UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21413
Name of Fund: BlackRock Floating Rate Income 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, BlackRock Floating Rate Income Strategies Fund, Inc., 800
Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O.
Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 08/31/06
Date of reporting period: 09/01/05 - 08/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY
REAL ESTATE
BlackRock Floating Rate
Income Strategies Fund, Inc.
ANNUAL REPORT AUGUST 31, 2006
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Floating Rate Income Strategies Fund, Inc. seeks a high current
income and such preservation of capital as is consistent with investment in
a diversified, leveraged portfolio consisting primarily of floating rate debt
securities and instruments.
This report, including the financial information herein, is transmitted for
use only to the shareholders of BlackRock Floating Rate Income 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 this report. Past performance results shown in this
report should not be considered a representation of future performance. The
Fund leverages 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.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.blackrock.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Floating Rate
Income Strategies Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
BlackRock Floating Rate Income Strategies Fund, Inc.
The Benefits and Risks of Leveraging
BlackRock Floating Rate Income Strategies Fund, Inc. utilizes leveraging
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 income earned by the
Fund on its longer-term portfolio investments. To the extent that the total
assets of the Fund (including the assets obtained from leverage) are invested
in higher-yielding portfolio investments, the Fund's Common Stock shareholders
will be the beneficiaries of the incremental yield.
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 the 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.
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements will reflect the BlackRock name beginning
with the October month-end reporting period. Unless otherwise communicated to
you, your funds maintain the same investment objectives that they did prior to
the combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in
cooperation with their financial professionals, in working toward their
investment goals. We thank you for allowing us the opportunity, and we look
forward to serving your investment needs in the months and years ahead as the
new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
A Discussion With Your Fund's Portfolio Manager
Strong security selection in several sectors contributed to the Fund's
outperformance of its composite benchmark for the fiscal year.
Describe market conditions during the past 12 months.
During the year ended August 31, 2006, the performance of the bank loan market
benefited from the rising London InterBank Offered Rate (LIBOR), decreasing
spreads and increasing demand for bank loans on the part of collateralized
loan obligations (CLOs), which kept prices close to par value. Investors
earned total returns consisting mainly of interest payments, as there were
only marginal price changes. The three-month LIBOR rose approximately 154
basis points (1.54%) to 5.40% during the 12-month period. Leveraged loans, in
which the Fund may invest up to 80% of its assets, returned +6.36% for the
12-month period, as measured by the Credit Suisse Leveraged Loan Index. High
yield bonds, in which the Fund may invest up to 20% of its assets, returned
+5.41% for the 12-month period, as measured by the Credit Suisse High Yield
Index.
Standard and Poor's Leveraged Commentary & Data (LCD) reported a default rate
of 1.36% based on the number of loans at the end of August 2006, below the
historical average of 3.56%.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended August 31, 2006, the Common Stock of Floating
Rate Income Strategies Fund, Inc. had net annualized yields of 7.14% and
7.89%, based on a year-end per share net asset value of $19.32 and a per share
market price of $17.49, respectively, and $1.380 per share income dividends.
Over the same period, the total investment return on the Fund's Common Stock
was +7.92%, based on a change in per share net asset value from $19.35 to
$19.32, and assuming reinvestment of all distributions. By comparison, the
Fund's unmanaged benchmark, which is comprised 80% of the Credit Suisse
Leveraged Loan Index and 20% of the Credit Suisse High Yield Index, posted a
total return of +6.18% for the 12-month period.
For the six-month period ended August 31, 2006, the total investment return on
the Fund's Common Stock was +3.92%, based on a change in per share net asset
value from $19.30 to $19.32, and assuming reinvestment of all distributions.
The Fund's composite benchmark returned +3.29% for the six-month period.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock can vary significantly from total investment returns
based on changes in the Fund's net asset value.
What factors most influenced Fund performance?
Fund performance during the period benefited from the strong returns of
several individual holdings. Our position in a credit of Trico Marine
Services, Inc., a provider of oil and gas field services, contributed
positively as the company reported good operating results in connection with
heavy workloads in the Gulf of Mexico following Hurricane Katrina. Our holding
in Western Forest Products, Inc., a Canadian lumber manufacturer, also enhanced
Fund returns. Western Forest Products continued to struggle with a high
leverage ratio (a high level of debt), a strong Canadian dollar and weak lumber
prices. However, the company redeemed our bond at the call premium (the dollar
amount over the par value given to holders when a security is called by its
issuer) in connection with a global recapitalization in which we chose not
to participate.
Positions that detracted from Fund performance included the floating rate
notes issued by MagnaChip Semiconductor, SA of South Korea. The securities'
price fell significantly amid the company's weak sales and earnings for the
first half of 2006. Also hindering Fund returns were our investments in the
common stock and floating rate notes of GEO Specialty Chemicals, Inc., a
manufacturer of specialty chemicals for niche markets such as water treatment,
wire and cable manufacturing, construction, electronics, and oil and gas
production. Following its emergence from bankruptcy at the beginning of 2005,
GEO had difficulty passing on the rising costs of raw materials. The company
also underwent senior management changes and experienced operational issues.
Finally, our holding in a term loan of Century Cable Holdings, LLC declined as
litigation surrounding the sale of assets became protracted.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
What changes were made to the portfolio during the period?
We continued our efforts to maintain a portfolio that is well diversified both
by industry and company. The Fund's floating rate/fixed rate ratio averaged
around 85%/15%. The floating rate securities are based on a spread over LIBOR
while the fixed rate securities are based mainly on the 10-year U.S. Treasury
note. With the three-month LIBOR hovering around 5.40% versus a 10-year
Treasury yield of 4.75% (as of mid September 2006), we see little reason to
push closer to the Fund's 20% fixed rate allocation limit.
During the fiscal year, the Fund purchased assets of approximately
$293.3 million in par amount (face value) and experienced $159.7 million in
repayments from issuers. In addition, we sold roughly $122.9 million in assets.
The portfolio's leverage position averaged roughly 23% for the period. We
intend to make fuller use of the Fund's leverage lines going forward. (For a
discussion of the benefits and risks of leveraging, see page 2 of this report
to shareholders.)
How would you characterize the Fund's position at the close of the period?
At the end of the period, the portfolio was composed of 195 issuers spread
among 32 industries. The Fund was underweight versus its composite benchmark
in securities rated Ba or better, Caa or below and unrated credits, and had an
overweight position in B-rated securities.
The Federal Reserve Board (the Fed) left the federal funds rate unchanged at
5.25% at its August meeting, following 17 consecutive quarter-point interest
rate hikes since June 2004. It is uncertain if this pause in the Fed's
interest rate tightening campaign will continue. Whether the federal funds
rate is increased or even reduced will rely to a great extent on inflation
data. A question facing investors is whether the slightly inverted yield curve
(in which short-term securities carry higher yields than longer-term issues)
will resume its normal slope and, if so, whether it will occur because of
rising long-term interest rates, declining short-term interest rates, or a
combination of the two. As most of the portfolio's assets are invested in
floating rate securities, declining short-term interest rates would result in
a lower yield. Conversely, rising long-term interest rates would have a
minimal effect on Fund performance, whereas funds investing only in high yield
bonds would see their principal erode.
We continue to see solid inflows to the leveraged loan market in the form of
CLOs, which now hold nearly two-thirds of all leveraged loans. The robust
demand for these securities has spilled over to the high yield bond market.
Historically, there have been discrete boundaries between the two markets. The
lines have become blurred as we have seen high yield bond deals migrate to the
leveraged loan market as optimistically titled "second lien loans," keeping
high yield bond spreads tighter than they otherwise would be. Overall,
however, liquidity is key when it comes to the ability of companies to
refinance. Therefore, given the consensus outlook for continued economic
growth in the 2% - 3% range and the fact that we have experienced moderate
setbacks in the high yield market that have helped maintain credit discipline,
we expect to see a benign default rate environment going forward.
Kevin Booth
Portfolio Manager
September 15, 2006
We are pleased to announce that Kevin J. Booth and Mark J. Williams are
primarily responsible for the day-to-day management of the Fund's portfolio.
Mr. Booth was named Portfolio Manager effective August 7, 2006. Mr. Booth has
been a Managing Director of BlackRock, Inc. since 2006. He had been a Managing
Director (Global Fixed Income) with Merrill Lynch Investment Managers (MLIM)
in 2006 and previously was a Director of MLIM from 1998 to 2005 and Vice
President thereof from 1991 to 1998. Mr. Williams joined Mr. Booth as
Portfolio Manager effective October 2, 2006. He is a Managing Director and
portfolio manager/loan originator with BlackRock. Prior to joining BlackRock
in 1998, Mr. Williams spent eight years with PNC Bank's New York office and
was a founding member of the bank's Leveraged Finance Group.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Proxy Results
During the six-month period ended August 31, 2006, BlackRock Floating Rate
Income Strategies Fund, Inc.'s shareholders voted on the following proposals.
Proposal 1 was approved at a shareholders' meeting on August 15, 2006. With
respect to Proposals 2 and 3, they were approved at a shareholder meeting on
August 31, 2006. A description of the proposals and number of shares voted
were as follows
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Robert C. Doll, Jr. 11,873,251 814,651
Ronald W. Forbes 11,871,644 816,258
Cynthia A. Montgomery 11,870,556 817,346
Jean Margo Reid 11,867,884 820,018
Roscoe S. Suddarth 11,866,957 820,945
Richard R. West 11,863,127 824,775
Edward D. Zinbarg 11,864,205 823,697
Shares Voted Shares Voted Shares Voted
For Against Abstain
2. To approve a new investment advisory agreement. 8,685,695 284,402 508,377
3. To approve a contingent subadvisory agreement. 8,680,107 291,543 506,824
Portfolio Information as of August 31, 2006
Percent of
Ten Largest Holdings Net Assets
Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 6.0%
Century Cable Holdings LLC, Discretionary
Term Loan, 10.25% due 12/31/2009 3.3
Metro-Goldwyn-Mayer Studios, Inc.
Term Loan B, 8.75% due 4/30/2011 2.8
Intelsat Corp. Term Loan B, 8.008%
due 1/03/2014 2.0
Huntsman ICI Holdings Term Loan B,
7.076% due 8/16/2012 1.9
Nalco Co. Tranche B Term Loan,
7.12% - 7.30% due 11/04/2010 1.9
Metaldyne Corp. Term Loan D,
3.50% - 10.50% due 8/18/2011 1.7
Berry Plastics Corp. Term Loan, 7.08%
due 7/22/2010 1.7
Felcor Lodging LP, 9.57% due 6/01/2011 1.6
Majestic Star Casino LLC, 9.50%
due 10/15/2010 1.5
Percent of
Five Largest Industries Net Assets
Cable--U.S. 19.7%
Utility 14.7
Gaming 8.6
Chemicals 7.9
Automotive 7.4
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.
