UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY

 

 

Investment Company Act file number: 811-21413

 

Name of Fund: BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)

 

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

 

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Floating Rate Income Strategies Fund, Inc., 55 East 52^nd Street, New York, NY 10055

 

Registrant’s telephone number, including area code: (800) 882-0052, Option 4

 

Date of fiscal year end: 08/31/2015

 

Date of reporting period: 05/31/2015

 

Item 1 –

Schedule of Investments

Consolidated Schedule of Investments May 31, 2015 (Unaudited)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)
	(Percentages shown are based on Net Assets)

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)

Notes to Consolidated Schedule of Investments
(a)	Non-income producing security.
(b)	Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.
(c)	Variable rate security. Rate shown is as of report date.
(d)	Zero-coupon bond.
(e)	Convertible security.
(f)	Issuer filed for bankruptcy and/or is in default of principal and/or interest payments.
(g)	When-issued security. Unsettled when-issued transactions were as follows:

 

		Counterparty											Value			Unrealized Appreciation
		J.P. Morgan Securities LLC										$		1,225,000			—

 

(h)	Represents a payment-in-kind security which may pay interest/dividends in additional par/shares and/or in cash. Rates shown are the current rate and possible payment rates.
(i)	Other interests represent beneficial interests in liquidation trusts and other reorganization or private entities.
(j)	Security is held by a wholly owned subsidiary.
(k)	Security is perpetual in nature and has no stated maturity date.
(l)	Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(m)	During the period ended May 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

	Affiliate						Shares Held at August 31, 2014								Net Activity			Shares Held at May 31, 2015		Income
	BlackRock Liquidity Funds,TempFund, Institutional Class						3,456,864							(1,480,800)				1,976,064	$	284

 

(n)	Represents the current yield as of report date.

 

Portfolio Abbreviations
CAD	Canadian Dollar
CLO	Collateralized Loan Obligation
DIP	Debtor-In-Possession
GBP	British Pound
PIK	Payment-In-Kind
USD	U.S. Dollar

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)

•	As of May 31, 2015, forward foreign currency contracts outstanding were as follows:

 

Currency Purchased			Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
CAD	353,000		USD	287,059	Citibank N.A.	7/21/15	$	(3,426)
CAD	154,000		USD	126,143	State Street Bank and Trust Co.	7/21/15		(2,405)
USD	1,675,075		CAD	2,052,000	Royal Bank of Canada	7/21/15		26,306
USD	2,992,626		GBP	2,024,000	Barclays Bank PLC	7/21/15		(99,759)
Total							$	(79,284)

 

•	As of May 31, 2015, OTC options purchased were as follows:

 

Description

Counterparty

Put/ Call

Strike Price

Expiration Date

Contracts

Notional Amount (000)

Value

Marsico Parent Superholdco LLC

Goldman Sachs & Co.

Call

USD

942.86

12/14/19

44

USD

—

—

 

•	Fair Value Measurements - Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:
	•	Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access
	•	Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs)
	•	Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund's own assumptions used in determining the fair value of investments)
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund's policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund's policy regarding valuation of investments and derivative financial instruments, refer to the Fund's most recent financial statements as contained in its semi-annual report.

 

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)

As of May 31, 2015, the following tables summarize the Fund's investments and derivative financial instruments categorized in the disclosure hierarchy:

 

			Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments:
	Asset-Backed Securities			—		$		14,803,395		$		8,109,638		$	22,913,033
	Common Stocks	$		4,109,426				1,033,423				612,993			5,755,842
	Corporate Bonds			—				21,049,030				939,856			21,988,886
	Floating Rate Loan Interests			—				683,702,570				47,146,475			730,849,045
	Investment Companies			90,581				—				—			90,581
	Non-Agency Mortgage-Backed Securities			—				1,361,710				—			1,361,710
	Other Interests			—				—				1,790,003			1,790,003
	Preferred Securities			1,636,076				—				—			1,636,076
	Warrants			—				107,946				30,992			138,938
Short-Term Securities				1,976,064				—				—			1,976,064
Total		$		7,812,147		$		722,058,074		$		58,629,957		$	788,500,178

 

			Level 1				Level 2				Level 3				Total
Derivative Financial Instruments1
Assets:
	Foreign currency exchange contracts			—		$		26,306				—		$	26,306
Liabilities:
	Foreign currency exchange contracts			—				(105,590)				—			(105,590)
Total				—		$		(79,284)				—		$	(79,284)

 

1	Derivative financial instruments are forward foreign currency exchange contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial reporting purposes. As of May 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

			Level 1				Level 2				Level 3				Total
Assets:
	Cash	$		4,182,818				—				—		$	4,182,818
	Foreign currency at value			4,113				—				—			4,113
Liabilities:
	Bank borrowings payable			—		$		(216,000,000)				—			(216,000,000)
Total		$		4,186,931		$		(216,000,000)				—		$	(211,813,069)

 

During the period ended May 31, 2015, there were no transfers between Level 1 and 2.

