UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21464
Name of Fund: BlackRock Floating Rate Income Strategies Fund II, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Floating Rate Income Strategies Fund II, Inc., 800
Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O.
Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 02/28/07
Date of reporting period: 03/01/06 - 08/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY
REAL ESTATE
BlackRock Floating Rate
Income Strategies Fund II, Inc.
SEMI-ANNUAL REPORT AUGUST 31, 2006
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Floating Rate Income Strategies Fund II, Inc. seeks a high current
income and such preservation of capital as is consistent with investment in a
diversified, leveraged portfolio consisting primarily of floating rate debt
securities and instruments.
This report, including the financial information herein, is transmitted for
use only to the shareholders of BlackRock Floating Rate Income Strategies
Fund II, Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the Fund or any
securities mentioned in this report. Past performance results shown in this
report should not be considered a representation of future performance. The
Fund leverages its Common Stock to provide Common Stock shareholders with a
potentially higher rate of return. Leverage creates risk for Common Stock
shareholders, including the likelihood of greater volatility of net asset
value and market price of Common Stock shares, and the risk that fluctuations
in short-term interest rates may reduce the Common Stock's yield. Statements
and other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.blackrock.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Floating Rate Income Strategies Fund II, Inc.
Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
BlackRock Floating Rate Income Strategies Fund II, Inc.
The Benefits and Risks of Leveraging
BlackRock Floating Rate Income Strategies Fund II, 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.
Officers and Directors
Robert C. Doll, Jr., President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Jean Margo Reid, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
NYSE Symbol
FRB
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements will reflect the BlackRock name beginning
with the October month-end reporting period. Unless otherwise communicated to
you, your funds maintain the same investment objectives that they did prior to
the combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in
cooperation with their financial professionals, in working toward their
investment goals. We thank you for allowing us the opportunity, and we look
forward to serving your investment needs in the months and years ahead as the
new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
A Discussion With Your Fund's Portfolio Manager
We continued to seek above-average yields and capital appreciation potential,
although the Fund's total return was hindered somewhat relative to its
benchmark by individual security selection.
Describe market conditions during the past six months.
During the six-month period ended August 31, 2006, the performance of the bank
loan market benefited from the rising London InterBank Offered Rate (LIBOR),
decreasing spreads and increasing demand for bank loans on the part of
collateralized loan obligations (CLOs), which kept prices close to par value.
Investors earned total returns consisting mainly of interest payments, as
there were only marginal price changes. The three-month LIBOR rose
approximately 57 basis points (0.57%) to 5.40% during the period. Leveraged
loans, in which the Fund may invest up to 80% of its assets, returned +3.25%
for the six-month period, as measured by the Credit Suisse Leveraged Loan
Index. High yield bonds, in which the Fund may invest up to 20% of its assets,
returned +3.45% for the period, as measured by the Credit Suisse High Yield
Index.
Standard and Poor's Leveraged Commentary & Data (LCD) reported a default rate
of 1.36% based on the number of loans at the end of August 2006, below the
historical average of 3.56%.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended August 31, 2006, the Common Stock of Floating
Rate Income Strategies Fund II, Inc. had net annualized yields of 6.96% and
7.65%, based on a period-end per share net asset value of $19.23 and a per
share market price of $17.51, respectively, and $0.675 per share income
dividends. For the same period, the total investment return on the Fund's
Common Stock was +2.96%, based on a change in per share net asset value from
$19.39 to $19.23, and assuming reinvestment of all distributions. The Fund's
unmanaged benchmark, which is comprised 80% of the Credit Suisse Leveraged
Loan Index and 20% of the Credit Suisse High Yield Index, posted a total
return of +3.29% for the six-month period.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock can vary significantly from total investment returns
based on changes in the Fund's net asset value.
What factors most influenced Fund performance?
