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: 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, 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: 08/31/05
Date of reporting period: 09/01/04 - 08/31/05
Item 1 - Report to Stockholders
Floating Rate
Income Strategies
Fund, Inc.
Annual Report
August 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
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 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-MER-FUND (1-800-637-3863);
(2) at www.mutualfunds.ml.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.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Floating Rate Income Strategies Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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Floating Rate Income Strategies Fund, Inc.
The Benefits and Risks of Leveraging
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.
Proxy Results
During the six-month period ended August 31, 2005, Floating Rate Income
Strategies Fund, Inc.'s shareholders voted on the following proposal. The
proposal was approved at a shareholders' meeting on August 23, 2005. A
description of the proposal and number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Robert C. Doll, Jr. 16,658,095 916,592
Ronald W. Forbes 16,655,544 919,143
Cynthia A. Montgomery 16,653,438 921,249
Jean Margo Reid 16,656,303 918,384
Roscoe S. Suddarth 16,649,025 925,662
Richard R. West 16,653,307 921,380
Edward D. Zinbarg 16,647,086 927,601
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major market benchmarks managed to post positive results for the current
reporting period:
Total Returns as of August 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +2.33% +12.56%
Small-cap U.S. equities (Russell 2000 Index) +5.75% +23.10%
International equities (MSCI Europe Australasia Far East Index) +1.98% +23.58%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.85% + 4.15%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.85% + 5.31%
High yield bonds (Credit Suisse First Boston High Yield Index) +1.35% + 8.98%
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced
its interest rate-hiking program, bringing the federal funds rate to 3.5% by
August 31 (and to 3.75% on September 20). Economists and investors have
struggled to project the Fed's future moves, vacillating from expectations for
an impending end to monetary tightening to fears that the central bank may
increase interest rates more than is necessary to moderate economic growth and
keep inflation in check. Most recently, the devastation of Hurricane Katrina
added a new element of ambiguity in terms of its impact on the economy and Fed
sentiment. Many now believe the Fed will suspend its interest rate-hiking
campaign at some point this year.
Equity market returns over the past several months have reflected a degree of
investor uncertainty. After a strong finish to 2004, the S&P 500 Index posted
gains in four of the first eight months of 2005. Up to this point, strong
corporate earnings reports and low long-term bond yields have worked in favor
of equities. Factors that pose the greatest risks to stocks include record-
high oil prices, continued interest rate hikes and the possibility for
disappointing earnings for the remainder of the year.
Fixed income markets have fared relatively well in the face of monetary
tightening. As the short end of the yield curve moved in concert with Fed
interest rate hikes, long-term bond yields remained low, perpetuating the
yield curve flattening trend. Because bond prices move in the opposite
direction of yields, the result has been that longer-term bonds have
outperformed short-term bonds. At period end, the spread between two-year and
10-year Treasury yields was just 18 basis points (.18%).
Financial markets are likely to face continued crosscurrents for the remainder
of 2005, particularly as the economy digests the impact of Hurricane Katrina.
Nevertheless, opportunities do exist and we encourage you to work with your
financial advisor to diversify your portfolio among a variety of asset types.
This can help to diffuse risk while also tapping into the potential benefits
of a broader range of investment alternatives. As always, we thank you for
trusting Merrill Lynch Investment Managers with your investment assets.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund's outperformance of its benchmark for the fiscal year resulted from
good security selection in the energy - other, telecommunication services and
U.S. cable sectors.
Describe market conditions during the fiscal year.
The past year has been characterized by heavy investor participation in the
leveraged loan market, primarily through collateralized loan obligations,
which are debt securities backed by pools of commercial bank loans, and
through new closed-end funds and net subscriptions to open-end mutual funds.
There was a notable increase in the issuance of leveraged loan securities in
response to the stepped-up demand from investors. Therefore, the excess cash
in the loan market has led to increased refinancing activity, reduced interest
rate spreads between leveraged loan issues and U.S. Treasury securities with
comparable maturities, and higher bids in the secondary market. Although these
factors had a somewhat negative effect on the market, a low default rate and a
rise in the London InterBank Offered Rate (LIBOR) enhanced the performance of
leveraged loans during the year.
The yield spreads for new issues versus the three-month LIBOR continued to
tighten during the period, reflecting strong investor demand for leveraged
loan products. According to Standard & Poor's Leveraged Commentary & Data
(LCD), the average spread for new-issue institutional tranches rated BB/BB-
(that is, several related securities of the same issuer that are offered
simultaneously but have different risks, rewards and/or maturities) was 178
basis points (1.78%) at August 31, 2005, compared to 213 basis points in
August 2004. The average new-issue spread for institutional tranches rated
B+/B ended the fiscal year at 250 basis points, 41 basis points lower than its
level at the end of August 2004.
The three-month LIBOR rose from 1.80% to 3.87% during the year. Despite this
significant increase, we believe the Federal Reserve Board is getting close to
ending its bias toward a more restrictive monetary policy and, consequently,
we do not expect the LIBOR to rise much further.
The default rate for the leveraged loan market remained at historically low
levels throughout the year (including the market downturn in May) as
fundamental credit quality generally remained strong across the market. The
Standard & Poor's LCD lagging 12-month default rate, by principal amount, was
1.43% as of August 31, 2005, up from 0.88% one year earlier.
In March and April, high yield bonds, in which the Fund may invest up to 20%
of its assets, experienced price declines as investors anticipated that the
major rating agencies would downgrade General Motors Corporation's debt to
below investment grade. As credit quality concerns began to stabilize in May,
the high yield market rebounded and continued to post gains through the
summer.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended August 31, 2005, the Common Stock of Floating
Rate Income Strategies Fund, Inc. had net annualized yields of 5.92% and
6.42%, based on a year-end per share net asset value of $19.35 and a per share
market price of $17.85, respectively, and $1.145 per share income dividends.
Over the same period, the total investment return on the Fund's Common Stock
was +7.27%, based on a change in per share net asset value from $19.16 to
$19.35, and assuming reinvestment of all distributions. By comparison, the
Fund's unmanaged benchmark, a composite comprised 80% of the Credit Suisse
First Boston (CSFB) Leveraged Loan Index and 20% of the CSFB High Yield Index,
posted a total return of +6.57% for the 12 months ended August 31, 2005.
For the six-month period ended August 31, 2005, the total investment return on
the Fund's Common Stock was +1.71%, based on a change in per share net asset
value from $19.65 to $19.35, and assuming reinvestment of all distributions.
For the same period, the Fund's benchmark posted a total return of +2.56%.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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?
Our holdings in the energy - other, telecommunication services and U.S. cable
sectors performed well during the period, while our positions in airlines,
paper, and food and tobacco had a negative effect on the Fund's relative
return.
The Fund's strong performance in the energy - other sector resulted primarily
from our position in Trico Marine Services, Inc., a company that provides boat
services to the energy industry, mainly in the Gulf of Mexico and North Sea.