Consolidated Schedule of Investments (continued)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:

 

		Common Stocks	Asset-Backed Securities	Corporate Bonds	Floating Rate Loan Interests	Other Interests	Unfunded Floating Rate Loan Interests (Liabilities)	Warrants	Total
	Assets:	$1,510,941	$1,159,180	$4,766,957	$58,688,498	$1,858,753	$(374)	$138,171	$68,122,127
	Opening Balance, as of August 31, 2014
	Transfers into Level 31	–	709,356	–	12,863,132	–	–	11,191	18,783,503
	Transfers out of Level 32	–	(913,905)	(3,928,902)	(28,731,347)	–	–	(138,171)	(27,221,859)
	Accrued discounts/ Premiums	–	15,497	(625)	57,000	–	–	–	81,216
	Net realized gain (loss)	(5,161,103)	–	549,895	(29,168)	–	–	12,954	64,178
	Net change in unrealized appreciation/ depreciation3,4	4,146,140	255,475	(575,857)	(511,504)	44,381	374	6,847	(2,762,134)
	Purchases	117,015	7,129,310	128,388	19,219,401	–	–	–	13,781,350
	Sales	–	(245,275)	–	(14,409,537)	(113,131)	–	–	(12,134,292)
	Closing Balance, as of May 31, 2015	$612,993	$8,109,638	$939,856	47,146,475	$1,790,003	–	$30,992	$58,629,957
	Net change in unrealized appreciation/depreciation on investments still held at May 31, 20154	$(1,014,961)	$255,475	$(25,961)	$(596,000)	$44,381	–	$19,800	$(1,317,266)

 

¹ As of August 31, 2014, the Fund used observable inputs in determining the value of certain investments. As of May 31, 2015, the Fund used significant unobservable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $13,583,680 transferred from Level 2 to Level 3 in the disclosure hierarchy.

² As of August 31, 2014, the Fund used significant unobservable inputs in determining the value of certain investments. As of May 31, 2015, the Fund used observable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $33,712,325 transferred from Level 3 to Level 2 in the disclosure hierarchy.

³ Included in the related net change in unrealized appreciation (depreciation).

⁴ Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at May 31, 2015 is generally due to investments no longer held or categorized as Level 3 at period end.

Consolidated Schedule of Investments (concluded)	BlackRock Floating Rate Income Strategies Fund, Inc. (FRA)

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the "Global Valuation Committee") to determine the value of certain of the Fund's Level 3 investments as of May 31, 2015. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $52,061,176. A significant change in such third party pricing information could result in a significantly lower or higher value of such Level 3 investments.

	Value	Valuation Techniques	Unobservable Inputs	Range of Unobservable Inputs Utilized
Assets:
Common Stocks	$ 18,125	Market Comparable Companies	Last 12 Months EBITDA Multiple1	6.25x
			Illiquidity Discount2	17.50%
	594,868	Market Comparable Companies	Last 12 Months EBITDA Multiple1	4.63x - 4.88x
			Current Fiscal Year EBITDA Multiple1	5.13x - 5.33x
			Discontinued Operations Expected Sale Proceeds1	$603
Corporate Bonds	3,086,994	Market Comparable Companies	Last 12 Months EBITDA Multiple1	6.25x
			Illiquidity Discount2	17.50%
	939,856	Discounted Cash Flow	Internal Rate of Return2	10.00%
Other Interests	1,790,000	Market Comparable Companies	Tangible Book Value Multiple1	1.25x
Warrants	107,946	Market Comparable Companies	Last 12 Months EBITDA Multiple1	6.25x
			Illiquidity Discount2	17.50%
	30,992	Last Dealer Mark - Adjusted	Delta Adjustment Based on Daily Movement in the Common Equity1	120.00%
Total	$6,568,781

 

¹ Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

² Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

³ Amount is stated in millions.

Item 2 –

Controls and Procedures

2(a) –

The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the ″1940 Act″)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

2(b) –

There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 3 –

Exhibits

Certifications – Attached hereto

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BlackRock Floating Rate Income Strategies Fund, Inc.

By:

/s/ John M. Perlowski

John M. Perlowski

Chief Executive Officer (principal executive officer) of

BlackRock Floating Rate Income Strategies Fund, Inc.

Date: July 23, 2015

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/ John M. Perlowski

John M. Perlowski

Chief Executive Officer (principal executive officer) of

BlackRock Floating Rate Income Strategies Fund, Inc.

Date: July 23, 2015

By:

/s/ Neal J. Andrews

Neal J. Andrews

Chief Financial Officer (principal financial officer) of

BlackRock Floating Rate Income Strategies Fund, Inc.

Date: July 23, 2015