Individual security selection hindered the Fund's relative performance during
the period. Among the notable detractors were our holdings in the bonds and
floating rate notes of MagnaChip Semiconductor, SA of South Korea. The
securities' value fell significantly amid the company's weak sales and
earnings for the first half of 2006. Other detractors were Quantum Corporation
and Majestic Star Casino. The price of a bond issued by data storage firm
Quantum declined after the company reported two quarters of negative earnings
surprises. Our investment in a fixed rate bond of Majestic Star Casino had a
negative effect on Fund performance as the company experienced heavy
competition in the Chicago area, where it derives the majority of its revenue.
Conversely, Fund results benefited from the strong performance of a bond of
Terremark Worldwide Inc., which provides secure network and value-added
telecommunications services. The company completed its build-out of a network
access point based in Miami, and the number of users exceeded expectations.
Our position in a credit of Medis Technologies Ltd., which develops fuel cell
technology, also had a positive effect. The company began shipping its 24/7
fuel cell power packs to customers and is anticipating a full roll-out in the
winter and early spring of 2007. In addition, the performance of our holdings
in a bond and loans of Reliant Energy, Inc., an independent electric power
producer, enhanced Fund returns. The likelihood of a strategic transaction by
Reliant in the next year increased significantly, and the company is
anticipating further reductions of emissions credit expenses in the future.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
What changes were made to the portfolio during the period?
We continued our efforts to maintain a portfolio that is well diversified both
by industry and company. The Fund's floating rate/fixed rate ratio averaged
around 85%/15%. The floating rate securities are based on a spread over LIBOR
while the fixed rate securities are based mainly on the 10-year U.S. Treasury
note. With the three-month LIBOR hovering around 5.40% versus a 10-year
Treasury yield of 4.75% (as of mid September 2006), we see little reason to
push closer to the Fund's 20% fixed rate allocation limit.
During the period, we purchased approximately $86.6 million in par amount
(face value) and experienced $38.2 million in repayments from issuers. In
addition, we sold roughly $45.6 million in assets.
The portfolio's leverage position averaged roughly 23% for the period. We
intend to make fuller use of the Fund's leverage lines going forward. (For a
discussion of the benefits and risks of leveraging, see page 2 of this report
to shareholders.)
How would you characterize the Fund's position at the close of the period?
At the end of the period, the portfolio was composed of 138 issuers spread
among 27 industries. The Fund was underweight versus its composite benchmark
in securities rated Ba or better, Caa or below and unrated credits, and had an
overweight position in B-rated securities.
The Federal Reserve Board (the Fed) left the federal funds rate unchanged at
5.25% at its August meeting, following 17 consecutive quarter-point rate hikes
since June 2004. It is uncertain if this pause in the Fed's rate tightening
campaign will continue. Whether the federal funds rate is increased or even
reduced will rely to a great extent on inflation data. A question facing
investors is whether the slightly inverted yield curve (in which short-term
securities carry higher yields than longer-term issues) will resume its normal
slope and, if so, whether it will occur because of rising long-term interest
rates, declining short-term rates, or a combination of the two. As most of the
portfolio's assets are invested in floating rate securities, declining short-
term rates would result in a lower yield. Conversely, rising long-term rates
would have a minimal effect on Fund performance, whereas funds investing only
in high yield bonds would see their principal erode.
We continue to see solid inflows to the leveraged loan market in the form
of CLOs, which hold nearly two-thirds of all leveraged loans. The robust
demand for these securities has spilled over to the high yield bond market.
Historically, there have been discrete boundaries between the two markets. The
lines have become blurred as we have seen high yield bond deals migrate to the
leveraged loan market as optimistically titled "second lien loans," keeping
high yield bond spreads tighter than they otherwise would be. Overall,
however, liquidity is key when it comes to the ability of companies to
refinance. Therefore, given the consensus outlook for continued economic
growth in the 2% - 3% range and the fact that we have experienced moderate
setbacks in the high yield market that have helped maintain credit discipline,
we expect to see a benign default rate environment going forward.