Percent of
Total
Quality Ratings by S&P/Moody's Investments
BBB/Baa 0.3%
BB/Ba 27.7
B/B 54.1
CCC/Caa 3.7
D 0.4
NR (Not Rated) 6.4
Other* 7.4
* Includes portfolio holdings in common stocks, warrants and
short-term investments.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Schedule of Investments
Face
Amount Floating Rate Loan Interests** Value
Aerospace & Defense--3.6%
$ 2,388,000 IAP Worldwide Services, Inc. First Lien Term
Loan, 8.50% due 12/30/2012 $ 2,402,428
1,806,321 K&F Industries, Inc. Term Loan, 7.33%
due 11/18/2012 1,810,837
2,101,911 MRO Acquisitions Corp. First Lien Term Loan,
7.90% due 8/27/2010 2,117,675
2,777,778 Standard Aero Holdings Term Loan,
7.58% - 7.68% due 8/24/2012 2,779,514
Vought Aircraft Industries, Inc.:
2,898,494 Term Loan, 8% due 12/22/2011 2,915,705
560,000 Tranche B Line of Credit Deposit, 7.83%
due 12/22/2010 565,250
--------------
12,591,409
Airlines--0.7%
1,000,000 Delta Air Lines Debtor in Possession Term Loan B,
10.023% due 3/16/2008 1,013,214
United Air Lines:
186,563 Delay Draw Term Loan, 9.08%
due 2/01/2012 189,361
1,305,937 Term Loan B, 9.25% due 2/01/2012 1,325,527
--------------
2,528,102
Automotive--6.0%
2,672,143 Affinia Group Term Loan B, 8.50%
due 11/30/2011 2,686,340
1,250,000 Delphi Corp. Debtor in Possession Term Loan B,
8.125% due 10/08/2007 1,263,281
997,500 GPX International Tire Corp. Term Loan B, 7.83%
due 4/06/2012 1,002,488
1,500,000 JL French Corp. First Lien Term Loan, 8.50%
due 6/30/2011 1,497,500
1,533,110 Keystone Automotive Operations, Inc. Term Loan,
7.896% - 7.99% due 10/30/2009 1,535,027
6,000,000 Metaldyne Corp. Term Loan D, 3.50% - 10.50%
due 8/18/2011 5,985,000
Tenneco Automotive, Inc.:
2,896,483 Term Loan B, 7.40% due 12/12/2010 2,916,758
1,272,374 Tranche B-1 Credit Linked Deposit, 7.33%
due 12/12/2010 1,281,280
3,000,000 Visteon Corp. Term Loan B, 8.61% due 6/13/2013 3,000,000
--------------
21,167,674
Broadcasting--2.5%
666,667 Emmis Operating Co. Term Loan B, 7.08%
due 11/10/2011 668,385
1,990,000 Gray Communications Term Loan B, 7.01%
due 11/22/2012 1,991,244
NextMedia Group, Inc.:
381,731 Delay Draw Term Loan, 7.41% due 11/15/2012 380,538
858,894 First Lien Term Loan, 7.33% due 11/15/2012 856,210
1,750,000 Second Lien Term Loan, 10.01%
due 11/15/2013 1,759,480
3,250,000 Paxson Communications Corp. First Lien Term
Loan, 8.757% due 1/15/2012 3,302,813
--------------
8,958,670
Face
Amount Floating Rate Loan Interests** Value
Cable--U.S.--17.1%
Cebridge Connections:
$ 2,000,000 Second Lien Term Loan, 9.85%
due 5/05/2014 $ 1,940,000
2,155,172 Term Loan B, 7.739% due 11/06/2013 2,142,663
12,000,000 Century Cable Holdings LLC, Discretionary Term
Loan, 10.25% due 12/31/2009 11,632,500
21,000,000 Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 21,077,301
1,994,962 DIRECTV Holdings, Inc. Tranche B Term Loan,
6.824% due 4/13/2013 1,997,456
5,000,000 Hilton Head Communications UCA Term Loan B,
9.50% due 3/31/2008 4,819,790
4,875,000 Insight Midwest Holdings LLC Term Loan C,
7.375% due 12/31/2009 4,905,722
6,895,000 Intelsat Corp. Term Loan B, 8.008% due 1/03/2014 6,948,871
2,043,750 Mediacom Broadband Group Tranche A Term Loan,
6.50% - 6.62% due 3/31/2010 2,008,624
3,160,000 Mediacom LLC Term Loan C, 7.002% - 7.37%
due 1/31/2015 3,150,972
--------------
60,623,899
Chemicals--7.1%
1,955,000 Hercules, Inc. Term Loan B, 6.999% - 7.01%
due 10/08/2010 1,961,354
6,704,951 Huntsman ICI Holdings Term Loan B, 7.076%
due 8/16/2012 6,696,570
Invista:
970,025 Term Loan, 7% due 4/29/2011 971,844
2,204,602 Term Loan B-1, 7% due 4/29/2011 2,206,438
6,535,648 Nalco Co. Tranche B Term Loan, 7.12% - 7.30%
due 11/04/2010 6,545,301
1,970,000 Rockwood Specialties Group, Inc. Tranche D Term
Loan, 7.485% due 7/30/2012 1,981,698
4,750,000 Wellman, Inc. Second Lien Term Loan, 12.239%
due 2/10/2010 4,643,125
--------------
25,006,330
Consumer--Durables--0.9%
3,268,092 Simmons Co. Tranche B Term Loan,
7.125% - 9.50% due 12/19/2011 3,291,070
Consumer--Non-Durables--1.0%
1,370,813 American Achievement Corp. Term Loan B,
7.65% - 9.50% due 3/22/2011 1,384,636
1,463,250 Burt's Bees, Inc. Term Loan, 7.919% - 8.368%
due 3/29/2011 1,463,250
756,000 CamelBak Products LLC First Lien Term Loan,
9.41% - 9.46% due 8/04/2011 740,880
--------------
3,588,766
Diversified Media--4.0%
9,975,000 Metro-Goldwyn-Mayer Studios, Inc. Term Loan B,
8.75% due 4/08/2012 9,951,020
4,000,000 Nielsen Finance Term Loan B, 8.19%
due 8/09/2013 3,987,656
--------------
13,938,676
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
Energy--Exploration & Production--0.6%
$ 1,000,000 Helix Energy Solutions Term Loan B,
7.39% - 7.64% due 7/01/2013 $ 1,001,160
997,500 MEG Energy Corp. Term Loan B, 7.50%
due 4/03/2013 999,726
--------------
2,000,886
Energy--Other--1.8%
888,889 Alon USA, Inc. Term Loan B, 7.906%
due 6/22/2013 899,444
2,750,000 Dresser, Inc. Term Loan Unsecured, 8.94%
due 2/25/2010 2,805,000
1,025,000 EPCO, Inc. Term Loan C, 7.221% - 7.49%
due 8/18/2010 1,032,127
1,492,500 Key Energy Services, Inc. Term Loan B,
8.90% - 9.23% due 6/30/2012 1,500,895
188,990 MarkWest Energy Operating Co. LLC Term Loan B,
7.656% due 12/29/2010 189,462
--------------
6,426,928
Food & Drug--0.2%
746,173 Alimentation Couche-Tard, Inc. US Term Loan,
7.125% due 12/17/2010 750,992
Food & Tobacco--1.6%
1,000,000 Bolthouse Farms, Inc. Second Lien Term Loan,
10.999% due 12/16/2013 1,019,167
1,405,875 Commonwealth Brands Term Loan, 7.75%
due 12/22/2012 1,416,068
Dole Food Co., Inc.:
186,047 Letter of Credit, 5.37% due 4/12/2013 183,579
417,558 Term Loan B, 7.38% - 9.25%
due 4/12/2013 412,020
1,391,860 Term Loan C, 7.375% - 9.25%
due 4/12/2013 1,373,399
713,333 Pierre Foods, Inc. Term Loan B, 6.93%
due 6/30/2010 715,786
500,000 QCE LLC First Lien Term Loan, 7.75%
due 5/05/2013 499,427
--------------
5,619,446
Gaming--5.9%
788,658 Global Cash Access LLC Term Loan B, 7.08%
due 3/10/2010 788,658
1,955,225 Green Valley Ranch Gaming LLC Term Loan,
7.249% due 12/17/2011 1,957,669
893,250 Isle of Capri Black Hawk Term Loan B,
7.36% - 7.51% due 10/24/2011 892,133
990,000 Isle of Capri Casinos, Inc. Tranche 3 Delay Draw
Term Loan, 7.249% due 2/04/2011 991,733
1,225,625 Penn National Gaming, Inc. Term Loan B,
7.02% - 7.25% due 10/03/2012 1,231,906
2,000,000 Pinnacle Entertainment Term Loan, 7.33%
due 12/15/2011 2,006,876
4,988,847 Resorts International First Lien Term Loan, 9.50%
due 4/26/2012 5,025,640
2,475,000 Trump Entertainment Resorts Holdings LP Term
Loan B-1, 7.92% - 8.03% due 5/20/2012 2,494,337
Venetian Casino Resort LLC:
1,000,000 Delay Draw Term Loan, 7.25% due 6/15/2011 1,000,078
3,100,000 Term Loan B, 7.25% due 6/15/2011 3,100,242
1,500,000 Venetian Macau U.S. Finance Co. Term Loan B,
8.20% due 5/25/2013 1,507,500
--------------
20,996,772
Face
Amount Floating Rate Loan Interests** Value
Health Care--2.9%
$ 2,751,000 Community Health Systems, Inc. Term Loan,
7.08% - 7.15% due 8/19/2011 $ 2,753,149
2,937,505 DaVita, Inc. Tranche B Term Loan,
7.11% - 7.69% due 10/05/2012 2,949,963
852,749 Duloxetine Royalty Term Loan, 10.007%
due 10/18/2013 857,013
959,459 Gentiva Health Services, Inc. Term Loan B,
7.37% - 7.89% due 3/31/2013 961,858
1,897,249 LifePoint Hospitals, Inc. Term Loan B,
6.905% - 7.13% due 4/15/2012 1,890,528
672,772 Rotech Healthcare, Inc. Term Loan B, 8.50%
due 3/31/2008 674,454
--------------
10,086,965
Housing--2.8%
2,920,211 Headwaters, Inc. Term Loan B-1,
7.33% - 7.50% due 4/30/2011 2,936,637
116,842 LIONS Gables Realty Term Loan B, 7.12%
due 3/30/2007 116,976
997,500 Mattamy Group Term Loan B, 7.69%
due 4/11/2013 999,994
2,450,000 Nortek, Inc. Term Loan, 7.36% due 8/27/2011 2,444,257
3,536,147 PGT Industries, Inc. First Lien Term Loan, 8.41%
due 2/14/2012 3,556,037
--------------
10,053,901
Information Technology--2.7%
2,194,500 Activant Solutions Term Loan B,
7.438% - 7.50% due 5/02/2013 2,167,069
3,460,000 Fidelity National Information Solutions, Inc.