Trico declared bankruptcy in late 2004 after suffering through declining sales
due to lower levels of drilling in its markets. However, surges in the price
of oil significantly improved the company's sales and the loan security
rallied considerably upon the company's emergence from bankruptcy.
The Fund's positive return in the telecommunication services sector is
attributable to our holdings in Cincinnati Bell, Inc., Qwest Corp. and Time
Warner Telecom Holdings, Inc. All three companies enjoyed improving operating
results. In addition, Cincinnati Bell and Qwest also benefited from the
deleveraging of their balance sheets, while Time Warner's debt security rose
on investor expectations that the company would call the bond.
In the U.S. cable sector, the Fund's positions in Rainbow National Services
LLC, Charter Communications Operating LLC and Century Cable Holdings LLC
benefited the 12-month results. The bonds of Rainbow National, a division of
Cablevision, rallied amid the company's plan to spin off its satellite
business. The price of Charter Communications' bank loan rose as the company
completed a refinancing to improve its liquidity. Finally, the loan security
of Century Cable Holdings, an Adelphia company, appreciated as the company
sold its assets at auction.
Conversely, the Fund's underperformance in the airline sector resulted
primarily from the financial stress at Delta Air Lines, Inc. We liquidated our
position in an unsecured Delta bond at a loss prior to the company's
declaration of bankruptcy. Within the paper sector, our holding in Western
Forest Products, Inc. detracted from the Fund's return as lumber and pulp
prices sagged while the Canadian dollar strengthened. Finally, in the food and
tobacco sector, we sold our position in a security of Atkins Nutritionals,
Inc. given the company's declining sales and earnings.
How would you characterize the Fund's position at the close of the period?
At period-end, the portfolio was composed of 184 issuers spread among 31
industries. The Fund was underweight versus its composite benchmark in
securities rated Ba or better and in unrated issues, and had overweight
positions in B-rated securities and credits rated Caa or below.
Joseph P. Matteo
Vice President and Portfolio Manager
September 20, 2005
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Portfolio Information
As of August 31, 2005
Percent of
Ten Largest Holdings Net Assets
Charter Communications Operating LLC
Tranche B Term Loan, 6.83 - 6.93%
due 4/07/2011 6.0%
Century Cable Holdings LLC, Discretionary
Term Loan, 8.5% due 12/31/2009 3.4
MGM Holdings II, Inc. Term Loan B, 5.74%
due 4/08/2012 2.9
PanAmSat Corp. Tranche B-1 Term Loan, 5.65%
due 8/20/2011 2.0
Nalco Co. Tranche B Term Loan, 5.45 - 5.87%
due 11/04/2010 1.9
Berry Plastics Corp. Term Loan, 5.60 - 5.766%
due 12/02/2011 1.7
SatBirds Capital Participations Second Lien
Term Loan, 6.397% due 10/04/2013 1.7
Cincinnatti Bell, Inc., 8.375% due 1/15/2014 1.7
Paxson Communications Corp., 6.349%
due 1/15/2010 1.6
Huntsman International LLC Term Loan B,
5.323% due 8/18/2012 1.6
Percent of
Five Largest Industries Net Assets
Cable--U.S. 19.2%
Utility 15.3
Chemicals 10.4
Gaming 6.8
Manufacturing 6.7
For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifiations 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 1.1%
BB/Ba 35.8
B/B 51.3
CCC/Caa 4.2
CC/Ca 0.1
NR (Not Rated) 6.7
Other* 0.8
* Includes portfolio holdings in common stocks.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Schedule of Investments (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
Aerospace & Defense--2.2%
USD 1,951,854 K&F Industries, Inc. Term Loan, 6.15 - 6.17%
due 11/18/2012 $ 1,986,499
2,101,911 MRO Acquisitions Corp. First Lien Term
Loan, 6.57% due 8/27/2010 2,138,694
Vought Aircraft Industries, Inc.:
2,926,165 Term Loan, 6.17% due 12/22/2011 2,972,983
560,000 Tranche B Line of Credit Deposit, 5.84%
due 12/22/2010 569,916
---------------
7,668,092
Automotive--2.5%
2,985,000 Affinia Group Inc. Term Loan B, 6.40%
due 11/30/2011 3,000,859
1,660,870 Keystone Automotive Operations, Inc. Term
Loan, 5.627 - 6.026% due 10/30/2009 1,675,402
Tenneco Automotive, Inc.:
2,896,483 Term Loan B, 6.08% due 12/12/2010 2,947,172
1,272,374 Tranche B-1 Credit Linked Deposit, 5.76%
due 12/12/2010 1,294,640
---------------
8,918,073
Broadcasting--1.4%
2,977,500 Emmis Operating Co. Term Loan B, 5.321%
due 11/10/2011 3,004,297
2,000,000 Gray Television, Inc. Term Loan B, 5.01%
due 12/31/2012 2,015,000
---------------
5,019,297
Cable--U.S.--17.5%
12,000,000 Century Cable Holdings LLC, Discretionary
Term Loan, 8.50% due 12/31/2009 11,926,500
21,011,378 Charter Communications Operating LLC
Tranche B Term Loan, 6.83 - 6.93%
due 4/07/2011 21,106,118
2,000,000 DIRECTV Holdings, Inc. Tranche B Term Loan,
5.088% due 4/13/2013 2,023,572
4,925,000 Insight Midwest Holdings LLC Term Loan C,
5.625% due 12/31/2009 4,997,954
2,985,000 Intelsat Ltd. Term Loan, 5.25% due 7/28/2011 3,013,919
2,325,000 MCC Iowa, LLC Tranche A Term Loan,
4.60 - 4.80% due 3/31/2010 2,317,734
3,184,000 Mediacom Illinois LLC Tranche A Term Loan,
5.47 - 6.06% due 3/31/2013 3,235,243
6,947,289 PanAmSat Corp. Tranche B-1 Term Loan, 5.65%
due 8/20/2011 7,036,736
EUR 5,000,000 SatBirds Capital Participations Second Lien Term
Loan, 6.397% due 10/04/2013 6,156,916
---------------
61,814,692
Chemicals--7.7%
USD 1,975,000 Hercules, Inc. Term Loan B, 5.24 - 5.31%
due 10/08/2010 2,003,638
5,600,000 Huntsman International LLC Term Loan B,
5.323% due 8/18/2012 5,682,253
Kosa B.V. (Invista) New Tranche:
2,355,088 B-1 Term Loan, 5.75% due 4/29/2011 2,394,830
1,021,794 B-2 Term Loan, 5.75% due 4/29/2011 1,039,037
733,341 Kraton Polymers Term Loan, 6.125 - 6.50%
due 12/16/2010 745,946
990,000 Lyondell-Citgo Refining Term Loan, 5.51 - 5.67%
due 5/21/2007 1,005,469
6,658,852 Nalco Co. Tranche B Term Loan, 5.45 - 5.87%
due 11/04/2010 6,773,824
Face
Amount Floating Rate Loan Interests** Value
Chemicals (concluded)
USD 758,229 Pinnacle Polymers Term Loan, 6.214%
due 12/15/2006 $ 768,926
1,990,000 Rockwood Specialties Group, Inc. Tranche B
Term Loan, 5.93% due 12/10/2012 2,026,899
4,750,000 Wellman, Inc. Second Lien Term Loan,10.46%
due 2/10/2010 4,821,250