Kevin Booth
Portfolio Manager
September 15, 2006
We are pleased to announce that Kevin J. Booth and Mark J. Williams are
primarily responsible for the day-to-day management of the Fund's portfolio.
Mr. Booth was named Portfolio Manager effective August 7, 2006. Mr. Booth has
been a Managing Director of BlackRock, Inc. since 2006. He had been a Managing
Director (Global Fixed Income) with Merrill Lynch Investment Managers (MLIM)
in 2006 and previously was a Director of MLIM from 1998 to 2005 and Vice
President thereof from 1991 to 1998. Mr. Williams joined Mr. Booth as
Portfolio Manager effective October 2, 2006. He is a Managing Director and
portfolio manager/loan originator with BlackRock. Prior to joining BlackRock
in 1998, Mr. Williams spent eight years with PNC Bank's New York office and
was a founding member of the bank's Leveraged Finance Group.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Proxy Results
During the six-month period ended August 31, 2006, BlackRock Floating Rate
Income Strategies Fund II, Inc.'s shareholders voted on the following
proposals. Proposals 1, 2 and 3 were approved at a shareholders' meeting on
August 15, 2006. A description of the proposals and number of shares voted
were as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Robert C. Doll, Jr. 6,895,492 483,433
Ronald W. Forbes 6,895,404 483,521
Cynthia A. Montgomery 6,893,939 484,986
Jean Margo Reid 6,895,539 483,386
Roscoe S. Suddarth 6,890,882 488,043
Richard R. West 6,894,264 484,661
Edward D. Zinbarg 6,892,375 486,550
Shares Voted Shares Voted Shares Voted
For Against Abstain
2. To approve a new investment advisory agreement. 4,958,108 214,694 294,751
3. To approve a contingent subadvisory agreement. 4,954,828 219,002 293,723
Portfolio Information as of August 31, 2006
Percent of
Ten Largest Holdings Net Assets
Intelsat Corp. Term Loan B, 8.008%
due 1/03/2014 3.9%
Calpine Generating Co., LLC Term Loan,
11.15% due 3/12/2010 3.4
Majestic Star Casino LLC, 9.50%
due 10/15/2010 3.1
Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 3.0
Century Cable Holdings LLC Discretionary Term
Loan, 10.25% due 12/31/2009 2.9
Graham Packaging Co. LP Term Loan B, 7.563% -
7.875% due 10/07/2011 2.8
Metro-Goldwyn-Mayer Studios, Inc. Term Loan B,
7.229% due 4/30/2011 2.7
Aquila, Inc. Term Loan, 11.08% due 9/14/2009 2.5
Resorts International First Lien Term Loan, 9.50%
due 4/26/2012 2.5
True Temper Sports, Inc. Term Loan B, 8.03% -
10.25% due 3/15/2011 2.4
Percent of
Five Largest Industries Net Assets
Utility 21.8%
Cable--U.S. 18.2
Gaming 15.2
Automotive 6.9
Aerospace & Defense 6.2
For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifications used by
one or more widely recognized market indexes or ratings group
indexes, and/or as defined by Fund management. This definition
may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease.