Term Loan B, 7.08% due 3/08/2013 3,473,103
1,980,000 SunGard Data Systems, Inc. Term Loan B,
7.999% due 2/11/2013 1,996,794
1,975,000 Telcordia Technologies, Inc. Term Loan,
7.86% -7.90% due 9/15/2012 1,883,656
--------------
9,520,622
Leisure--1.1%
3,990,000 24 Hour Fitness Term Loan B, 7.99% - 8.12%
due 6/08/2012 4,022,419
Manufacturing--4.7%
1,180,556 Communications & Power Industries, Inc. Term
Loan, 7.58% - 7.66% due 7/23/2010 1,185,720
2,468,750 Metokote Corp. Second Lien Term Loan,
8.58% - 8.74% due 11/27/2011 2,476,465
3,410,338 Mueller Group LLC Term Loan B,
7.33% - 7.868% due 10/03/2012 3,436,219
1,500,000 NACCO Materials Handling Group Term Loan B,
7.28% - 7.41% due 3/21/2013 1,496,250
Sensus Metering Systems, Inc.:
5,143,478 Term Loan B-1, 7.399% - 7.583%
due 12/17/2010 5,143,478
683,207 Term Loan B-2, 7.399% - 7.583%
due 12/17/2010 683,207
Trimas Corp.:
375,000 Letter of Credit, 8.08% due 8/02/2013 375,000
1,625,000 Term Loan B, 8.25% due 8/02/2013 1,625,000
--------------
16,421,339
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
Packaging--3.9%
$ 2,561,576 Anchor Glass Container Corp. Term Loan B,
7.65% - 7.749% due 5/03/2013 $ 2,567,980
5,853,487 Berry Plastics Corp. Term Loan, 7.08%
due 12/02/2011 5,854,704
3,428,797 Graham Packaging Co. LP Term Loan B,
7.563% - 7.875% due 10/07/2011 3,441,655
1,965,000 Intertape Polymer US, Inc. Term Loan B,
7.55% - 7.76% due 7/28/2011 1,985,878
--------------
13,850,217
Paper--2.2%
1,154,786 Boise Cascade Holdings LLC Tranche D Term Loan,
7.094% - 7.25% due 10/28/2011 1,160,362
Georgia Pacific Corp.:
995,000 First Lien Term Loan B, 7.30% - 7.50%
due 12/20/2012 997,004
1,000,000 Second Lien Term Loan C, 8.30%
due 12/23/2013 1,010,208
SP Newsprint Co. Tranche B-1:
1,972,738 Credit Linked Deposit, 5.33% due 1/09/2010 1,987,533
339,277 Term Loan, 7.58% due 1/09/2010 341,821
Smurfit-Stone Container Corp.:
1,486,265 Term Loan B, 7.50% - 7.688%
due 11/01/2011 1,496,066
695,294 Term Loan C, 7.50% - 7.688%
due 11/01/2011 699,879
--------------
7,692,873
Retail--1.2%
1,103,677 American Reprographics Co. Term Loan,
7.15% - 9% due 6/18/2009 1,105,402
1,678,564 General Nutrition Centers, Inc. Tranche B Term
Loan, 8.08% - 8.15% due 12/05/2009 1,690,629
1,424,051 Neiman Marcus Group, Inc. Term Loan,
7.77% due 4/06/2013 1,437,163
--------------
4,233,194
Service--5.0%
1,985,000 Baker Tanks, Inc. Term Loan B, 7.83% - 7.999%
due 11/23/2012 1,997,406
2,842,000 Buhrmann USA, Inc. Term Loan C,
7.149% - 7.218% due 12/23/2010 2,847,329
1,995,965 Coinmach Laundry Corp. Term Loan B,
7.875% - 7.938% due 12/09/2012 2,011,559
2,254,419 Coinstar, Inc. Term Loan, 7.51% due 7/07/2011 2,269,918
EnergySolutions:
18,868 Letter of Credit, 7.58% due 6/07/2013 19,004
400,000 Term Loan B, 7.65% - 7.77% due 6/07/2013 402,875
181,132 Term Loan C, 7.65% - 7.77% due 6/07/2013 182,434
995,081 RGIS Inventory Specialists First Lien Term Loan,
7.999% due 12/31/2012 994,770
United Rentals, Inc.:
806,009 Term Loan, 7.33% due 2/14/2011 808,456
164,912 Tranche B Credit Linked Deposit, 4.86%
due 2/14/2011 165,413
3,000,000 Vanguard Car Rental Term Loan B, 8.319%
due 6/14/2013 3,007,125
Face
Amount Floating Rate Loan Interests** Value
Service (concluded)
Weight Watchers International , Inc.:
$ 1,872,529 First Lien Term Loan, 7.575% - 7.748%
due 12/16/2010 $ 1,883,649
1,000,000 Second Lien, 10.359% due 6/16/2011 1,007,500
--------------
17,597,438
Telecommunications--3.4%
2,000,000 Alaska Communication Systems Holdings, Inc.
Incremental Term Loan, 7.249%
due 2/01/2012 1,996,750
2,172,500 Consolidated Communications, Inc. Term Loan D,
7.41% - 7.45% due 10/14/2011 2,173,858
2,962,500 Intelsat Ltd. Term Loan B, 7.758%
due 6/27/2013 2,979,780
5,000,000 SBA Senior Finance Term Loan, 7.33%
due 1/27/2007 5,014,065
--------------
12,164,453
Utility--11.4%
1,571,429 AES Corp. Term Loan, 6.75% - 7.50%
due 4/30/2008 1,577,321
Calpine Corp.:
2,500,000 Second Lien Debtor in Possession, 9.499%
due 12/20/2007 2,536,458
4,902,199 Second Lien Term Loan, 15%
due 7/16/2007 (h) 4,989,522
Calpine Generating Co. LLC:
1,500,000 First Lien Term Loan, 9.08% due 4/01/2009 1,540,833
2,500,000 Second Lien Term Loan, 11.08%
due 4/01/2010 2,627,083
1,663,262 Cogentrix Delaware Holdings, Inc. Term Loan,
7% due 4/14/2012 1,667,074
Covanta Energy Corp.:
462,963 Delay Draw Term Loan, 7.749%
due 6/30/2012 462,963
2,341,463 First Lien Letter of Credit, 5.46%
due 6/24/2012 2,359,511
1,677,896 First Lien Term Loan, 7.576% - 7.71%
due 6/24/2012 1,690,830
1,625,000 Second Lien Term Loan, 10.96%
due 6/24/2013 1,661,563
4,937,500 KGen LLC Tranche A Term Loan, 8.124%
due 8/05/2011 4,956,016
LSP Gen Finance Co LLC:
129,508 Delay Draw Term Loan, 7.08%
due 5/04/2013 129,292
3,118,687 First Lien Term Loan, 7.249%
due 5/04/2013 3,113,488
500,000 Term Loan, 8.999% due 5/04/2014 505,834
2,438,830 LSP Kendall Energy Term Loan B, 7.499%
due 10/07/2013 2,422,063
433,862 Midwest Generation LLC Term Loan C,
7.24% - 7.31% due 4/27/2011 434,811
559,613 Reliant Energy, Inc. Term Loan, 7.705%
due 4/30/2010 560,399
1,676,280 Riverside Energy Center Term Loan, 9.735%
due 6/24/2011 1,722,378
Rocky Mountain Energy Center LLC:
133,966 Credit Linked Deposit, 5.39% due 6/24/2011 137,650
1,158,118 Term Loan, 9.735% due 6/24/2011 1,189,966
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
Utility (concluded)
Wolf Hollow I LP:
$ 1,456,812 First Lien Term Loan, 7.749% due 6/22/2012 $ 1,464,096
1,200,000 Letter of Credit, 7.576% due 6/22/2012 1,206,000
300,000 Revolving Credit, 7.576% due 6/22/2012 303,750
1,000,000 Second Lien Term Loan, 9.94%
due 12/22/2012 1,005,000
--------------
40,263,901
Wireless Communications--0.6%
2,154,167 Centennial Cellular Operating Co. Term Loan,
7.318% - 7.749% due 2/09/2011 2,171,284
Total Floating Rate Loan Interests
(Cost--$334,359,281)--94.9% 335,568,226
Corporate Bonds
Aerospace & Defense--0.1%
250,000 Alliant Techsystems, Inc., 6.75% due 4/01/2016 243,125
Automotive--1.4%
250,000 AutoNation, Inc., 7.507% due 4/15/2013 (a)(b) 251,250
4,500,000 Ford Motor Credit Co., 9.957%
due 4/15/2012 (a) 4,757,220
--------------
5,008,470
Cable--International--0.1%
375,000 NTL Cable Plc, 8.75% due 4/15/2014 389,063
Cable--U.S.--2.6%
2,000,000 CSC Holdings, Inc. Series B, 7.625%
due 4/01/2011 2,045,000
Cablevision Systems Corp. Series B:
2,000,000 9.62% due 4/01/2009 (a) 2,132,500
3,000,000 8% due 4/15/2012 3,015,000
Intelsat Subsidiary Holding Co. Ltd.:
750,000 10.484% due 1/15/2012 (a) 761,250
500,000 8.25% due 1/15/2013 498,750
800,000 Quebecor Media, Inc., 7.75% due 3/15/2016 792,000
--------------
9,244,500
Chemicals--0.8%
2,011,000 GEO Specialty Chemicals, Inc., 13.981%
due 12/31/2009 (a) 1,659,075
1,125,000 Nova Chemicals Corp., 8.405%
due 11/15/2013 (a) 1,148,906
--------------
2,807,981
Face
Amount Corporate Bonds Value
Diversified Media--1.2%
$ 4,000,000 Nielsen Finance LLC, 10% due 8/01/2014 (b) $ 4,095,000
250,000 Quebecor World Capital Corp., 8.75%
due 3/15/2016 (b) 235,000
--------------
4,330,000
Energy--Exploration & Production--0.1%
500,000 Pogo Producing Co., 7.875% due 5/01/2013 (b) 510,000
Energy--Other--1.0%
400,000 MarkWest Energy Partners LP, 8.50%
due 7/15/2016 (b) 405,000
3,000,000 Ocean RIG ASA, 9.481% due 4/04/2011 (a) 2,977,500
250,000 PHI, Inc., 7.125% due 4/15/2013 (b) 238,125
--------------
3,620,625
Food & Drug--0.1%
500,000 Stripes Acquisition LLC, 10.625%
due 12/15/2013 (b) 525,000
Food & Tobacco--1.2%
250,000 AmeriQual Group LLC, 9.50% due 4/01/2012 (b) 255,000
3,000,000 Smithfield Foods, Inc., 7% due 8/01/2011 3,011,250
1,050,000 The Wornick Co., 10.875% due 7/15/2011 997,500
--------------
4,263,750
Gaming--2.7%
1,100,000 Galaxy Entertainment Finance Co. Ltd., 10.42%
due 12/15/2010 (a)(b) 1,152,250
650,000 Jacobs Entertainment Co., 9.75%
due 6/15/2014 (b) 649,187
2,000,000 Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (b) 1,990,000
550,000 MTR Gaming Group, Inc., 9% due 6/01/2012 (b) 554,125
5,000,000 Majestic Star Casino LLC, 9.50% due 10/15/2010 5,143,750
--------------
9,489,312
Health Care--0.4%
675,000 Angiotech Pharmaceuticals, Inc., 7.75%
due 4/01/2014 (b) 658,125
575,000 US Oncology, Inc., 9% due 8/15/2012 595,125
--------------
1,253,250
Housing--0.6%
2,000,000 Goodman Global Holding Co., Inc., 8.329%
due 6/15/2012 (a) 2,000,000
Information Technology--2.2%
4,625,000 MagnaChip Semiconductor SA, 8.579%
due 12/15/2011 (a) 3,954,375
SunGard Data Systems, Inc.:
1,825,000 9.973% due 8/15/2013 (a) 1,907,125
1,900,000 10.25% due 8/15/2015 1,940,375
--------------
7,801,875
Leisure--1.6%
5,400,000 Felcor Lodging LP, 9.57% due 6/01/2011 (a) 5,535,000
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued)
Face
Amount Corporate Bonds Value
Manufacturing--1.1%
$ 325,000 ERICO International Corp., 8.875%
due 3/01/2012 $ 333,125
2,000,000 International Rectifier Corp., 4.25%
due 7/15/2007 (c) 1,972,500
1,346,000 Invensys Plc, 9.875% due 3/15/2011 (b) 1,453,680
--------------
3,759,305
Metal--Other--0.2%
700,000 Novelis, Inc., 8.25% due 2/15/2015 (b) 665,000
Packaging--0.8%
3,000,000 Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (b) 3,000,000
Paper--2.2%
2,650,000 Abitibi-Consolidated, Inc., 8.829%
due 6/15/2011 (a) 2,610,250
700,000 Ainsworth Lumber Co. Ltd., 9.249%
due 10/01/2010 (a) 584,500
725,000 Domtar, Inc., 7.125% due 8/15/2015 674,250
925,000 NewPage Corp., 11.739% due 5/01/2012 (a) 999,000
3,000,000 Verso Paper Holdings LLC, 9.235%
due 8/01/2014 (a)(b) 3,022,500
--------------
7,890,500
Retail--1.0%
1,600,000 Jean Coutu Group, Inc., 8.50% due 8/01/2014 1,526,000
2,000,000 Neiman Marcus Group, Inc., 9% due 10/15/2015 2,125,000
--------------
3,651,000
Service--1.8%
250,000 Ahern Rentals, Inc., 9.25% due 8/15/2013 253,750
3,375,000 Allied Waste North America, Inc. Series B,
7.375% due 4/15/2014 3,299,062
600,000 Dycom Industries, Inc., 8.125% due 10/15/2015 606,000
2,000,000 Sunstate Equipment Co. LLC, 10.50%
due 4/01/2013 (b) 2,085,000
--------------
6,243,812
Steel--1.0%
3,000,000 CSN Islands VIII Corp., 9.75% due 12/16/2013 (b) 3,420,000
Telecommunications--3.4%
3,000,000 Cincinnati Bell, Inc., 8.375% due 1/15/2014 3,011,250
3,700,000 Qwest Communications International, Inc.,
8.905% due 2/15/2009 (a) 3,755,500
1,450,000 Qwest Corp., 8.579% due 6/15/2013 (a) 1,560,562
3,500,000 Time Warner Telecom Holdings, Inc., 9.405%
due 2/15/2011 (a) 3,570,000
--------------
11,897,312
Utility--3.3%
2,000,000 Calpine Corp., 9.875% due 12/01/2011 (b)(h) 1,965,000
2,375,000 Edison Mission Energy, 7.50% due 6/15/2013 (b) 2,375,000
500,000 El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (b) 509,375
3,000,000 NRG Energy, Inc., 7.25% due 2/01/2014 2,962,500