---------------
27,262,072
Consumer--Durables--2.0%
Simmons Co.:
4,500,000 Term Loan, 7% due 6/19/2012 4,569,377
2,419,336 Term Loan C, 5.75 - 8% due 12/19/2011 2,423,873
---------------
6,993,250
Consumer--Non-Durables--1.2%
1,790,558 American Achievement Corp. Term Loan B,
5.85 - 8% due 3/25/2011 1,816,297
1,496,250 Burt's Bees, Inc. Term Loan, 6.134 - 6.41%
due 3/29/2011 1,514,953
969,000 Camelbak Products LLC First Lien Term Loan,
6.68 - 7.29% due 8/04/2011 965,972
---------------
4,297,222
Diversified Media--6.5%
3,543,726 Dex Media West, LLC Term Loan B,
5.05 - 5.40% due 3/09/2010 3,594,869
1,197,000 Freedom Communications, Inc. Tranche B Term
Loan, 4.83% due 5/01/2013 1,212,711
4,659,198 Liberty Group Operating Term Loan B, 5.813%
due 2/28/2012 4,710,645
10,000,000 MGM Holdings II, Inc. Term Loan B,
5.74% due 4/08/2012 10,137,500
1,162,637 Primedia, Inc. Term Loan B, 6.438%
due 6/30/2009 1,165,181
2,087,091 RH Donnelley Tranche D Term Loan,
5.11 - 5.30% due 8/30/2011 2,118,298
---------------
22,939,204
Energy--Exploration & Production--0.3%
1,000,000 Kerr-McGee Corp. Tranche X Term Loan, 5.85%
due 5/24/2007 1,004,196
Energy--Other--1.4%
2,750,000 Dresser, Inc. Term Loan Unsecured, 6.91%
due 3/01/2010 2,798,125
1,500,000 Epco Holdings, Inc. Term Loan B, 5.84%
due 8/18/2010 1,526,484
549,792 Pride Offshore, Inc. Term Advance, 5.31%
due 7/07/2011 558,955
---------------
4,883,564
Food & Drug--0.2%
753,827 Alimentation Couche-Tard, Inc. US Term Loan,
5.375% due 12/17/2010 763,249
Food & Tobacco--4.1%
3,380,298 Constellation Brands Inc. Term Loan B,
4.75 - 5.688% due 11/30/2011 3,437,341
Doane Pet Care Enterprises, Inc.:
570,208 Tranche B, 7.38% due 11/05/2009 572,580
1,166,667 Tranche C, 7.431% due 11/05/2009 1,171,533
5,497,600 Dr. Pepper/Seven Up Bottling Group, Inc. Term
Loan B, 5.339 - 5.609% due 12/19/2010 5,584,187
2,738,255 Michael Foods, Inc. Term Loan, 5.09 - 5.859%
due 11/21/2010 2,786,174
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
Food & Tobacco (concluded)
USD 860,833 Pierre Foods, Inc. Term Loan B, 5.69%
due 6/30/2010 $ 874,284
---------------
14,426,099
Gaming--4.6%
1,980,000 Boyd Gaming Corp. Term Loan, 4.88 - 4.99%
due 6/30/2011 2,002,895
1,004,634 Global Cash Access LLC Term Loan B, 5.74%
due 3/10/2010 1,020,646
1,975,075 Green Valley Ranch Gaming, LLC Term Loan,
5.49% due 12/17/2011 2,000,998
987,500 Isle of Capri Black Hawk Term Loan C,
6.54 - 7.04% due 12/31/2007 1,002,622
1,000,000 Isle of Capri Casinos, Inc. Delayed Draw
Term Loan, 5.49% due 2/04/2011 1,006,250
Pinnacle Entertainment, Inc.:
1,200,000 Delay Draw Term Loan, 6.67%
due 8/27/2010 1,200,000
1,800,000 Term Loan, 6.67% due 8/27/2010 1,821,375
Trump Entertainment Resorts Holdings, LP:
430,500 Revolving Line of Credit, 6.13 - 6.21%
due 5/20/2010 419,738
1,500,000 Term Loan B-1, 5.93 - 6.14%
due 5/20/2012 1,526,250
Venetian Casino Resort:
1,000,000 Term B Delayed Draw, 5.462%
due 6/15/2011 1,012,734
3,100,000 Term Loan B, 5.24% due 6/15/2011 3,139,475
---------------
16,152,983
Health Care--4.0%
3,313,636 Colgate Medical Term Loan B, 5.48 - 5.49%
due 12/15/2008 3,348,844
2,779,000 Community Health Systems, Inc. Term Loan,
5.42 - 5.61% due 8/19/2011 2,820,974
HealthSouth Corp.:
1,968,750 Term Loan, 6.15% due 3/08/2010 1,989,054
531,250 Tranche B Term Loan, 5.60% due 3/08/2010 536,729
4,787,500 LifePoint Hospitals, Inc. Term Loan B, 5.196%
due 4/15/2012 4,842,216
679,798 Rotech Healthcare, Inc. Term Loan B, 6.49%
due 3/31/2008 684,472
---------------
14,222,289
Housing--3.5%
2,090,051 General Growth Properties, Inc. Term Loan B,
5.67% due 11/12/2008 2,117,134
3,112,541 Headwaters, Inc. First Lien Term Loan,
5.87 - 7.75% due 4/30/2011 3,156,636
2,475,000 Nortek, Inc. Term Loan, 5.91 - 7.75%
due 8/27/2011 2,507,999
4,535,000 PGT Industries, Inc. Tranche A, 6.58 - 6.76%
due 1/31/2009 4,614,363
---------------
12,396,132
Information Technology--2.1%
3,540,000 Fidelity National Information Solutions, Inc. Term
Loan B, 5.32% due 3/09/2013 3,548,850
2,000,000 SunGard Data Term Loan, 6.28% due 2/11/2013 2,029,750
1,995,000 Telcordia Technologies, Inc. Term Loan, 6.07%
due 9/15/2012 1,995,000
---------------
7,573,600
Face
Amount Floating Rate Loan Interests** Value
Leisure--1.1%
USD 4,000,000 24 Hour Fitness Worldwide, Inc. Term Loan,
6.78% due 6/08/2012 $ 4,068,752
Manufacturing--4.7%
2,222,222 Communications & Power Industries, Inc. Term
Loan, 6.03% due 7/23/2010 2,260,184
2,000,000 Invensys International Holdings Ltd. Second Lien
Term Loan, 8.529% due 12/04/2009 2,050,000
349,065 Itron, Inc. Term Loan, 5.4375 - 7.25%
due 12/17/2010 353,210
2,493,750 Metokote Corp. Second Lien Term Loan,
6.49 - 6.68% due 11/27/2011 2,509,336
3,062,442 Mueller Group, Inc. Initial Term Loan,
6.24 - 6.61% due 4/23/2011 3,089,239
Sensus Metering Systems:
5,510,870 Term Loan B-1, 6.23 - 6.54%
due 12/17/2010 5,577,457
826,630 Term Loan B-2, 6.23 - 6.54%
due 12/17/2010 836,619
---------------
16,676,045
Packaging--4.2%
6,066,778 Berry Plastics Corp. Term Loan, 5.60 - 5.766%
due 12/02/2011 6,169,913
2,985,000 Graham Packaging Term Loan B,
5.938 - 6.063% due 10/07/2011 3,036,617
1,985,000 Intertape Polymer Corp. Term Loan B,
5.65 - 5.742% due 7/28/2011 2,023,047
Owens-Illinois Group, Inc.:
525,619 Term Loan B-1, 5.37% due 4/01/2008 531,313
3,240,129 French Tranche C-1, 5.45% due 4/01/2008 3,274,555
---------------
15,035,445
Paper--2.2%
1,795,500 Boise Cascade Holdings LLC Tranche D Term
Loan, 5.25% due 10/28/2011 1,824,790
SP Newsprint Tranche B-1:
1,972,738 Credit Linked Deposit, 3.609%
due 1/09/2010 1,988,766
838,414 Term Loan B, 5.92 - 7.75% due 1/09/2010 851,514
Smurfit Stone Container Corp.:
2,282,647 Term Loan B, 5.375 - 5.563%
due 11/01/2011 2,316,412
702,353 Tranche C, 5.375 - 5.563% due 11/01/2011 712,742
---------------
7,694,224
Retail--1.0%
1,750,000 American Reprographics Co. LLC Second Lien
Term Loan, 10.235% due 12/18/2009 1,820,000
1,695,778 General Nutrition Centers, Inc. Tranche B Term
Loan, 6.51 - 6.67% due 12/05/2009 1,716,975
---------------
3,536,975
Service--2.5%
2,429,790 Baker Tanks, Inc. Term Loan, 5.90 - 6.43%
due 1/30/2011 2,460,163
2,871,000 Buhrmann US, Inc. Tranche C-1, 5.92 - 6.21%
due 12/23/2010 2,926,626
2,481,699 Coinstar, Inc. Term Loan, 5.13% due 7/07/2011 2,518,925