Percent of
Total
Quality Ratings by S&P/Moody's Investments
BBB/Baa 0.4%
BB/Ba 24.5
B/B 62.5
CCC/Caa 6.1
NR (Not Rated) 6.4
Other* 0.1
* Includes portfolio holdings in common stocks and short-term
investments.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Schedule of Investments
Face
Amount Floating Rate Loan Interests** Value
Aerospace & Defense--6.1%
$1,592,000 IAP Worldwide Services, Inc. First Lien Term Loan,
8.50% due 12/30/2012 $ 1,601,619
1,538,542 K&F Industries, Inc. Term Loan, 7.33% - 7.40%
due 11/18/2012 1,542,388
4,000,000 MRO Acquisitions Corp. Second Lien Term Loan,
10.65% due 8/15/2011 4,035,000
1,188,000 Mid-Western Aircraft Systems, Inc. Term Loan B,
7.748% due 12/31/2011 1,195,277
1,923,077 Standard Aero Holdings Term Loan, 7.58% -
7.68% due 8/24/2012 1,924,279
Vought Aircraft Industries, Inc.:
1,656,282 Term Loan, 8% due 12/22/2011 1,666,117
320,000 Tranche B Line of Credit Deposit, 7.83%
due 12/22/2010 323,000
--------------
12,287,680
Airlines--0.9%
1,000,000 Delta Air Lines Debtor in Possession Term Loan B,
10.023% due 3/16/2008 1,013,214
United Air Lines:
93,281 Delay Draw Term Loan, 8.58%
due 2/01/2012 94,680
652,969 Term Loan B, 9.25% due 2/01/2012 662,763
--------------
1,770,657
Automotive--5.0%
1,000,000 Delphi Corp. Debtor in Possession Term Loan B,
8.125% due 10/08/2007 1,010,625
997,500 GPX International Tire Corp. Term Loan B, 7.83%
due 4/06/2012 1,002,488
1,500,000 JL French Corp. First Lien Term Loan, 8.50%
due 6/30/2011 1,497,500
5,273,094 Metaldyne Corp. Term Loan D, 10%
due 12/31/2009 5,332,046
1,250,000 Visteon Corp. Term Loan B, 8.61%
due 6/13/2013 1,250,000
--------------
10,092,659
Broadcasting--4.0%
1,985,000 Entravision Communications Term Loan B, 7.01%
due 3/29/2013 1,986,862
1,736,875 NextMedia Group, Inc. First Lien Term Loan,
7.33% - 7.406% due 11/15/2012 1,731,447
1,750,000 Paxson Communications Corp. First Lien Term
Loan, 8.757% due 1/15/2012 1,778,438
2,474,937 Spanish Broadcasting System, Inc. Tranche 2
First Lien Term Loan B, 7.25% due 6/10/2012 2,476,484
--------------
7,973,231
Cable--U.S.--17.0%
3,000,000 Adelphia Communications Corp. Term Loan B,
10.25% due 6/30/2009 2,921,250
1,960,000 Bragg Communications Term Loan B, 7.33%
due 8/31/2011 1,964,900
Cebridge Connections:
1,000,000 Second Lien Term Loan, 9.989%
due 5/05/2014 970,000
1,293,103 Term Loan B, 7.74% due 11/06/2013 1,285,598
6,000,000 Century Cable Holdings LLC, Discretionary Term
Loan, 10.25% due 12/31/2009 5,816,250
6,000,000 Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 6,022,086
Face
Amount Floating Rate Loan Interests** Value
Cable--U.S. (concluded)
$2,000,000 Hilton Head Communications UCA Term Loan
B, 9.50% due 3/31/2008 $ 1,927,916
7,880,000 Intelsat Corp. Term Loan B, 8.008%
due 1/03/2014 7,941,566
2,452,500 Mediacom Broadband Group Tranche A Term
Loan, 6.50% - 6.62% due 3/31/2010 2,410,349
3,160,000 Mediacom LLC Term Loan C, 7.002% - 7.37%
due 1/31/2015 3,150,972
--------------
34,410,887
Chemicals--3.3%
4,678,750 Rockwood Specialties Group, Inc. Tranche D Term
Loan, 7.485% due 7/30/2012 4,706,532
2,000,000 Wellman, Inc. Second Lien Term Loan, 12.239%