4,000,000 Reliant Energy, Inc., 6.75% due 12/15/2014 3,770,000
--------------
11,581,875
Face
Amount Corporate Bonds Value
Wireless Communications--0.9%
$ 3,250,000 Rogers Wireless Communications, Inc., 8.454%
due 12/15/2010 (a) $ 3,335,313
Total Corporate Bonds
(Cost--$111,708,429)--31.8% 112,466,068
Shares
Held Common Stocks
Chemicals--0.0%
13,117 GEO Specialty Chemicals, Inc. (e) 26,234
Energy--Other--1.2%
119,184 Trico Marine Services, Inc. (e) 4,275,166
Manufacturing--0.4%
71,653 Medis Technologies Ltd. (e) 1,435,229
Paper--0.0%
84,448 Western Forest Products, Inc. (e) 125,559
Total Common Stocks
(Cost--$4,322,548)--1.6% 5,862,188
Warrants (d)
Utility--0.0%
4,558 Reliant Resources (expires 10/25/2008) 29,627
Total Warrants
(Cost--$0)--0.0% 29,627
Face
Amount Short-Term Securities
Commercial Paper***--8.5%
$ 7,500,000 AOL Time Warner, Inc., 5.37%
due 9/12/2006 7,487,694
7,500,000 Glencore Funding Inc., 5.67%
due 9/07/2006 7,492,913
7,500,000 Sprint Corp./Consolidated, 5.41%
due 9/07/2006 7,493,238
7,500,000 TXU Energy Co. LLC, 5.42% due 9/07/2006 7,493,225
--------------
29,967,070
Beneficial
Interest
$ 70,094 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 5.11% (f)(g) 70,094
Total Short-Term Securities
(Cost--$30,037,163)--8.5% 30,037,164
Total Investments (Cost--$480,427,421*)--136.8% 483,963,273
Liabilities in Excess of Other Assets--(36.8%) (130,249,785)
--------------
Net Assets--100.0% $ 353,713,488
==============
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Schedule of Investments (concluded)
* The cost and unrealized appreciation (depreciation) of investments
as of August 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 480,393,664
================
Gross unrealized appreciation $ 5,949,283
Gross unrealized depreciation (2,379,674)
----------------
Net unrealized appreciation $ 3,569,609
================
** 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 major European banks, such
as LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by
one or more major U.S. banks or (iii) the certificate of deposit rate.
*** Commercial Paper is traded on a discount basis; the interest rates shown
reflect the discount rates paid at the time of purchase.
(a) Floating rate security.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Convertible security.
(d) 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.
(e) Non-income producing security.
(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 $ 70,094 $ 52,383
(g) Represents the current yield as of August 31, 2006.
(h) Issuer filed for bankruptcy or is in default of interest payments.
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. These industry classifications
are unaudited.
o Swaps outstanding as of August 31, 2006 were as follows:
Notional Unrealized
Amount Appreciation
Sold credit default protection on
General Motors Corp. and receive 4.40%
Broker, Morgan Stanley Capital Services, Inc.
Expires June 2007 $ 1,000,000 $ 16,058
Sold credit default protection on
Dow Jones CDX High Yield 100 Index Series 6
and receive 3.45%
Broker, JPMorgan Chase Bank
Expires June 2011 $30,000,000 $117,210
--------
Total $133,268
========
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Statement of Assets, Liabilities and Capital
As of August 31, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$480,357,327) $ 483,893,179
Investments in affiliated securities, at value (identified cost--$70,094) 70,094
Unrealized appreciation on swaps 133,268
Cash 32,118
Swap premiums paid 55,397
Receivables:
Interest $ 5,247,729
Principal paydowns 366,294
Swaps 218,797
Commitment fees 26,433 5,859,253
---------------
Prepaid expenses and other assets 3,436
---------------
Total assets 490,046,745
---------------
Liabilities
Loans 135,200,000
Unfunded loan commitment 216,175
Payables:
Dividends to shareholders 414,480
Investment adviser 242,022
Interest on loans 137,192
Other affiliates 2,895 796,589
---------------
Accrued expenses 120,493
---------------
Total liabilities 136,333,257
---------------
Net Assets
Net assets $ 353,713,488
===============
Capital
Common Stock, par value $.10 per share; 200,000,000 shares authorized
(18,305,029 shares issued and outstanding) $ 1,830,503
Paid-in capital in excess of par 347,369,214
Undistributed investment income--net $ 3,564,973
Accumulated realized capital losses--net (2,520,876)
Unrealized appreciation--net 3,469,674
---------------
Total accumulated earnings--net 4,513,771
---------------
Total capital--Equivalent to $19.32 net asset value per share of Common Stock
(market price--$17.49) $ 353,713,488
===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Statement of Operations
For the Year Ended August 31, 2006
Investment Income
Interest (including $52,383 from affiliates) $ 34,264,117
Facility and other fees 376,119
---------------
Total income 34,640,236
---------------
Expenses
Loan interest expense $ 4,903,741
Investment advisory fees 3,404,218
Borrowing costs 207,671
Accounting services 128,590
Transfer agent fees 63,086
Professional fees 62,379
Directors' fees and expenses 45,000
Printing and shareholder reports 43,206
Custodian fees 27,283
Pricing services 16,802
Listing fees 9,752
Other 18,111
---------------
Total expenses 8,929,839
---------------
Investment income--net 25,710,397
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net (338,091)
Swaps--net 97,269
Foreign currency transactions--net 21,254 (219,568)
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (970,350)
Swaps--net 84,317
Unfunded corporate loans--net (108,652)
Foreign currency transactions--net (279) (994,964)
--------------- ---------------
Total realized and unrealized loss--net (1,214,532)
---------------
Net Increase in Net Assets Resulting from Operations $ 24,495,865
===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Statements of Changes in Net Assets
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 25,710,397 $ 22,425,360
Realized loss--net (219,568) (2,683,511)
Change in unrealized appreciation/depreciation--net (994,964) 4,267,524
--------------- ---------------
Net increase in net assets resulting from operations 24,495,865 24,009,373
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net (25,022,792) (20,347,853)
Realized gain--net -- (216,488)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to shareholders (25,022,792) (20,564,341)
--------------- ---------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment of dividends
and distributions 126,000 415,791
--------------- ---------------
Net increase in net assets resulting from Common Stock transactions 126,000 415,791
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (400,927) 3,860,823
Beginning of year 354,114,415 350,253,592
--------------- ---------------
End of year* $ 353,713,488 $ 354,114,415
=============== ===============
* Undistributed investment income--net $ 3,564,973 $ 3,293,291
=============== ===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Statement of Cash Flows
For the Year Ended August 31, 2006
Cash Provided By Operating Activities
Net increase in net assets resulting from operations $ 24,495,865
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Increase in receivables and swap premiums paid (148,238)
Increase in prepaid expenses and other assets (1,720)
Increase in other liabilities 52,297
Realized and unrealized loss--net 1,214,532
Amortization of premium and discount (437,137)
Realized gain on foreign currency transactions--net 21,254
Proceeds from sales and paydowns of long-term securities 280,121,171
Proceeds on other investment related transactions 79,405
Purchases of long-term securities (260,948,701)
Purchases of short-term investments (29,923,801)
---------------
Cash provided by operating activities 14,524,927
---------------
Cash Used for Financing Activities
Cash receipts from borrowings 270,500,000
Cash payments on borrowings (258,900,000)
Dividends paid to shareholders (24,951,636)
Decrease in bank overdraft payable (1,141,207)
---------------
Cash used for financing activities (14,492,843)
---------------
Cash
Net increase in cash 32,084
Cash at beginning of year 34
---------------
Cash at end of year $ 32,118
===============
Cash Flow Information
Cash paid for interest $ 4,857,428
===============
Non-Cash Financing Activities
Capital shares issued in reinvestment of dividends paid to shareholders $ 126,000
===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Financial Highlights
For the For the Period
Year Ended October 31, 2003++
The following per share data and ratios have been derived August 31, to August 31,
from information provided in the financial statements. 2006 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 19.35 $ 19.16 $ 19.10
------------ ------------ ------------
Investment income--net 1.40*** 1.23*** .66
Realized and unrealized gain (loss)--net (.06) .08 .02
------------ ------------ ------------
Total from investment operations 1.34 1.31 .68
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net (1.37) (1.11) (.60)
Realized gain--net -- (.01) --
------------ ------------ ------------
Total dividends and distributions (1.37) (1.12) (.60)
------------ ------------ ------------
Offering costs resulting from the issuance of Common Stock -- -- (.02)
------------ ------------ ------------
Net asset value, end of period $ 19.32 $ 19.35 $ 19.16
============ ============ ============
Market price per share, end of period $ 17.49 $ 17.85 $ 19.44
============ ============ ============
Total Investment Return**
Based on net asset value per share 7.92% 7.27% 3.50%+++
============ ============ ============
Based on market price per share 5.91% (2.47%) .29%+++
============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver and excluding interest expense 1.14% 1.22% .71%*
============ ============ ============
Expenses, net of waiver 2.54% 2.18% .87%*
============ ============ ============
Expenses 2.54% 2.18% 1.08%*
============ ============ ============
Investment income--net 7.30% 6.34% 3.80%*
============ ============ ============
Leverage
Amount of borrowings, end of period (in thousands) $ 135,200 $ 123,600 $ 123,225
============ ============ ============
Average amount of borrowings outstanding during the period (in thousands) $ 101,916 $ 117,702 $ 38,654
============ ============ ============
Average amount of borrowings outstanding per share during the period*** $ 5.57 $ 6.43 $ 2.11
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 353,713 $ 354,114 $ 350,254
============ ============ ============
Portfolio turnover 56.90% 47.96% 43.32%
============ ============ ============
* Annualized.