United Rentals, Inc.:
814,254 Initial Term Loan, 5.92% due 2/14/2011 823,924
164,912 Tranche B Credit Linked Deposit, 4.966%
due 2/14/2011 166,871
---------------
8,896,509
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
Telecommunications--2.0%
USD 2,172,500 Consolidated Communications, Inc. Term
Loan B, 5.73 - 5.815% due 10/14/2011 $ 2,207,803
WilTel Communications LLC:
3,071,579 First Lien Term Loan, 6.99% due 6/30/2010 3,116,372
1,800,000 Second Lien Term Loan, 9.24%
due 12/31/2010 1,786,500
---------------
7,110,675
Utility--13.4%
1,571,429 AES Corp. Term Loan, 5.07 - 5.69%
due 4/30/2008 1,594,214
4,914,737 Calpine Corp. Second Lien Term Loan, 9.349%
due 7/16/2007 4,022,712
Calpine Generating Co. LLC:
1,500,000 First Priority Term Loan, 7.26%
due 4/01/2009 1,539,508
2,500,000 Second Priority Term Loan, 9.26%
due 4/01/2010 2,513,282
4,386,270 Cogentrix Delaware Holdings, Inc. Term Loan,
5.24% due 4/14/2012 4,442,928
Covanta Energy Corp.:
4,500,000 Funded Letter of Credit, 3.36 - 6.46%
due 6/24/2012 4,578,750
2,500,000 Second Lien Term Loan, 8.96 - 9.141%
due 6/24/2013 2,518,750
2,772,000 Dynegy Holdings, Inc. Term Loan, 7.54%
due 5/27/2010 2,789,902
El Paso Corp.:
1,425,000 Deposit Account, 2.616% due 11/23/2009 1,444,099
2,346,500 Term Loan, 6.438% due 11/23/2009 2,384,304
4,987,500 KGen LLC Tranche A Term Loan, 6.115%
due 8/05/2011 4,975,031
451,095 Midwest Generation, LLC Term Loan C,
5.39 - 5.50% due 4/27/2011 456,311
700,000 NRG Energy Credit Linked Deposit, 4.95%
due 12/24/2007 709,042
895,500 NRG Energy Term Loan, 5.255 - 5.365%
due 12/24/2011 907,067
2,475,000 Quanta Services, Term Loan, 6.43 - 6.47%
due 6/19/2008 2,510,578
3,084,500 Reliant Resources Inc. Term Loan, 6.016 - 6.089%
due 4/30/2010 3,116,067
Texas Genco LLC:
2,041,038 Delayed Draw Term Loan, 5.41 - 5.49%
due 12/14/2011 2,075,322
4,929,077 Initial Term Loan, 5.41 - 5.669%
due 12/14/2011 5,011,871
---------------
47,589,738
Wireless Communications--1.8%
2,314,750 Centennial Cellular Operating Co. Term Loan,
5.63 - 6.11% due 2/09/2011 2,354,432
3,989,924 SBA Senior Finance, Inc. Tranche D Term Loan,
5.54 - 6.13% due 10/31/2008 4,028,994
---------------
6,383,426
Total Floating Rate Loan Interests
(Cost--$330,577,333)--94.1% 333,325,803
Face
Amount Corporate Bonds Value
Aerospace & Defense--0.2%
USD 575,000 L-3 Communications Corp., 6.375%
due 10/15/2015 (b) $ 583,625
Airlines--0.1%
2,500,000 Delta Air Lines, Inc., 2.875%
due 2/18/2024 (b)(e)(h) 409,375
Automotive--0.3%
250,000 Delco Remy International, Inc., 7.599%
due 4/15/2009 (c) 247,500
700,000 Tenneco Automotive, Inc., 8.625%
due 11/15/2014 726,250
---------------
973,750
Broadcasting--3.4%
2,150,000 Emmis Communications Corp., 9.314%
due 6/15/2012 (c) 2,176,875
4,000,000 Granite Broadcasting Corp., 9.75%
due 12/01/2010 3,775,000
5,750,000 Paxson Communications Corp., 6.349%
due 1/15/2010 (b)(c) 5,750,000
250,000 XM Satellite Radio, Inc., due 5/01/2009 (c) 252,812
---------------
11,954,687
Cable--International--0.1%
375,000 NTL Cable Plc, 8.75% due 4/15/2014 395,625
Cable--U.S.--1.7%
553,000 Inmarsat Finance Plc, 7.625% due 6/30/2012 581,341
Intelsat Bermuda Ltd. (b):
750,000 8.695% due 1/15/2012 (c) 763,125
500,000 8.25% due 1/15/2013 508,750
350,000 Mediacom Broadband LLC,11% due 7/15/2013 381,937
250,000 New Skies Satellites NV, 8.539%
due 11/01/2011 (c) 259,375
3,000,000 Rainbow National Services LLC,10.375%
due 9/01/2014 (b) 3,420,000
---------------
5,914,528
Chemicals--2.7%
1,950,000 Crompton Corp., 9.672% due 8/01/2010 (c) 2,179,125
2,011,000 GEO Specialty Chemicals, Inc.,12.016%
due 12/31/2009 (e) 2,111,550
5,000,000 PolyOne Corp.,10.625% due 5/15/2010 5,368,750
---------------
9,659,425
Consumer--Non-Durables--0.8%
250,000 Elizabeth Arden, Inc., 7.75% due 1/15/2014 263,125
2,000,000 Playtex Products, Inc., 8% due 3/01/2011 2,130,000
350,000 Samsonite Corp., 8.875% due 6/01/2011 374,500
---------------
2,767,625
Diversified Media--0.1%
250,000 CanWest Media, Inc., 8% due 9/15/2012 262,500
250,000 Universal City Florida Holding Co. I, 8.443%
due 5/01/2010 (c) 261,875
---------------
524,375
Energy--Exploration & Production--0.1%
250,000 Belden & Blake Corp., 8.75% due 7/15/2012 265,000
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
Energy--Other--0.1%
USD 250,000 Aventine Renewable Energy Holdings, Inc.,
9.41% due 12/15/2011 (b)(c) $ 251,250
Food & Drug--0.1%
275,000 Duane Reade, Inc., 7.91% due 12/15/2010 (c) 265,375
Food & Tobacco--1.2%
250,000 AmeriQual Group LLC, 9% due 4/01/2012 (b) 258,750
3,000,000 Smithfield Foods, Inc., 7% due 8/01/2011 3,090,000
1,050,000 The Wornick Co., 10.875% due 7/15/2011 1,065,750
---------------
4,414,500
Gaming--2.2%
5,000,000 Majestic Star Casino LLC, 9.50%
due 10/15/2010 5,037,500
250,000 Mohegan Tribal Gaming Authority, 7.125%
due 8/15/2014 262,500
325,000 River Rock Entertainment Authority, 9.75%
due 11/01/2011 356,687
Station Casinos, Inc.:
1,275,000 6% due 4/01/2012 1,284,562
775,000 6.50% due 2/01/2014 786,625
---------------
7,727,874
Health Care--0.2%
575,000 US Oncology, Inc., 9% due 8/15/2012 626,750
Housing--0.1%
450,000 Nortek, Inc., 8.50% due 9/01/2014 437,625
Hybrid--1.4%
4,886,365 Dow Jones CDX.NA.HY.3 Trust 3 December 2009,
8% due 12/29/2009 (b) 4,959,660
Information Technology--3.7%
4,050,000 Freescale Semiconductor, Inc., 6.349%
due 7/15/2009 (c) 4,181,625
4,625,000 MagnaChip Semiconductor SA, 6.66%
due 12/15/2011 (c) 4,648,125
Sungard Data Systems, Inc. (b):
1,825,000 8.525% due 8/15/2013 (c) 1,888,875
1,900,000 10.25% due 8/15/2015 1,985,500
300,000 Telcordia Technologies Inc.,10%
due 3/15/2013 (b) 285,000
---------------
12,989,125
Leisure--1.9%
5,400,000 Felcor Lodging LP, 7.78% due 6/01/2011 (c) 5,629,500
1,000,000 True Temper Sports, Inc., 8.375% due 9/15/2011 970,000
---------------
6,599,500
Manufacturing--2.0%
250,000 Altra Industrial Motion, Inc., 9%
due 12/01/2011 (b) 245,000
2,500,000 Case New Holland, Inc., 6% due 6/01/2009 2,400,000
325,000 ERICO International Corp., 8.875%
due 3/01/2012 338,000
2,900,000 Invensys Plc, 9.875% due 3/15/2011 (b) 2,914,500
1,369,000 Medis Technologies Ltd., 6%
due 7/15/2010 (b)(e) 1,382,690
---------------
7,280,190
Face
Amount Corporate Bonds Value
Metal--Other--0.2%