due 2/10/2010 1,955,000
--------------
6,661,532
Consumer--Durables--0.9%
1,740,440 Simmons Co. Tranche B Term Loan, 7.375% -
9.50% due 12/19/2011 1,752,677
Consumer--Non-Durables--1.0%
756,000 Camelbak Products LLC First Lien Term Loan,
9.41% - 9.46% due 8/04/2011 740,880
1,205,930 Culligan International Co. Term Loan, 7.33%
due 9/30/2011 1,207,815
--------------
1,948,695
Diversified Media--3.6%
5,486,250 Metro-Goldwyn-Mayer Studios, Inc. Term Loan B,
7.229% due 4/08/2012 5,473,061
1,807,828 RH Donnelley, Inc. Term Loan D-2, 6.73% -
7.01% due 6/30/2011 1,798,082
--------------
7,271,143
Energy--Exploration & Production--0.7%
1,000,000 Helix Energy Solutions Term Loan B, 7.346% -
7.64% due 7/01/2013 1,001,160
498,750 MEG Energy Corp. Term Loan B, 7.50%
due 4/03/2013 499,863
--------------
1,501,023
Energy--Other--1.0%
888,889 Alon USA Inc. Term Loan B, 7.906%
due 6/22/2013 899,444
995,000 Key Energy Services, Inc. Term Loan B, 8.90% -
9.23% due 6/30/2012 1,000,597
125,993 Markwest Energy Operating Co. LLC Term
Loan B, 7.656% due 12/29/2010 126,308
--------------
2,026,349
Food & Tobacco--1.4%
937,250 Commonwealth Brands Term Loan, 7.75%
due 12/22/2012 944,045
Dole Food Co., Inc.:
139,535 Letter of Credit, 7.438% due 4/12/2013 137,684
313,169 Term Loan B, 5.37% - 9% due 4/12/2013 309,015
1,043,895 Term Loan C, 7.375% - 9% due 4/12/2013 1,030,049
500,000 QCE LLC First Lien Term Loan, 7.75%
due 5/05/2013 499,427
--------------
2,920,220
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
Gaming--8.0%
$1,975,000 Herbst Gaming, Inc. Term Loan, 7.11% - 7.499%
due 1/31/2011 $ 1,978,703
2,936,364 MGM Mirage Revolving Credit, 6.284% - 7.05%
due 4/01/2012 2,856,224
884,348 Mississippi Band of Choctaw Indians Term Loan,
7.749% due 11/04/2011 884,901
4,982,191 Resorts International First Lien Term Loan, 9.50%
due 4/26/2012 5,018,935
990,000 Trump Entertainment Resorts Holdings LP Term
Loan B-1, 7.92% - 8.03% due 5/20/2012 997,735
Venetian Casino Resort LLC:
1,000,000 Delay Draw Term Loan, 7.25%
due 6/15/2011 1,000,078
2,400,000 Term Loan B, 7.25% due 6/15/2011 2,400,187
1,000,000 Venetian Macau U.S. Finance Co. Term Loan B,
8.20% due 5/25/2013 1,005,000
--------------
16,141,763
Health Care--1.8%
1,965,000 Community Health Systems, Inc. Term Loan,
7.08% - 7.15% due 8/19/2011 1,966,535
682,200 Duloxetine Royalty Term Loan, 10.007%
due 10/18/2013 685,611
959,459 Gentiva Health Services, Inc. Term Loan B,
7.37% - 7.89% due 3/31/2013 961,858
--------------
3,614,004
Housing--4.7%
2,388,571 Associated Materials, Inc. Term Loan, 7.58% -
8.13% due 8/29/2010 2,393,798
2,920,211 Headwaters, Inc. Term Loan B-1, 7.33% - 7.50%
due 4/30/2011 2,936,637
77,895 LIONS Gables Realty Term Loan B, 7.12%
due 9/30/2006 77,984
2,159,232 Lake at Las Vegas Joint Venture First Lien Term
Loan, 8.17% - 8.249% due 2/01/2010 2,162,894
498,750 Mattamy Group Term Loan B, 7.688%
due 4/11/2013 499,997
1,470,000 Nortek, Inc. Term Loan, 7.36% due 8/27/2011 1,466,554
--------------
9,537,864
Information Technology--1.3%
1,316,700 Activant Solutions Term Loan B, 7.438% -
7.50% due 5/02/2013 1,300,241
1,297,500 Fidelity National Information Solutions, Inc.