** Total investment returns based on market price, which can be significantly greater or lesser than
the net asset value, may result in substantially different returns. Total investment returns exclude
the effects of sales charges.
*** Based on average shares outstanding.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Floating Rate Income Strategies Fund, Inc. was renamed
BlackRock Floating Rate Income Strategies Fund, Inc. (the "Fund"). The Fund
is registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Fund determines and makes
available for publication the net asset value of its Common Stock on a daily
basis. The Fund's Common Stock shares are listed on the New York Stock
Exchange ("NYSE") under the symbol FRA.
(a) Corporate debt obligations--The Fund invests principally in floating rate
debt obligations of companies, including floating rate 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 or other financial institutions, the Fund's investment in floating rate
loans could be considered concentrated in financial institutions.
(b) Valuation of investments--Floating rate loans are valued in accordance
with guidelines established by the Fund's Board of Directors. Floating rate
loans are valued at the mean between the last available bid and asked prices
from one or more brokers or dealers as obtained from Loan Pricing Corporation.
As of October 2, 2006, floating rate loan interests will be valued at the mean
between the last available bid prices. For the limited number of floating rate
loans for which no reliable price quotes are available, such floating rate
loans may be valued by Loan Pricing Corporation through the use of pricing
matrixes to determine valuations. If the pricing service does not provide a
value for a floating rate loan, Fund Asset Management, L.P. ("FAM") will value
the floating rate loan at fair value, which is intended to approximate market
value.
Debt securities are traded primarily in the over-the-counter ("OTC") markets
and are valued at the last available bid price in the OTC market or on the
basis of values obtained by a pricing service. Pricing services use valuation
matrixes that incorporate both dealer-supplied valuations and valuation
models. The procedures of the pricing service and its valuations are reviewed
by the officers of the Fund under the general direction of the Board of
Directors. Such valuations and procedures will be reviewed periodically by the
Board of Directors of the Fund.
Securities that are held by the Fund that are traded on stock exchanges or the
Nasdaq National Market are valued at the last sale price or official close
price on the exchange on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available
asked price for short positions. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Fund. Long positions in securities traded in the OTC market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield
equivalent obtained from one or more dealers or pricing services approved by
the Board of Directors of the Fund. Short positions traded in the OTC market
are valued at the last available asked price. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market. When the Fund writes an option,
the amount of the premium received is recorded on the books of the Fund as an
asset and an equivalent liability. The amount of the liability is subsequently
valued to reflect the current market value of the option written, based on the
last sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last asked price. Options purchased by
the Fund are valued at their last sale price in the case of exchange traded
options or, in the case of options traded in the OTC market, the last bid
price. Swap agreements are valued based upon quoted fair valuations received
daily by the Fund from a pricing service or counterparty. Other investments,
including futures contracts and related options, are stated at market value.
Obligations with remaining maturities of 60 days or less are valued at
amortized cost unless FAM believes that this method no longer produces fair
valuations. Valuation of other short-term investment vehicles is generally
based on the net asset value of the underlying investment vehicle or amortized
cost. Repurchase agreements will be valued at cost plus accrued interest.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of
business on the NYSE. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates also are generally determined prior to the close of
business on the NYSE. As of October 2, 2006, foreign currency exchange rates
will be determined at the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on
the NYSE that may not be reflected in the computation of the Fund's net asset
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities may be valued at their
fair value as determined in good faith by the Fund's Board of Directors or by
FAM using a pricing service and/or procedures approved by the Fund's Board of
Directors.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
(c) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial 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.
* Options--The Fund may 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 is less than or exceeds the premiums paid or
received).
Written and purchased options are non-income producing investments.
* Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of
time or may be triggered by a predetermined credit event. The net periodic
payments may be based on a fixed or variable interest rate; the change in
market value of a specified security, basket of securities, or index; or the
return generated by a security. These periodic payments received or made by
the Fund are recorded in the accompanying Statement of Operations as realized
gains or losses, respectively. Gains or losses are also realized upon
termination of swap agreements. Swaps are marked-to-market daily and changes
in value are recorded as unrealized appreciation (depreciation). Risks include
changes in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack of
liquidity with respect to the swap agreements.
(d) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are the
result of settling (realized) or valuing (unrealized) assets or liabilities
expressed in foreign currencies into U.S. dollars. Realized and unrealized
gains or losses from investments include the effects of foreign exchange rates
on investments. The Fund invests in foreign securities, which may involve a
number of risk factors and special considerations not present with investments
in securities of U.S. corporations.
(e) 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.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
(f) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the fund's financial statements, if any, is currently
being assessed.
(g) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund amortizes all premiums and discounts on debt securities.
(h) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. The Fund may at times pay out less than the entire amount
of net investment income earned in any particular period and may at times pay
out such accumulated undistributed income in other periods to permit the Fund
to maintain a more stable level of dividends.
(i) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The market
value of the loaned securities is determined at the close of business of the
Fund and any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Fund typically
receives the income on the loaned securities but does not receive the income
on the collateral. Where the Fund receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and
the borrower, after notice, is required to return borrowed securities within
five business days. The Fund may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience
delays and costs in gaining access to the collateral. The Fund also could
suffer a loss where the value of the collateral falls below the market value
of the borrowed securities, in the event of borrower default or in the event
of losses on investments made with cash collateral.
(j) Reclassification--U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the
current year, $415,923 has been reclassified between undistributed net
investment income and accumulated net realized capital losses as a result of
permanent differences attributable to foreign currency transactions, swap
agreements, amortization methods on fixed income securities, and securities in
default. This reclassification has no effect on net assets or net asset values
per share.
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 .75% of the Fund's average daily net assets plus the
proceeds of any outstanding borrowings used for leverage.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch,
Pierce, Fenner & Smith Incorporated, an affiliate of FAM, or its affiliates.
Pursuant to that order, the Fund also has retained Merrill Lynch Investment
Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities lending
agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private
investment company managed by MLIM, LLC or in registered money market funds
advised by Merrill Lynch Investment Managers, L.P. ("MLIM"), an affiliate of
FAM.
For the year ended August 31, 2006, the Fund reimbursed FAM $7,042 for certain
accounting services.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction will close
on September 29, 2006.
On August 31, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized
into BlackRock Advisors, LLC. The new advisory agreement will become effective
on September 29, 2006 and the investment advisory fee is unchanged. In
addition, the Manager has entered into a sub-advisory agreement with BlackRock
Financial Management, Inc., an affiliate, under which the Manager pays the Sub-
Adviser, for services it provides, a fee equal to 59% of the management fee
paid to the Manager.
In connection with the closing, MLIM, LLC, the security lending agent, will
become BlackRock Investment Management, LLC.
During the year ended August 31, 2006, certain officers and/or directors of
the Fund are officers and/or directors of FAM, PSI, MLIM, ML & Co., and/or
MLIM, LLC.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended August 31, 2006, were $256,998,701 and
$280,481,590, respectively.
4. Common Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock par value
$.10, all of which are initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued
shares of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding for the year ended August 31, 2006 increased by
6,590 from reinvestment of dividends. Shares issued and outstanding for the
year ended August 31, 2005 increased by 21,622 from reinvestment of dividends
and distributions.
5. Unfunded Corporate Loans:
As of August 31, 2006, the Fund had unfunded loan commitments of approximately
$16,094,000 which would be extended at the option of the borrower, pursuant to
the following loan agreements:
(in Thousands)
Unfunded
Borrower Commitment Value
Alon USA, Inc. $ 111 $ 112
American Greetings Corp. $3,000 $3,001
Baker Tanks, Inc. $ 240 $ 240
Calpine Corp. $2,500 $2,475
LSP General Finance Co., LLC $ 2 $ 2
MEG Energy Corp. $1,000 $ 998
Trump Casino Delay Draw $1,496 $1,508
Trump Casino Revolving Credit $3,000 $2,910
Trump Entertainment Resorts
Holdings LP $ 995 $1,003
Venetian Macau U.S. Finance Co. $ 750 $ 749
Vought Aircraft Industries, Inc. $3,000 $2,880
6. Short-Term Borrowings:
On May 22, 2006, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The
agreement was renewed for one year and has a maximum limit of $172,500,000.
Under the Citicorp program, the conduits will fund advances to the Fund
through the issuance of highly rated commercial paper. As security for its
obligations to the Lenders under the revolving securitization facility, the
Fund has granted a security interest in substantially all of its assets to and
in favor of the Lenders. The interest rate on the Fund's borrowings is based
on the interest rate carried by the commercial paper plus a program fee. The
Fund pays additional borrowing costs including a backstop commitment fee.
The weighted average annual interest rate was 4.81% and the average borrowing
was approximately $101,916,000 for the year ended August 31, 2006.
7. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.120834 per share
on September 29, 2006 to shareholders of record on September 15, 2006.