USD 700,000 Novelis, Inc., 7.25% due 2/15/2015 (b) $ 701,750
Packaging--1.0%
1,550,000 Consolidated Container Co. LLC, 10.75%
due 6/15/2009 (a) 1,286,500
250,000 Constar International, Inc., 7.165%
due 2/15/2012 (b)(c) 240,000
600,000 Tekni-Plex, Inc., 8.75% due 11/15/2013 (b) 525,000
1,725,000 Wise Metals Group LLC,10.25% due 5/15/2012 1,418,812
---------------
3,470,312
Paper--2.3%
2,650,000 Abitibi-Consolidated, Inc., 6.91%
due 6/15/2011 (c) 2,650,000
700,000 Ainsworth Lumber Co. Ltd., 7.24%
due 10/01/2010 (c) 693,000
250,000 Boise Cascade LLC, 6.474% due 10/15/2012 (c) 251,875
725,000 Domtar, Inc., 7.125% due 8/15/2015 722,814
925,000 NewPage Corp., 9.943% due 5/01/2012 (b)(c) 920,375
2,912,000 Western Forest Products, Inc., 15%
due 7/28/2009 (d) 2,842,049
---------------
8,080,113
Retail--0.4%
1,300,000 Jean Coutu Group, Inc., 8.50% due 8/01/2014 1,332,500
Service--1.6%
250,000 Ahern Rentals, Inc., 9.25% due 8/15/2013 (b) 255,625
3,375,000 Allied Waste North America, Inc. Series B,
7.375% due 4/15/2014 3,172,500
250,000 Mac-Gray Corp., 7.625% due 8/15/2015 (b) 258,125
2,000,000 Sunstate Equipment Co. LLC,10.50%
due 4/01/2013 (b) 2,060,000
---------------
5,746,250
Steel--2.4%
3,000,000 CSN Islands VIII Corp., 9.75%
due 12/16/2013 (b) 3,187,500
5,000,000 Ispat Inland ULC,10.254% due 4/01/2010 (c) 5,312,500
---------------
8,500,000
Telecommunications--4.6%
6,000,000 Cincinnati Bell, Inc., 8.375% due 1/15/2014 6,060,000
3,700,000 Qwest Communications International, Inc.,
7.29% due 2/15/2009 (c) 3,681,500
1,450,000 Qwest Corp., 6.671% due 6/15/2013 (b)(c) 1,518,875
2,000,000 Terremark Worldwide Inc, 9% due 6/15/2009 (e) 1,680,000
3,500,000 Time Warner Telecom Holdings, Inc., 7.79%
due 2/15/2011 (c) 3,587,500
---------------
16,527,875
Transportation--1.5%
5,000,000 Grupo Transportacion Ferroviaria
Mexicana SA DE C.V., 9.375% due
5/01/2012 (b) 5,400,000
Utility--1.9%
2,000,000 Aquila, Inc., 7.625% due 11/15/2009 2,075,000
3,000,000 Calpine Canada Energy Finance Ulc, 8.50%
due 5/01/2008 2,092,500
3,000,000 Calpine Corp., 9.875% due 12/01/2011 (b) 2,280,000
250,000 Sierra Pacific Resources, 8.625% due 3/15/2014 276,250
---------------
6,723,750
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Schedule of Investments (concluded) (in U.S. dollars)
Face
Amount Corporate Bonds Value
Wireless Communications--1.6%
Rogers Wireless Communications, Inc.:
USD 3,250,000 6.535% due 12/15/2010 (c) $ 3,388,125
1,100,000 7.25% due 12/15/2012 1,179,750
250,000 8% due 12/15/2012 267,500
250,000 Rural Cellular Corp., 7.91% due 3/15/2010 (c) 258,750
350,000 SBA Communications Corp., 8.50%
due 12/01/2012 381,937
196,000 SBA Telecommunications, Inc., 9.75%
due 12/15/2011 (a) 179,830
---------------
5,655,892
Total Corporate Bonds
(Cost--$139,734,945)--39.9% 141,138,306
Shares
Held Common Stocks Value
Chemicals--0.0%
13,117 GEO Specialty Chemicals, Inc. (f) $ 111,495
Energy--Other--1.0%
159,985 Trico Marine Services, Inc. (f) 3,633,259
Paper--0.1%
84,448 Western Forest Products, Inc. (f) 184,803
Total Common Stocks
(Cost--$3,575,186)--1.1% 3,929,557
Total Investments
(Cost--$473,887,464*)--135.1% 478,393,666
Liabilities in Excess of Other Assets--(35.1%) (124,279,251)
---------------
Net Assets--100.0% $ 354,114,415
===============
* The cost and unrealized appreciation (depreciation) of investments as of August 31,
2005, as computed for federal income tax purposes, were as follows:
Aggregate cost $ 473,821,749
================
Gross unrealized appreciation $ 9,311,801
Gross unrealized depreciation (4,739,884)
----------------
Net unrealized appreciation $ 4,571,917
================
** Floating rate loan interests in which the Fund invests generally pay interest at rates
that are periodically predetermined by reference to a base lending rate plus a premium.
These 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.
(a) Represents a step bond; the interest rate shown reflects the effective yield at the time
of purchase by the Fund.
(b) The security may be offered and sold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933.
(c) Floating rate note.
(d) Represents a pay-in-kind security that may pay interest/dividends in additional
face/shares.
(e) Convertible security.
(f) Non-income producing security.
(g) Non-income producing security; issuer filed for bankruptcy or is in default of
interest payments.
(h) Issuer filed for bankruptcy.
For Fund compliance purposes, the Fund's industry classifications refer to any one
or more of the industry sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine industry
sub-classifications for reporting ease. Industries are shown as a percent of net assets.
These industry classifications are unaudited.
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 $(6,354,570) $38,253
Swap contracts outstanding as of August 31, 2005 were as follows:
Notional Unrealized
Amount Appreciation
Sold credit default protection on
General Motors Corp. and receive 4.4%
Broker, Morgan Stanley Capital Services, Inc.
Expires June 2007 $3,000,000 $48,951
Currency Abbreviations:
EUR Euro
USD U.S. Dollar
See Notes to Financial Statements.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Statement of Assets, Liabilities and Capital
As of August 31, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$473,887,464) $ 478,393,666
Unrealized appreciation on swaps 48,951
Foreign cash (cost--$34) 34
Receivables:
Interest (including $1,968 from affiliates) $ 5,350,564
Swaps 26,767
Commitment fees 23,066
Principal paydowns 5,875 5,406,272
---------------
Prepaid expenses 1,716
---------------
Total assets 483,850,639
---------------
Liabilities
Loans 123,600,000
Unfunded loan commitment 125,388
Payables:
Securities purchased 3,950,000
Custodian bank 1,141,207
Dividends to shareholders 469,324
Investment adviser 234,704
Interest on loans 90,879
Other affiliates 3,729 5,889,843
---------------
Accrued expenses 120,993
---------------
Total liabilities 129,736,224
---------------
Net Assets
Net assets $ 354,114,415
===============
Capital
Common Stock, par value $.10 per share; 200,000,000 shares authorized
(18,298,439 shares issued and outstanding) $ 1,829,844
Paid-in capital in excess of par 347,243,873
Undistributed investment income--net $ 3,293,291