Term Loan B, 7.08% due 3/08/2013 1,302,414
--------------
2,602,655
Leisure--3.4%
1,995,000 24 Hour Fitness Term Loan B, 7.70% - 7.99%
due 6/08/2012 2,011,209
4,800,424 True Temper Sports, Inc. Term Loan B, 8.03% -
10.25% due 3/15/2011 4,824,427
--------------
6,835,636
Manufacturing--4.1%
1,242,020 Amsted Industries, Inc. Term Loan B, 7.27% -
7.50% due 4/05/2013 1,242,020
1,392,452 Blount, Inc. US Term Loan B, 7.152% - 7.258%
due 8/09/2010 1,404,636
1,405,327 GenTek, Inc. First Lien Term Loan, 7.58% -
7.76% due 2/28/2011 1,413,232
Face
Amount Floating Rate Loan Interests** Value
Manufacturing (concluded)
$1,975,000 Metokote Corp. Second Lien Term Loan, 8.58% -
8.74% due 11/27/2011 $ 1,981,172
2,273,559 Mueller Group LLC Term Loan B, 7.11% -
7.868% due 10/03/2012 2,290,813
--------------
8,331,873
Packaging--4.3%
1,921,182 Anchor Glass Container Corp. Term Loan B,
7.65% - 7.749% due 5/03/2013 1,925,985
964,843 Berry Plastics Corp. Term Loan, 7.08%
due 12/02/2011 965,043
5,722,975 Graham Packaging Co. LP Term Loan B,
7.563% - 7.875% due 10/07/2011 5,744,436
--------------
8,635,464
Paper--2.1%
705,702 Boise Cascade Holdings LLC Tranche D Term
Loan, 7.094% - 7.25% due 10/28/2011 709,110
Georgia Pacific Corp.:
995,000 First Lien Term Loan B, 7.30% - 7.50%
due 12/20/2012 997,004
1,000,000 Second Lien Term Loan C, 8.30%
due 12/23/2013 1,010,208
Smurfit-Stone Container Corp.:
990,843 Term Loan B, 7.50% - 7.688%
due 11/01/2011 997,377
463,529 Term Loan C, 7.50% - 7.688%
due 11/01/2011 466,586
--------------
4,180,285
Retail--1.2%
1,352,997 General Nutrition Centers, Inc. Tranche B Term
Loan, 8.08% - 8.15% due 12/05/2009 1,362,722
949,367 Neiman Marcus Group, Inc. Term Loan,
7.77% due 4/06/2013 958,109
--------------
2,320,831
Service--4.1%
EnergySolutions:
12,579 Letter of Credit, 7.58% due 6/07/2013 12,669
266,667 Term Loan B, 7.65% - 7.77% due 6/07/2013 268,583
120,755 Term Loan C, 7.65% - 7.77% due 6/07/2013 121,623
995,081 RGIS Inventory Specialists First Lien Term Loan,
7.999% due 12/31/2012 994,770
United Rentals, Inc.:
2,445,038 Term Loan, 7.33% due 2/14/2011 2,452,461
99,261 Tranche B Credit Linked Deposit, 4.86%
due 2/14/2011 99,563
2,000,000 Vanguard Car Rental Term Loan B, 8.319%
due 6/14/2013 2,004,750
Wastequip, Inc.:
888,630 First Lien Term Loan, 7.749% due 7/15/2011 890,852
500,000 Second Lien Term Loan, 10.999%
due 7/15/2012 502,500
936,265 Weight Watchers International, Inc. First
Lien Term Loan, 7.575% - 7.748%
due 12/16/2010 941,824
--------------
8,289,595
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Schedule of Investments (continued)
Face
Amount Floating Rate Loan Interests** Value
Telecommunications--3.2%
$1,500,000 Alaska Communications Systems Holdings, Inc.
