board and the Board's committees held the following meetings:

Board or Committee		Number of Meetings
Board (regular meetings)		6
Board (special meetings)		3
Audit Committee		14
Governance and Nominating Committee		4
Compliance Committee		4
Performance Oversight Committee		4
Leverage Committee		5
Executive Committee		3

See Item 18 in Part II.

6.	See Item 18 in Part II.

7.

The Board of the Fund currently consists of 11 individuals, nine of whom are not "interested persons" of the Fund as defined in the 1940 Act (the "Independent Directors").  The registered investment companies advised by the Advisors or their affiliates (the "BlackRock-Advised Funds") are organized into one complex of closed-end funds (the "Closed-End Complex"), two complexes of open-end funds (the "Equity-Liquidity Complex" and the "Equity-Bond Complex") and one complex of exchange-traded funds (the "Exchange-Traded Complex"; each such complex a "BlackRock Fund Complex").  The Fund is included in the Closed-End Complex.  The Directors also oversee as Board members the operations of the other closed-end registered investment companies included in the Closed-End Complex.

Information relating to each Director's share ownership in the Fund and in the other funds in the Closed-End Complex that are overseen by the respective Director as of December 31, 2013 is set forth in the chart below:

*The term "Family of Registered Investment Companies" refers to all registered investment companies advised by the Advisors or an affiliate thereof. Includes share equivalents owned under the deferred compensation plan in the funds in the Family of Registered Investment Companies by certain Independent Directors who have participated in the deferred compensation plan of the funds in the Family of Registered Investment Companies.

8.	See Item 18 in Part II.

9.	See Item 18 in Part II.

10.	See Item 18 in Part II.

11.	See Item 18 in Part II.

12.	See Item 18 in Part II.

13.

The following table sets forth the aggregate compensation, including deferred compensation amounts, paid to each Independent Director and Mr. Gabbay (a Director the Fund treats as a "interested person") by the Fund during its most recently completed fiscal year and by the Closed-End Complex for the most recently completed calendar year.  See Item 18 in Part II for additional information regarding director compensation.

 

 

(1)

Represents the aggregate compensation earned by such persons from the Closed-End Complex during the calendar year ended December 31, 2013. Of this amount, Mr. Castellano, Mr. Cavanagh, Dr. Fabozzi, Dr. Feldstein, Mr. Flynn, Mr. Harris, Dr. Hubbard, Dr. Kester and Ms. Robards deferred $82,500, $37,000, $14,750, $75,000, $137,500, $135,000, $130,000, $75,000 and $35,000, respectively, pursuant to the Closed-End Complex's deferred compensation plan.

(2)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $235,579 as of December 31, 2013.

(3)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $688,375 as of December 31, 2013.

(4)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $606,433 as of December 31, 2013.

(5)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $767,918 as of December 31, 2013.

(6)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $1,157,009 as of December 31, 2013.

(7)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $1,086,495 as of December 31, 2013.

(8)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $1,146,290 as of December 31, 2013.

(9)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $631,096 as of December 31, 2013.

(10)

Total amount of deferred compensation payable by the Closed-End Complex to Director is $560,854 as of December 31, 2013.

(11)

As of December 31, 2013, Mr. Gabbay did not participate in the deferred compensation plan.

14.           Not applicable.

15.           See Item 18 in Part II.

16.           See Item 18 in Part II.

17.           See Item 18 in Part II.

Item 19. Control Persons and Principal Holders of Securities

 

2.	Unless otherwise indicated, the information set forth below is as of April 30, 2014. To the Fund's knowledge, no person beneficially owned more than 5% of the Fund's outstanding shares of common stock, except as set forth below.

 

 

 

(1)

First Trust Portfolios L.P., First Trust Advisors L.P. and The Charger Corporation filed their Schedule 13G jointly and did not differentiate holdings as to each entity.

 

(2)

Morgan Stanley and Morgan Stanley Smith Barney LLC filed their Schedule 13G jointly and did not differentiate holdings as to each entity.

 

(3)

Saba Capital Management, L.P., Saba Capital Master Fund, Ltd., Saba Capital Master Fund II, Ltd., Saba Capital Leveraged Master Fund, Ltd., Saba Capital Partners (Cayman), L.P. and Boaz R. Weinstein filed their Schedule 13G jointly.  The holdings reported by Saba Capital Management, L.P. consist of the holdings of Saba Capital Master Fund, Ltd., Saba Capital Master Fund II, Ltd., Saba Capital Leveraged Master Fund, Ltd. and Saba Capital Partners (Cayman), L.P.  On its Schedule 13G filing Saba Capital Management, L.P. reported that its interest in the Fund is 5.26%, 2.92% held by Saba Capital Master Fund, Ltd., 1.26% held by Saba Capital Master Fund II, Ltd., 0.85% held by Saba Capital Leveraged Master Fund, Ltd., and 0.24% held by Saba Capital Partners (Cayman), L.P.

 

3.           See Item 19 in Part II.

Item 20. Investment Advisory and Other Services

1.	The table below sets forth information about the total advisory fees, net of any applicable fee waiver, paid by the Fund to the Investment Advisor for the last three fiscal years.

Year Ended February 28/29,
2014		2013		2012
$4,514,185 (1)(2)(3)		$3,788,648 (1)(2)		$3,506,794 (1)(2)