Accumulated realized capital losses--net (2,717,231)
Unrealized appreciation--net 4,464,638
---------------
Total accumulated earnings--net 5,040,698
---------------
Total capital--Equivalent to $19.35 net asset value per share of Common Stock
(market price--$17.85) $ 354,114,415
===============
See Notes to Financial Statements.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Statement of Operations
For the Year Ended August 31, 2005
Investment Income
Interest (including $38,253 from affiliates) $ 29,876,811
Facility and other fees 250,410
---------------
Total income 30,127,221
---------------
Expenses
Investment advisory fees $ 3,537,151
Loan interest expense 3,394,089
Borrowing costs 255,108
Professional fees 161,249
Accounting services 130,502
Transfer agent fees 51,346
Directors' fees and expenses 45,840
Printing and shareholder reports 45,676
Listing fees 19,881
Custodian fees 19,680
Pricing services 16,454
Other 24,885
---------------
Total expenses 7,701,861
---------------
Investment income--net 22,425,360
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net (2,771,496)
Swaps 54,267
Foreign currency transactions--net 33,718 (2,683,511)
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 4,283,079
Unfunded corporate loans--net (64,785)
Swaps 48,951
Foreign currency transactions--net 279 4,267,524
--------------- ---------------
Total realized and unrealized gain--net 1,584,013
---------------
Net Increase in Net Assets Resulting from Operations $ 24,009,373
===============
See Notes to Financial Statements.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Statements of Changes in Net Assets
For the For the Period
Year Ended October 31, 2003++
August 31, to August 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 22,425,360 $ 12,084,220
Realized gain (loss)--net (2,683,511) 216,488
Change in unrealized appreciation/depreciation--net 4,267,524 197,114
--------------- ---------------
Net increase in net assets resulting from operations 24,009,373 12,497,822
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net (20,347,853) (10,902,156)
Realized gain--net (216,488) --
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (20,564,341) (10,902,156)
--------------- ---------------
Common Stock Transactions
Proceeds from issuance of Common Stock -- 345,232,500
Value of shares issued to Common Stock shareholders in reinvestment of
dividends and distributions 415,791 3,760,823
Offering costs resulting from the issuance of Common Stock -- (435,405)
--------------- ---------------
Net increase in net assets resulting from Common Stock transactions 415,791 348,557,918
--------------- ---------------
Net Assets
Total increase in net assets 3,860,823 350,153,584
Beginning of period 350,253,592 100,008
--------------- ---------------
End of period* $ 354,114,415 $ 350,253,592
=============== ===============
* Undistributed investment income--net $ 3,293,291 $ 1,182,064
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Statement of Cash Flows
For the Year Ended August 31, 2005
Cash Provided By Operating Activities
Net increase in net assets resulting from operations $ 24,009,373
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Increase in receivables (1,543,600)
Decrease in other assets 34,304
Increase in other liabilities 296,409
Realized and unrealized gain--net (1,584,013)
Realized gain on swaps--net 54,267
Realized and unrealized gain on foreign currency transactions--net 33,997
Amortization of premium and discount--net (599,915)
Proceeds from sales and paydowns of long-term securities 232,852,710
Proceeds on other investment related transactions 92,449
Purchases of long-term securities (243,897,667)
Proceeds from sales of short-term investments--net 6,354,570
---------------
Net cash provided by operating activities 16,102,884
---------------
Cash Used for Financing Activities
Cash receipts from borrowings 253,040,000
Cash payments for borrowings (252,665,000)
Dividends and distributions paid to shareholders (19,679,226)
Increase in custodian bank payable 1,141,207
---------------
Net cash used for financing activities (18,163,019)
---------------
Cash
Net decrease in cash (2,060,135)
Cash at beginning of year 2,060,169
---------------
Cash at end of year $ 34
===============
Cash Flow Information
Cash paid for interest $ 3,346,346
===============
Non-Cash Financing Activities
Capital shares issued in reinvestment of dividends and distributions to shareholders $ 415,791
===============
See Notes to Financial Statements.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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. 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 19.16 $ 19.10
--------------- ---------------
Investment income--net 1.23*** .66
Realized and unrealized gain--net .08 .02
--------------- ---------------
Total from investment operations 1.31 .68
--------------- ---------------
Less dividends and distributions from:
Investment income--net (1.11) (.60)
Realized gain--net (.01) --
--------------- ---------------
Total dividends and distributions (1.12) (.60)
--------------- ---------------
Offering costs resulting from the issuance of Common Stock -- (.02)
--------------- ---------------
Net asset value, end of period $ 19.35 $ 19.16
=============== ===============
Market price per share, end of period $ 17.85 $ 19.44
=============== ===============
Total Investment Return**
Based on net asset value per share 7.27% 3.50%+++
=============== ===============
Based on market price per share (2.47%) .29%+++
=============== ===============
Ratios to Average Net Assets
Expenses, net of waiver and excluding interest expense 1.22% .71%*
=============== ===============
Expenses, net of waiver 2.18% .87%*
=============== ===============
Expenses 2.18% 1.08%*
=============== ===============
Investment income--net 6.34% 3.80%*
=============== ===============
Leverage
Amount of borrowings, end of period (in thousands) $ 123,600 $ 123,225
=============== ===============
Average amount of borrowings outstanding during the period (in thousands) $ 117,702 $ 38,654
=============== ===============
Average amount of borrowings outstanding per share during the period*** $ 6.43 $ 2.11