The tax character of distributions paid during the fiscal years ended August
31, 2006 and August 31, 2005 was as follows:
8/31/2006 8/31/2005
Distributions paid from:
Ordinary income $ 25,022,792 $ 20,564,341
--------------- ---------------
Total taxable distributions $ 25,022,792 $ 20,564,341
=============== ===============
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Notes to Financial Statements (concluded)
As of August 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
Undistributed ordinary income--net $ 3,593,916
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 3,593,916
Capital loss carryforward (2,200,348)*
Unrealized gains--net 3,120,203**
---------------
Total accumulated earnings--net $ 4,513,771
===============
* On August 31, 2006, the Fund had a capital loss carryforward of
$2,200,348, all of which expires in 2013. This amount will be available
to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the deferral of post-October capital
losses for tax purposes, the book/tax differences in the accrual
of income on securities in default and other book/tax temporary
differences.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
BlackRock Floating Rate Income Strategies Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of BlackRock Floating Rate Income
Strategies Fund, Inc. (the "Fund") (formerly Floating Rate Income Strategies
Fund, Inc.) as of August 31, 2006, the related statements of operations and
cash flows for the year then ended, and the statements of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the respective periods then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of August 31, 2006, by
correspondence with the custodian and financial intermediaries; where replies
were not received from financial intermediaries, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Floating Rate Income Strategies Fund, Inc. as of August 31, 2006,
the results of its operations and its cash flows for the year then ended, and
the changes in its net assets for each of the two years in the period then
ended and its financial highlights for each of the respective periods then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 23, 2006
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Automatic Dividend Reinvestment Policy
How the Plan Works--The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by Computershare Trust
Company, N.A. (the "Plan Agent"). Under the Plan, whenever the Fund declares a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares. If the Fund's net asset value per share is greater than the market
price per share (a condition often referred to as a "market discount"), the
Plan Agent will invest the dividend amount by purchasing on the open market
additional shares. If the Plan Agent is unable to invest the full dividend
amount in open market purchases, or if the market discount shifts to a market
premium during the purchase period, the Plan Agent will invest any uninvested
portion in newly issued shares. The shares acquired are credited to each
shareholder's account. The amount credited is determined by dividing the
dollar amount of the dividend by either (i) when the shares are newly issued,
the net asset value per share on the date the shares are issued or (ii) when
shares are purchased in the open market, the average purchase price per share.
Participation in the Plan--Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any
time without penalty by writing to the Plan Agent.
Benefits of the Plan--The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares
acquired pursuant to the Plan receive voting rights. In addition, if the
market price plus commissions of the Fund's shares is above the net asset
value, participants in the Plan will receive shares of the Fund for less than
they could otherwise purchase them and with a cash value greater than the
value of any cash distribution they would have received. However, there may
not be enough shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
Plan Fees--There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders
will pay a pro rata share of any such commissions.
Tax Implications--The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that
may be payable (or required to be withheld) on such dividends. Therefore,
income and capital gains may still be realized even though shareholders do not
receive cash. The value of shares acquired pursuant to the Plan will generally
be excluded from gross income to the extent that the cash amount reinvested
would be excluded from gross income. If, when the Fund's shares are trading at
a market premium, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of the discount from the market value (which may not
exceed 5% of the fair market value of the Fund's shares) could be viewed as a
taxable distribution. If the discount is viewed as a taxable distribution, it
is also possible that the taxable character of this discount would be allocable
to all the shareholders, including shareholders who do not participate in the
Plan. Thus, shareholders who do not participate in the Plan might be required
to report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information--All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at Computershare
Trust Company, N.A. P.O. Box 43010, Providence, RI 02940-3010, Telephone:
800-426-5523.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Fund's Board of
Directors considered and approved a new investment advisory agreement (the
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). The Fund's shareholders subsequently
approved the BlackRock Investment Advisory Agreement and it became effective
on September 29, 2006, replacing the investment advisory agreement with the
Previous Investment Adviser (the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including
the independent directors, approved the BlackRock Investment Advisory
Agreement at an in-person meeting held on May 12, 2006.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the BlackRock
Investment Advisory Agreement. The additional information was provided in
advance of the May 12, 2006 meeting. In addition, the independent directors
consulted with their counsel and Fund counsel on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to the directors' deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund. At these
Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser, and of its
affiliates, to be transferred to BlackRock in connection with the Transaction.
The independent directors of the Board also conferred separately and with
their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April
and May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors met in executive sessions with
their counsel to consider the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund and its shareholders by
BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
* that the Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
the Board before making any changes;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund
shareholders.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
The directors considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
would not increase under the BlackRock Investment Advisory Agreement, but
would remain the same;
* that in February 2006, the Board had performed a full annual review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Fund; and
that the advisory and/or management fees paid by the Fund, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the directors had
considered relevant in the exercise of their reasonable judgment; and
* that Merrill Lynch had agreed to pay all expenses of the Fund in
connection with the Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
the Fund would bear no costs in obtaining shareholder approval of the
BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board
assessed the nature, quality and scope of the services to be provided to the
Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting
and assistance in meeting legal and regulatory requirements. In its review of
the BlackRock Investment Advisory Agreement, the Board also considered a range
of information in connection with its oversight of the services to be provided
by BlackRock Advisors and its affiliates. Among the matters considered were:
(a) fees (in addition to management fees) to be paid to BlackRock Advisors and
its affiliates by the Fund; (b) Fund operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meeting to consider renewal of the Previous
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group
of funds as classified by Lipper; (b) information comparing the Fund's market
price with its net asset value per share; (c) a discussion by the Fund's
portfolio management team on investment strategies used by the Fund during its
most recent fiscal year; (d) information on the profitability to the Previous
Investment Adviser of the Previous Investment Advisory Agreement and other
payments received by the Previous Investment Adviser and its affiliates from
the Fund; and (e) information provided by the Previous Investment Adviser
concerning services related to the valuation and pricing of Fund portfolio
holdings, the Fund's portfolio turnover statistics, and direct and indirect
benefits to the Previous Investment Adviser and its affiliates from their
relationship with the Fund.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In their deliberations, the directors considered information received in
connection with their most recent approval of the continuance of the Previous
Investment Advisory Agreement, in addition to information provided by
BlackRock and BlackRock Advisors in connection with their evaluation of the
terms and conditions of the BlackRock Investment Advisory Agreement. The
directors did not identify any particular information that was all-important
or controlling, and each director attributed different weights to the various
factors. The directors, including a majority of the independent directors,
concluded that the terms of the BlackRock Investment Advisory Agreement are
appropriate, that the fees to be paid are reasonable in light of the services
to be provided to the Fund, and that the BlackRock Investment Advisory
Agreement should be approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided--The Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. The Board focused primarily on
the Previous Investment Adviser's investment advisory services and the Fund's
investment performance, but also considered certain areas in which both the
Previous Investment Adviser and the Fund received services as part of the
Merrill Lynch complex. The Board compared the Fund's performance - both
including and excluding the effects of fees and expenses - to the performance
of a comparable group of funds, and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of New
BlackRock and how it would affect the Fund; the ability of BlackRock Advisors
to perform its duties after the Transaction; and any anticipated changes to
the current investment and other practices of the Fund. The directors
considered BlackRock's advice as to proposed changes in portfolio management
personnel of the Fund after the closing of the Transaction.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. The directors
were advised that a revision of existing regulatory relief with respect to
these restrictions was being sought from the Securities and Exchange
Commission and were advised of the possibility of receipt of such revised
regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the BlackRock Investment Advisory Agreement were expected to be as good
as or better than that provided under the Previous Investment Advisory
Agreement. It was noted, however, that changes in personnel were expected to
follow the Transaction and the combination of the operations of the Previous
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if portfolio managers or other personnel were to cease to be
available prior to the closing of the Transaction, the Board would consider
all available options, including seeking the investment advisory or other
services of BlackRock affiliates. Accordingly, the directors concluded that,
overall, they were satisfied at the present time with assurances from
BlackRock and BlackRock Advisors as to the expected nature, quality and extent
of the services to be provided to the Fund under the BlackRock Investment
Advisory Agreement.
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, the directors had received, among other things, a report from
Lipper comparing the Fund's fees and expenses to those of a peer group
selected by Lipper, and information as to the fees charged by the Previous
Investment Adviser or its affiliates to other registered investment company
clients for investment management services. The Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory fees
and the effects of any fee waivers - compared to the other funds in its Lipper
category. They also compared the Fund's total expenses to those of other
comparable funds. The information showed that the Fund had fees and expenses
within the range of fees and expenses of comparable funds. The Board
considered the services to be provided by and the fees to be charged by
BlackRock Advisors to other funds with similar investment mandates and noted
that the fees charged by BlackRock Advisors in those cases, including fee
waivers and expense reimbursements, were generally comparable to those being
charged to the Fund. The Board also noted that, as a general matter, according
to the information provided by BlackRock, fees charged to institutional
clients were lower than the fees charged to the Fund, but BlackRock Advisors
provided less extensive services to such clients. The Board concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the directors considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material
respects, including the rate of compensation, the directors determined that
the Transaction should not increase the total fees payable, including any fee
waivers and expense reimbursements, for advisory and administrative services.
The directors noted that it was not possible to predict how the Transaction
would affect BlackRock Advisors' profitability from its relationship with the
Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund. The directors noted that they expect to receive profitability
information from BlackRock Advisors on at least an annual basis and thus be in
a position to evaluate whether any adjustments in Fund fees and/or fee
breakpoints would be appropriate.
Fees and Economies of Scale--The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory
Agreement is substantially similar to the Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, the
directors determined that as a result of the Transaction, the Fund's total
advisory fees would be no higher than the fees under the Previous Investment
Advisory Agreement. The directors noted that in conjunction with their most
recent deliberations concerning the Previous Investment Advisory Agreement,
they had determined that the total fees for advisory and administrative
services for the Fund were reasonable in light of the services provided. It
was noted that in conjunction with the recent review of the Previous
Investment Advisory Agreement, the directors had received, among other things,
a report from Lipper comparing the Fund's fees, expenses and performance to
those of a peer group selected by Lipper, and information as to the fees
charged by the Previous Investment Adviser or its affiliates to other
registered investment company clients for investment management services. The
directors concluded that because the rates for advisory fees for the Fund
would be no higher than the fee rates in effect at the time, the proposed
management fee structure, including any fee waivers, was reasonable and that
no additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered whether BlackRock Advisors would experience such benefits
to the same extent that the Previous Investment Adviser was experiencing such
benefits under the Previous Investment Advisory Agreement. Based on their
review of the materials provided, including materials received in connection
with their most recent approval of the continuance of the Previous Investment
Advisory Agreement, and their discussions with management of the Previous
Investment Adviser and BlackRock, the directors determined that BlackRock
Advisors' fall-out benefits could include increased ability for BlackRock to
distribute shares of its funds and other investment products. The directors
noted that any fall-out benefits were difficult to quantify with certainty at
this time, and indicated that they would continue to evaluate them going
forward.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Investment Performance--The directors considered investment performance for
the Fund. The directors compared the Fund's performance - both including and
excluding the effects of fees and expenses - to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper
showed Fund performance at various levels within the range of performance of
comparable funds over different time periods. While the Board reviews
performance data at least quarterly, consistent with the Previous Investment
Adviser's investment goals, the Board attaches more importance over relatively
long periods of time, typically three to five years. The directors believed
the Fund's performance was satisfactory. Also, the directors took into account
the investment performance of funds advised by BlackRock Advisors. The Board
considered comparative information from Lipper which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. The Board also
noted that, following the close of the Transaction, BlackRock Advisors
intended to implement steps to seek to improve the investment performance of
the Fund, including changes in the portfolio management personnel. The Board
noted BlackRock's considerable investment management experience and
capabilities, but was unable to predict what effect, if any, consummation of
the Transaction would have on the future performance of the Fund.
Conclusion--After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the BlackRock Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement in
advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Board
At an in-person meeting held on August 14 - 16, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Financial Management, Inc. (the "Sub-Adviser").