Term Loan, 7.25% due 2/01/2012 $ 1,497,563
1,975,000 Intelsat Ltd. Term Loan B, 7.758%
due 7/03/2013 1,986,520
3,000,000 SBA Senior Finance Term Loan, 7.33%
due 1/27/2007 3,008,439
--------------
6,492,522
Utility--18.6%
5,000,000 Aquila, Inc. Term Loan, 11.08% due 9/14/2009 5,112,500
1,500,000 Calpine Corp. Second Lein Debtor in Possession,
9.499% due 12/20/2007 1,521,874
Calpine Generating Co. LLC:
2,000,000 First Lien Term Loan, 9.08% due 4/01/2009 2,054,444
6,500,000 Term Loan, 11.08% due 4/01/2010 6,830,414
Covanta Energy Corp.:
314,815 Delay Draw Term Loan, 7.749%
due 6/30/2012 314,815
1,873,171 First Lien Letter of Credit, 5.46%
due 6/24/2012 1,887,609
1,342,317 First Lien Term Loan, 7.58% - 7.71%
due 5/26/2013 1,352,664
1,105,000 Second Lien Term Loan, 10.96%
due 6/24/2013 1,129,862
1,960,150 KGen LLC Tranche A Term Loan, 8.124%
due 8/05/2011 1,967,501
LSP General Finance Co. LLC:
1,749,028 First Lien Term Loan, 7.08% - 7.249%
due 5/04/2013 1,746,112
500,000 Term Loan, 8.999% due 5/04/2014 505,834
1,463,298 LSP Kendall Energy Term Loan B, 7.499%
due 10/07/2013 1,453,238
1,734,802 Primary Energy Finance LLC Term Loan, 7.33%
due 8/24/2012 1,742,392
234,676 Reliant Energy, Inc. Term Loan, 7.705%
due 4/30/2010 235,006
4,252,251 Riverside Energy Center Term Loan, 9.735%
due 6/24/2011 4,369,188
Rocky Mountain Energy Center LLC:
339,834 Credit Linked Deposit, 5.39% due 6/24/2011 345,429
2,937,820 Term Loan, 9.735% due 6/24/2011 3,022,360
Wolf Hollow I LP:
485,604 First Lien Term Loan, 7.749% due 6/22/2012 488,032
400,000 Letter of Credit, 7.576% due 6/22/2012 402,000
100,000 Revolving Credit, 7.576% due 6/22/2012 101,250
1,000,000 Second Lien Term Loan, 9.937%
due 12/22/2012 1,005,000
--------------
37,587,524
Total Floating Rate Loan Interests
(Cost--$204,023,418)--101.7% 205,186,769
Corporate Bonds
Aerospace & Defense--0.1%
250,000 Alliant Techsystems, Inc., 6.75% due 4/01/2016 243,125
Airlines--1.0%
2,000,000 American Airlines Inc. Class C, 7.80%
due 4/01/2008 2,000,000
Face
Amount Corporate Bonds Value
Automotive--1.9%
$ 250,000 AutoNation, Inc., 7.507% due 4/15/2013 (a)(b) $ 251,250
3,500,000 Ford Motor Credit Co., 9.957% due 4/15/2012 (b) 3,700,060
--------------
3,951,310
Cable--U.S.--1.2%
2,000,000 Charter Communications Holdings II LLC,
10.25% due 9/15/2010 2,025,000
450,000 Quebecor Media, Inc., 7.75% due 3/15/2016 445,500
--------------
2,470,500
Chemicals--1.0%
1,646,000 GEO Specialty Chemicals, Inc., 13.981%
due 12/31/2009 (b) 1,357,950
625,000 Nova Chemicals Corp., 8.405%
due 11/15/2013 (b) 638,281
--------------
1,996,231
Diversified Media--0.1%
250,000 Quebecor World Capital Corp., 8.75%
due 3/15/2016 (a) 235,000
Energy--Exploration & Production--0.1%
250,000 Pogo Producing Co., 7.875% due 5/01/2013 (a) 255,000
Energy--Other--1.2%
250,000 MarkWest Energy Partners LP, 8.50%
due 7/15/2016 (a) 253,125