=============== ===============
Supplemental Data
Net assets, end of period (in thousands) $ 354,114 $ 350,254
=============== ===============
Portfolio turnover 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.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
Floating Rate Income Strategies Fund, Inc. (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.
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, the
Investment Adviser will value the floating rate loan at fair value, which is
intended to approximate market value.
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 over-the-counter ("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 the Investment Adviser
believes that this method no longer produces fair valuations. Repurchase
agreements will be valued at cost plus accrued interest. The Fund employs
certain pricing services to provide securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board
of Directors of the Fund, including valuations furnished by the pricing
services retained by the Fund, which may use a matrix system for valuations.
The procedures of a pricing service and its valuations are reviewed by the
officers of the Fund under the general supervision of the Fund's Board of
Directors. Such valuations and procedures will be reviewed periodically by the
Fund's Board of Directors.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Notes to Financial Statements (continued)
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, 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. 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 the Investment Adviser using a pricing service and/or
procedures approved by the Fund's Board of Directors.
(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 futures contracts. 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 over-the-counter
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 swaps 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.
(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.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Notes to Financial Statements (continued)
(f) 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.
(g) Offering costs--Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital at the time of issuance of the
shares.
(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) Custodian bank--The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft, which resulted from management estimates of
available cash.
(k) 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, $33,720 has been reclassified between accumulated net realized
capital losses and undistributed net investment income as a result of
permanent differences attributable to foreign currency transactions and
securities in default. This reclassification has no effect on net assets or
net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("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 FAM or its affiliates.
For the year ended August 31, 2005, the Fund reimbursed FAM $8,631 for certain
accounting services.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Notes to Financial Statements (concluded)
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, 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, 2005 were $240,011,792 and
$224,187,456, 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, 2005 increased by
21,622 from reinvestment of dividends and distributions and during the period
October 31, 2003 to August 31, 2004 increased by 18,075,000 from shares sold
and 196,581 from reinvestment of dividends.
5. Unfunded Loan Interest:
As of August 31, 2005, the Fund had unfunded loan commitments of approximately
$8,930,000 which would be extended at the option of the borrower, pursuant to
the following loan agreements:
Unfunded
Commitment
Borrower (in Thousands)
Key Energy $1,500
Pinnacle Entertainment, Inc. $ 360
Trump Entertainment Delayed Draw $1,500
Trump Entertainment Resorts Holdings L.P. $2,570
Vought Aircraft Industries, Inc. $3,000
6. Short-Term Borrowings:
On May 24, 2005, 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 2.88% and the average borrowing
was approximately $117,702,000 for the year ended August 31, 2005.
7. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.108333 per share
on September 30, 2005 to shareholders of record on September 14, 2005.
The tax character of distributions paid during the fiscal years ended August
31, 2005 and August 31, 2004 was as follows:
8/31/2005 8/31/2004
Distributions paid from:
Ordinary income $ 20,564,341 $ 10,902,156
------------- -------------
Total taxable distributions $ 20,564,341 $ 10,902,156
============= =============
As of August 31, 2005, the components of accumulated earnings on a tax
basis were as follows:
Undistributed ordinary income--net $ 3,281,843
Undistributed long-term capital gains--net --
-------------
Total undistributed earnings--net 3,281,843
Capital loss carryforward (2,226,224)*
Unrealized gains--net 3,985,079**
-------------
Total accumulated earnings--net $ 5,040,698
=============
* On August 31, 2005, the Fund had a capital loss carryforward of
$2,226,224, 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 difference between book and
tax amortization methods for premiums and discounts on fixed
income securities, 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.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Floating Rate Income Strategies Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Floating Rate Income Strategies
Fund, Inc. as of August 31, 2005, the related statements of operations and
cash flows for the year then ended, and the statements of changes in net
assets and the financial highlights for the year then ended and the period
October 31, 2003 (commencement of operations) through August 31, 2004. 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, 2005, 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
Floating Rate Income Strategies Fund, Inc. as of August 31, 2005, the results
of its operations and its cash flows for the year then ended, and the changes
in its net assets and its financial highlights for the year then ended and the
period October 31, 2003 through August 31, 2004, in conformity with U.S.