The BlackRock Sub-Advisory Agreement became effective on September 29, 2006,
at the same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received
by BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Fund expenses as a
result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of BlackRock Investment Advisory Agreement in May 2006. The Board relied on
the same information and considered the same factors as those discussed above
in connection with the approval of the BlackRock Investment Advisory
Agreement, and came to the same conclusions. In reviewing the sub-advisory fee
rate provided in the BlackRock Sub-Advisory Agreement, the Board noted the
fact that both BlackRock Advisors and the Sub-Adviser have significant
responsibilities under their respective advisory agreements. BlackRock
Advisors remains responsible for oversight of the Fund's operations and
administration, and the Sub-Adviser provides advisory services to the Fund and
is responsible for the day-to-day management of the Fund's portfolio under the
BlackRock Sub-Advisory Agreement. The Board also took into account the fact
that there is no increase in total advisory fees paid by the Fund as a result
of the BlackRock Sub-Advisory Agreement. Under all of the circumstances, the
Board concluded that it was a reasonable allocation of fees for the Sub-
Adviser to receive 59% of the advisory fee paid by the Fund to BlackRock
Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-
Advisory Agreement, concluding that the sub-advisory fee was reasonable in
relation to the services provided and that the Sub-Advisory Agreement was in
the best interests of shareholders.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Fund Certification
In September 2006, the Fund filed its Chief Executive Officer Certification
for the prior year with the New York Stock Exchange pursuant to Section 303A.
12(a) of the New York Stock Exchange Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Important Tax Information
The following information is provided with respect to the ordinary income
distributions paid monthly by BlackRock Floating Rate Income Strategies Fund,
Inc. for the fiscal year ended August 31, 2006:
Interest-Related Dividends for Non-U.S. Residents
Month Paid: October 2005 30.70%*
November 2005 - January 2006 89.12%*
February 2006 - August 2006 84.91%*
* Represents the portion of the taxable ordinary income dividends
eligible for exemption from U.S. withholding tax for nonresident
aliens and foreign corporations.
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to Vice Chairman and Director of BlackRock, and 129 Funds None
P.O. Box 9011 and present Global Chief Investment Officer for Equities, 174 Portfolios
Princeton, Director Chairman of the BlackRock Private Client
NJ 08543-9011 Operating Committee, and member of the
Age: 52 BlackRock Executive Committee since 2006;
President of the Funds advised by Merrill Lynch
Investment Managers ("MLIM") and its affiliates
("MLIM/FAM-advised funds") from 2005 to
2006 and Chief Investment Officer thereof from
2001 to 2006; President of MLIM and Fund Asset
Management, L.P. ("FAM") from 2001 to 2006;
Co-Head (Americas Region) thereof from 2000
to 2001 and Senior Vice President from 1999 to
2001; President and Director of Princeton Services,
Inc. ("Princeton Services") since 2001; President
of Princeton Administrators, L.P. ("Princeton
Administrators") from 2001 to 2006; Chief
Investment Officer of OppenheimerFunds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain other
investment companies for which BlackRock acts as investment adviser. Mr. Doll is
an "interested person," as defined in the Investment Company Act, of the Fund
based on his current and former positions with BlackRock, Inc. and its affiliates.
Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72. As Fund President, Mr. Doll serves at the
pleasure of the Board of Directors.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
Ronald W. Forbes** Director 2003 to Professor Emeritus of Finance, School of 49 Funds None
P.O. Box 9095 present Business, State University of New York at 51 Portfolios
Princeton, Albany since 2000 and Professor thereof from
NJ 08543-9095 1989 to 2000; International Consultant, Urban
Age: 65 Institute, Washington, D.C. from 1995 to 1999.
Cynthia A. Montgomery Director 2003 to Professor, Harvard Business School since 1989; 49 Funds Newell
P.O. Box 9095 present Associate Professor, J.L. Kellogg Graduate 51 Portfolios Rubbermaid, Inc.
Princeton, School of Management, Northwestern University (manufacturing)
NJ 08543-9095 from 1985 to 1989; Associate Professor, Graduate
Age: 54 School of Business Administration, University of
Michigan from 1979 to 1985; Director, Harvard
Business School Publishing since 2005; Director,
McLean Hospital since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; Counsel 49 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 51 Portfolios
Princeton, adviser) in 2000; General Counsel, Director and
NJ 08543-9095 Secretary of Sanford C. Bernstein & Co., Inc.
Age: 61 (investment adviser/broker-dealer) from 1997 to
2000; Secretary, Sanford C. Bernstein Fund, Inc.
from 1994 to 2000; Director and Secretary of SCB,
Inc. since 1998; Director and Secretary of SCB
Partners, Inc. since 2000; and Director of Covenant
House from 2001 to 2004.
Roscoe S. Suddarth Director 2003 to President, Middle East Institute, from 1995 49 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United States 51 Portfolios
Princeton, Foreign Service, from 1961 to 1995 and Career
NJ 08543-9095 Minister from 1989 to 1995; Deputy Inspector
Age: 71 General, U.S. Department of State, from 1991
to 1994; U.S. Ambassador to the Hashemite
Kingdom of Jordan from 1987 to 1990.
Richard R. West Director 2003 to Professor of Finance from 1984 to 1995, Dean 49 Funds Bowne & Co.,
P.O. Box 9095 present from 1984 to 1993 and since 1995 Dean 51 Portfolios Inc. (financial
Princeton, Emeritus of New York University's Leonard N. printers);
NJ 08543-9095 Stern School of Business Administration. Vornado Realty
Age: 68 Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Director 2003 to Self-employed financial consultant since 1994; 49 Funds None
P.O. Box 9095 present Executive Vice President of the Prudential 51 Portfolios
Princeton, Insurance Company of America from 1988 to
NJ 08543-9095 1994; Former Director of Prudential Reinsurance
Age: 71 Company and former Trustee of the Prudential
Foundation.
* Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Board of Directors and the Audit Committee.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 2003 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM
P.O. Box 9011 President present from 2005 to 2006 and Treasurer thereof from 1999 to 2006; First Vice President
Princeton, and of MLIM and FAM from 1997 to 2005; Senior Vice President and Treasurer of Princeton
NJ 08543-9011 Treasurer Services from 1999 to 2006 and Director from 2004 to 2006; Vice President of FAM
Age: 46 Distributors, Inc. ("FAMD") from 1999 to 2006 and Director from 2004 to 2006; Vice
President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds from 2004
to 2006.
Jaimin J. Patel Vice 2003 to Director of BlackRock since 2006; Director (Global Fixed Income) of MLIM from
P.O. Box 9011 President present 2005 to 2006; Vice President of MLIM from 2000 to 2005; Vice President at Chase
Princeton, Securities, Inc. from 1993 to 2000.
NJ 08543-9011
Age: 47
Jeffrey Hiller Fund 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006;
P.O. Box 9011 Chief present Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Princeton, Compliance and Chief Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief
NJ 08543-9011 Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance
Age: 55 at Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000; Senior Counsel in the Securities and
Exchange Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002 to
P.O. Box 9011 present 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM from
Princeton, 1997 to 2006; Secretary of MLIM, FAM, FAMD and Princeton Services from 2004
NJ 08543-9011 to 2006.
Age: 46
* Officers of the Fund serve at the pleasure of the Board of Directors.
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
NYSE Symbol
FRA
Announcement of Annual Stockholders Meeting
The Fund has determined that its annual stockholders meeting originally
scheduled to be held in January 2007 will be postponed until and will be held
in June 2007. Proposals of stockholders intended to be presented at the
meeting must be received by the Fund by January 15, 2007 for inclusion in the
Fund's proxy statement and form of proxy for that meeting. The by-laws of the
Fund generally require that advance notice be given to the Fund in the event a
stockholder desires to transact any business from the floor at an annual
meeting of stockholders. Notice of any such business must be in writing and
received at the Fund's principal executive office by May 1, 2007. Written
proposals and notices should be sent to the Secretary of the Fund, 800
Scudders Mill Road, Plainsboro, New Jersey 08536.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2006
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee
and (ii) each audit committee financial expert is independent: (1)
Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending August 31, 2006 - $39,900
Fiscal Year Ending August 31, 2005 - $38,000
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2006 - $8,000
Fiscal Year Ending August 31, 2005 - $0
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending August 31, 2006 - $6,000
Fiscal Year Ending August 31, 2005 - $7,900
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2006 - $3,098,500
Fiscal Year Ending August 31, 2005 - $7,377,027
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,739,500, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing
audit committee established in accordance with Section 3(a)(58)(A)
of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating
to the Fund's portfolio securities. The Investment Adviser has
adopted policies and procedures ("Proxy Voting Procedures") with
respect to the voting of proxies related to the portfolio
securities held in the account of one or more of its clients,
including a Fund. Pursuant to these Proxy Voting Procedures, the
Investment Adviser's primary objective when voting proxies is to
make proxy voting decisions solely in the best interests of each
Fund and its shareholders, and to act in a manner that the
Investment Adviser believes is most likely to enhance the economic
value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that the Investment Adviser
considers the interests of its clients, including the Funds, and
not the interests of the Investment Adviser, when voting proxies
and that real (or perceived) material conflicts that may arise
between the Investment Adviser's interest and those of the
Investment Adviser's clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel
the CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and
requires a case-by-case determination. In such cases, the
Committee may elect not to adopt a specific voting policy
applicable to that issue. The Investment Adviser believes that
certain proxy voting issues require investment analysis - such as
approval of mergers and other significant corporate transactions -
akin to investment decisions, and are, therefore, not suitable for
general guidelines. The Committee may elect to adopt a common
position for the Investment Adviser on certain proxy votes that are
akin to investment decisions, or determine to permit the portfolio
manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected
that the Investment Adviser will generally seek to vote proxies
over which the Investment Adviser exercises voting authority in a
uniform manner for all the Investment Adviser's clients, the
Committee, in conjunction with a Fund's portfolio manager, may
determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on
a best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the
Investment Adviser's adherence to those procedures are designed to address
such conflicts of interest. The Committee intends to strictly adhere to the
Proxy Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-routine
matter that is material to an Affiliate or a widely known Client is involved
such that the Committee does not reasonably believe it is able to follow its
guidelines (or if the particular proxy matter is not addressed by the
guidelines) and vote impartially, the Committee may, in its discretion for the
purposes of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to cast votes
on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting
guidelines or, on matters where the Investment Adviser's policy is
case-by-case, does not follow the voting recommendation of any
proxy voting service or other independent fiduciary that may be
retained to provide research or advice to the Investment Adviser on
that matter, no proxies relating to the Client may be voted unless
the Secretary, or in the Secretary's absence, the Assistant
Secretary of the Committee concurs that the subcommittee's
determination is consistent with the Investment Adviser's fiduciary
duties
In addition to the general principles outlined above, the
Investment Adviser has adopted voting guidelines with respect to
certain recurring proxy issues that are not expected to involve
unusual circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon
the vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
* Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
* Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's compensation
and benefit policies and opposes excessive compensation, but believes that
compensation matters are normally best determined by an issuer's board of
directors, rather than shareholders. Proposals to "micro-manage" an
issuer's compensation practices or to set arbitrary restrictions on
compensation or benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for approval of
amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
* Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders) is
best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner that relates
to the shareholder's environmental or social concerns. The Committee
generally believes that annual shareholder meetings are inappropriate
forums for discussion of larger social issues, and opposes shareholder
resolutions "micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an investment in the
corporation as an economic matter. While the Committee is generally
supportive of proposals to require corporate disclosure of matters that
seem relevant and material to the economic interests of shareholders, the
Committee is generally not supportive of proposals to require disclosure of
corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of October 2, 2006.