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 21, 2005
Fund Certification (unaudited)
In September 2005, 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.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
Automatic Dividend Reinvestment Policy
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested
by EquiServe Trust Company N.A. ("EquiServe" or the "Plan Agent"), as agent
for shareholders in administering the Plan, in additional shares of Common
Stock of the Fund. Holders of Common Stock who elect not to participate in the
Plan will receive all distributions in cash paid by check mailed directly to
the shareholder of record (or, if the shares are held in street or other
nominee name then to such nominee) by EquiServe, as dividend paying agent.
Such participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to EquiServe, as dividend paying agent, at the address set forth
below. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by written notice if received by the
Plan Agent not less than ten days prior to any dividend record date; otherwise
such termination will be effective with respect to any subsequently declared
dividend or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan
will receive the equivalent in shares of Common Stock. The shares will be
acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional
unissued but authorized shares of Common Stock from the Fund ("newly issued
shares") or (ii) by purchase of outstanding shares of Common Stock on the open
market ("open-market purchases") on the New York Stock Exchange or elsewhere.
If, on the payment date for the dividend, the net asset value per share of the
Common Stock is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such conditions being referred to
herein as "market premium"), the Plan Agent will invest the dividend amount in
newly issued shares on behalf of the participant. The number of newly issued
shares of Common Stock to be credited to the participant's account will be
determined by dividing the dollar amount of the dividend by the net asset
value per share on the date the shares are issued, provided that the maximum
discount from the then current market price per share on the date of issuance
may not exceed 5%. If, on the dividend payment date, the net asset value per
share is greater than the market value (such condition being referred to
herein as "market discount"), the Plan Agent will invest the dividend amount
in shares acquired on behalf of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which open-
market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in
the acquisitions of fewer shares than if the dividend had been paid in newly
issued shares on the dividend payment date. Because of the foregoing
difficulty with respect to open-market purchases, the Plan provides that if
the Plan Agent is unable to invest the full dividend amount in open-market
purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Agent will cease making
open-market purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last purchase
date determined by dividing the uninvested portion of the dividend by the net
asset value per share.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the
name of the participant, and each shareholder's proxy will include those
shares purchased or received pursuant to the Plan. The Plan Agent will forward
all proxy solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
In the case of shareholders such as banks, brokers or nominees which hold
shares of others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by
the record shareholders as representing the total amount registered in the
record shareholder's name and held for the account of beneficial owners who
are to participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by
the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's open-
market purchases in connection with the reinvestment of dividends.
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.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. 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 at less than they could otherwise
purchase them and will have shares with a cash value greater than the value of
any cash distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient 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.
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
premium over net asset value, 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 such discount (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.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by
the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
EquiServe Trust Company N.A. (c/o Computershare Investor Services), P.O. Box
43010, Providence, RI 02940-3010, Telephone: 800-426-5523.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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 President of the MLIM/FAM-advised funds since 130 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 175 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 51 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since
2001; President of Princeton Administrators,
L.P. ("Princeton Administrators") since 2001;
Chief Investment Officer of Oppenheimer Funds,
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 MLIM or FAM acts as investment adviser. Mr. Doll
is an "interested person," as defined in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and
Princeton Administrators. 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.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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 48 Funds None
P.O. Box 9095 present Business, State University of New York at 48 Portfolios
Princeton, Albany since 2000 and Professor thereof from
NJ 08543-9095 1989 to 2000; International Consultant, Urban
Age: 64 Institute, Washington D.C. from 1995 to 1999.
Cynthia A. Montgomery Director 2003 to Professor, Harvard Business School since 48 Funds Newell
P.O. Box 9095 present 1989; Associate Professor, J.L. Kellogg 48 Portfolios Rubbermaid, Inc.
Princeton, Graduate School of Management, Northwestern (manufacturing)
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 53 Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985; Director, Harvard Business
School of Publishing since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; Counsel 48 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 48 Portfolios
Princeton, adviser) in 2000; General Counsel, Director
NJ 08543-9095 and Secretary of Sanford C. Bernstein & Co.,
Age: 60 Inc. (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 48 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 48 Portfolios
Princeton, States Foreign Service, from 1961 to 1995;
NJ 08543-9095 Career Minister from 1989 to 1995; Deputy
Age: 70 Inspector 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, 48 Funds Bowne & Co.,
P.O. Box 9095 present Dean from 1984 to 1993 and Dean Emeritus 48 Portfolios Inc. (financial
Princeton, since 1995 of New York University's printers);
NJ 08543-9095 Leonard N. Stern School of Business Vornado Realty
Age: 67 Administration. Trust (real estate
company);
Alexander's, Inc.
(real estate
company).
Edward D. Zinbarg Director 2003 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 present 1994; Executive Vice President of the 48 Portfolios
Princeton, Prudential Insurance Company of America from
NJ 08543-9095 1988 to 1994; Former Director of Prudential
Age: 70 Reinsurance 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 and the Audit Committee.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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 First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
NJ 08543-9011 Treasurer President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
Age: 45 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
Joseph P. Matteo Vice 2003 to Director (Global Fixed Income) of MLIM since 2001; Vice President of MLIM
P.O. Box 9011 President present from 1997 to 2000; Vice President at The Bank of New York from 1994 to 1997.
Princeton,
NJ 08543-9011
Age: 41
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 54 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
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* 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
Equiserve Trust Company N.A.
(c/o Computershare Investor Services)
P.O. Box 43010
Providence, RI 02940-3010
800-426-5523
NYSE Symbol
FRA
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
FLOATING RATE INCOME STRATEGIES FUND, INC. AUGUST 31, 2005
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 upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
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, 2005 - $38,000
Fiscal Year Ending August 31, 2004 - $43,100
(b) Audit-Related Fees -Fiscal Year Ending August 31, 2005 - $0
Fiscal Year Ending August 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2005 - $7,900
Fiscal Year Ending August 31, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2005 - $0
Fiscal Year Ending August 31, 2004 - $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, 2005 - $7,377,027
Fiscal Year Ending August 31, 2004 - $14,913,836
(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) - $1,227,000, 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
Kevin A. Ryan (retired as of December 31, 2004)
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 -
Not Applicable at this time
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 - Not Applicable
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.
Floating Rate Income Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Floating Rate Income Strategies Fund, Inc.
Date: October 19, 2005
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
Floating Rate Income Strategies Fund, Inc.
Date: October 19, 2005
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Floating Rate Income Strategies Fund, Inc.
Date: October 19, 2005