(a)(1) The Fund is managed by a team of investment professionals
that is responsible for the day-to-day management of the Fund's
portfolio. The lead members of this team are Mark J. Williams,
Managing Director at BlackRock, and Kevin J. Booth, Managing
Director at BlackRock. Mr. Williams and Mr. Booth each has been a
portfolio manager of the Fund since 2006. Mr. Williams is
responsible for setting the Fund's overall investment strategy and
overseeing the management of the Fund. Mr. Booth is responsible
for the day-to-day management of the Fund's portfolio and the
selection of its investments.
Mr. Williams is the head of BlackRock's bank loan group and a
member of the Investment Strategy Group. His primary responsibility
is originating and evaluating bank loan investments for the firm's
collateralized bond obligations. He is also involved in the
evaluation and sourcing of mezzanine investments. Prior to joining
BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged
Finance Group. In that capacity he was responsible for structuring
proprietary middle market leveraged deals and sourcing and
evaluating broadly syndicated leveraged loans in the primary and
secondary markets for PNC Bank's investment portfolio. From 1984
until 1990, Mr. Williams worked in PNC Bank's Philadelphia office
in a variety of marketing and corporate finance positions.
Mr. Booth is a member of BlackRock's bank loan group. He joined
BlackRock in 2006. Prior to joining BlackRock, Mr. Booth was a
Managing Director (Global Fixed Income) of Merrill Lynch Investment
Managers, L.P. ("MLIM") since 2006 and a member of MLIM's bank loan
group from 2000 to 2006. He was a Director of MLIM from 2000 to
2006 and was a Vice President of MLIM from 1994 to 2000. He has
been portfolio manager with BlackRock or MLIM since 2000.
(a)(2)As of October 2, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Kevin J. Booth 7 5 1 0 2 0
$ 3,050,805,567 $ 2,357,557,822 $ 25,390,431 $ 0 $ 587,029,626 $ 0
Mark Williams 9 17 7 0 10 4
$ 4,194,527,595 $ 6,368,469,951 $1,222,718,181 $ 0 $ 2,908,136,350 $ 1,030,000,000
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed
to protect against potential incentives that may favor one account
over another. BlackRock has adopted policies and procedures that
address the allocation of investment opportunities, execution of
portfolio transactions, personal trading by employees and other
potential conflicts of interest that are designed to ensure that
all client accounts are treated equitably over time. Nevertheless,
BlackRock furnishes investment management and advisory services to
numerous clients in addition to the Fund, and BlackRock may,
consistent with applicable law, make investment recommendations to
other clients or accounts (including accounts which are hedge funds
or have performance or higher fees paid to BlackRock, or in which
portfolio managers have a personal interest in the receipt of such
fees), which may be the same as or different from those made to the
Fund. In addition, BlackRock, its affiliates and any officer,
director, stockholder or employee may or may not have an interest
in the securities whose purchase and sale BlackRock recommends to
the Fund. BlackRock, or any of its affiliates, or any officer,
director, stockholder, employee or any member of their families may
take different actions than those recommended to the Fund by
BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning
securities of companies of which any of BlackRock's (or its
affiliates') officers, directors or employees are directors or
officers, or companies as to which BlackRock or any of its
affiliates or the officers, directors and employees of any of them
has any substantial economic interest or possesses material non-
public information. Each portfolio manager also may manage accounts
whose investment strategies may at times be opposed to the strategy
utilized for the Fund. In this connection, it should be noted that
certain portfolio managers currently manage certain accounts that
are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled
to receive a portion of any incentive fees earned on such funds and
a portion of such incentive fees may be voluntarily or
involuntarily deferred. Additional portfolio managers may in the
future manage other such accounts or funds and may be entitled to
receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock
attempts to allocate investments in a fair and equitable manner
among client accounts, with no account receiving preferential
treatment. To this end, BlackRock has adopted a policy that is
intended to ensure that investment opportunities are allocated
fairly and equitably among client accounts over time. This policy
also seeks to achieve reasonable efficiency in client transactions
and provide BlackRock with sufficient flexibility to allocate
investments in a manner that is consistent with the particular
investment discipline and client base.
(a)(3) As of October 2, 2006:
BlackRock has adopted the compensation program utilized by MLIM for the
remainder of 2006 with respect to Mr. Booth.
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of BlackRock and its
affiliates, including the Investment Adviser, is critical to BlackRock's
ability to attract and retain the most talented asset management
professionals. This program ensures that compensation is aligned with
maximizing investment returns and it provides a competitive pay opportunity
for competitive performance.
Compensation Program
The elements of total compensation for certain BlackRock and its
affiliates portfolio managers are a fixed base salary, annual performance-
based cash and stock compensation (cash and stock bonus) and other benefits.
BlackRock has balanced these components of pay to provide portfolio managers
with a powerful incentive to achieve consistently superior investment
performance. By design, portfolio manager compensation levels fluctuate--both
up and down--with the relative investment performance of the portfolios that
they manage.
Base Salary
Under the BlackRock approach, like that of many asset management firms,
base salaries represent a relatively small portion of a portfolio manager's
total compensation. This approach serves to enhance the motivational value of
the performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing
their compensation within a consistent and disciplined framework that
emphasizes pay for performance in the context of an intensely competitive
market for talent. To that end, certain BlackRock and its affiliates portfolio
manager incentive compensation is based on a formulaic compensation program.
BlackRock's formulaic portfolio manager compensation program includes:
investment performance relative to the CSFB Leveraged Loan Index over 1-, 3-
and 5-year performance periods and a measure of operational efficiency.
Portfolio managers are compensated based on the pre-tax performance of the
products they manage. If a portfolio manager's tenure is less than 5 years,
performance periods will reflect time in position. Portfolio managers are
compensated based on products they manage. A discretionary element of
portfolio manager compensation may include consideration of: financial
results, expense control, profit margins, strategic planning and
implementation, quality of client service, market share, corporate reputation,
capital allocation, compliance and risk control, leadership, workforce
diversity, supervision, technology and innovation. All factors are considered
collectively by BlackRock management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in
a combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of BlackRock stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager for a
given year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future BlackRock stock price performance. As such, the stock
bonus aligns each portfolio manager's financial interests with those of the
BlackRock shareholders and encourages a balance between short-term goals and
long-term strategic objectives. Management strongly believes that providing a
significant portion of competitive performance-based compensation in stock is
in the best interests of investors and shareholders. This approach ensures
that portfolio managers participate as shareholders in both the "downside
risk" and "upside opportunity" of the company's performance. Portfolio
managers therefore have a direct incentive to protect BlackRock's reputation
for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in the
form of deferred cash that may be benchmarked to a menu of certain BlackRock
mutual funds (including their own fund) during a five-year vesting period. The
deferred cash program aligns the interests of participating portfolio managers
with the investment results of BlackRock products and promotes continuity of
successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based
plans offered generally to employees of BlackRock and its affiliates,
including broad-based retirement, 401(k), health, and other employee benefit
plans.
With respect to Mr. Williams, the following compensation structure applies:
BlackRock Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as
its Long-Term Retention and Incentive Plan and Restricted Stock
Program.
Base compensation. Generally, portfolio managers receive base
compensation based on their seniority and/or their position with
the firm.
Discretionary compensation. In addition to base compensation,
portfolio managers may receive discretionary compensation, which
can be a substantial portion of total compensation. Discretionary
compensation can include a discretionary cash bonus as well as one
or more of the following:
Long-Term Retention and Incentive Plan ("LTIP")--The LTIP is a long-
term incentive plan that seeks to reward certain key employees. The
plan provides for the grant of awards that are expressed as an
amount of cash that, if properly vested and subject to the
attainment of certain performance goals, will be settled in cash
and/or in BlackRock, Inc. common stock.
Deferred Compensation Program--A portion of the compensation paid
to each portfolio manager may be voluntarily deferred by the
portfolio manager into an account that tracks the performance of
certain of the firm's investment products. Each portfolio manager
is permitted to allocate his deferred amounts among various
options, including to certain of the firm's hedge funds and other
unregistered products. In addition, prior to 2005, a portion of the
annual compensation of certain senior managers was mandatorily
deferred in a similar manner for a number of years. Beginning in
2005, a portion of the annual compensation of certain senior
managers is paid in the form of BlackRock, Inc. restricted stock
units which vest ratably over a number of years.
Options and Restricted Stock Awards--While incentive stock options
are not currently being awarded to BlackRock employees, BlackRock,
Inc. previously granted stock options to key employees, including
certain portfolio managers who may still hold unexercised or
unvested options. BlackRock, Inc. also has a restricted stock award
program designed to reward certain key employees as an incentive to
contribute to the long-term success of BlackRock. These awards vest
over a period of years.
Incentive Savings Plans--The PNC Financial Services Group, Inc. has
created a variety of incentive savings plans in which BlackRock
employees are eligible to participate, including an Employee Stock
Purchase Plan ("ESPP") and a 401(k) plan. The 401(k) plan may
involve a company match of the employee's contribution of up to 6%
of the employee's salary. The company match is made using
BlackRock, Inc. common stock. The firm's 401(k) plan offers a range
of investment options, including registered investment companies
managed by the firm. Each portfolio manager is eligible to
participate in these plans.
Annual incentive compensation for each portfolio manager is a
function of several components: the performance of BlackRock, Inc.,
the performance of the portfolio manager's group within BlackRock,
the investment performance, including risk-adjusted returns, of the
firm's assets under management or supervision by that portfolio
manager relative to predetermined benchmarks, and the individual's
teamwork and contribution to the overall performance of these
portfolios and BlackRock. Unlike many other firms, portfolio
managers at BlackRock compete against benchmarks rather than each
other. In most cases, including for the portfolio managers of the
Fund, these benchmarks are the same as the benchmark or benchmarks
against which the performance of the Fund or other accounts are
measured. A group of BlackRock, Inc.'s officers determines the
benchmarks against which to compare the performance of funds and
other accounts managed by each portfolio manager. With respect to
Mr. Williams, such benchmarks will include the CSFB Leveraged Loan
Index.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. Senior
portfolio managers who perform additional management functions
within BlackRock may receive additional compensation for serving in
these other capacities.
(a)(4) Beneficial Ownership of Securities. As of October 2, 2006,
Mr. Booth nor Mr. Williams beneficially owns any stock
issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send
nominations which include biographical information and sets forth
the qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these
procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's 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.
11(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 second fiscal half-
year 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Floating Rate Income Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Floating Rate Income Strategies Fund, Inc.
Date: October 19, 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 of
BlackRock Floating Rate Income Strategies Fund, Inc.
Date: October 19, 2006
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Floating Rate Income Strategies Fund, Inc.
Date: October 19, 2006