2,000,000 Ocean RIG ASA, 9.481% due 4/04/2011 (b) 1,985,000
250,000 PHI, Inc., 7.125% due 4/15/2013 (a) 238,125
--------------
2,476,250
Food & Tobacco--1.1%
250,000 AmeriQual Group LLC, 9.50% due 4/01/2012 (a) 255,000
2,000,000 Landry's Restaurants, Inc. Series B, 7.50%
due 12/15/2014 1,890,000
--------------
2,145,000
Gaming--7.2%
650,000 Galaxy Entertainment Finance Co. Ltd., 10.42%
due 12/15/2010 (a)(b) 680,875
1,000,000 Isle of Capri Casinos, Inc., 7% due 3/01/2014 950,000
275,000 Jacobs Entertainment Co., 9.75%
due 6/15/2014 (a) 274,656
2,000,000 Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (a) 1,990,000
325,000 MTR Gaming Group, Inc., 9% due 6/01/2012 (a) 327,437
6,000,000 Majestic Star Casino LLC, 9.50%
due 10/15/2010 6,172,500
1,000,000 Pinnacle Entertainment, Inc., 8.25%
due 3/15/2012 1,005,000
3,000,000 Poster Financial Group, Inc., 8.75%
due 12/01/2011 3,135,000
--------------
14,535,468
Health Care--0.7%
375,000 Angiotech Pharmaceuticals, Inc., 7.75%
due 4/01/2014 (a) 365,625
1,000,000 US Oncology Holdings, Inc., 10.32%
due 3/15/2015 (b) 1,015,000
--------------
1,380,625
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Schedule of Investments (concluded)
Face
Amount Corporate Bonds Value
Information Technology--3.1%
$ 950,000 Cypress Semiconductor Corp., 1.25%
due 6/15/2008 (c) $ 1,123,375
4,000,000 MagnaChip Semiconductor SA, 8.579%
due 12/15/2011 (b) 3,420,000
2,000,000 Quantum Corp., 4.375% due 8/01/2010 (c) 1,735,000
--------------
6,278,375
Manufacturing--1.6%
3,000,000 International Rectifier Corp., 4.25%
due 7/15/2007 (c) 2,958,750
318,000 Invensys Plc, 9.875% due 3/15/2011 (a) 343,440
--------------
3,302,190
Packaging--0.8%
1,575,000 Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (a) 1,575,000
Paper--3.5%
2,000,000 Abitibi-Consolidated, Inc., 8.829%
due 6/15/2011 (b) 1,970,000
2,000,000 Bowater, Inc., 8.329% due 3/15/2010 (b) 2,020,000
3,000,000 Verso Paper Holdings LLC, 9.235%
due 8/01/2014 (a)(b) 3,022,500
--------------
7,012,500
Retail--1.1%
2,000,000 Neiman Marcus Group, Inc., 9%
due 10/15/2015 2,125,000
Telecommunications--0.4%
800,000 Qwest Corp., 8.579% due 6/15/2013 (b) 861,000
Utility--3.2%
1,325,000 Edison Mission Energy, 7.50%
due 6/15/2013 (a) 1,325,000
250,000 El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (a) 254,687
Face
Amount Corporate Bonds Value
Utility (concluded)
$2,000,000 NRG Energy, Inc., 7.25% due 2/01/2014 $ 1,975,000
3,000,000 Reliant Energy, Inc., 6.75% due 12/15/2014 2,827,500
--------------
6,382,187
Wireless Communications--0.2%
325,000 Dobson Communications Corp., 9.757%
due 10/15/2012 (b) 329,062
Total Corporate Bonds
(Cost--$59,646,810)--29.5% 59,553,823
Shares
Held Common Stocks
Chemicals--0.0%
10,731 GEO Specialty Chemicals, Inc. (d) 21,464
Manufacturing--0.1%
13,052 Medis Technologies Ltd. (d) 261,452
Total Common Stocks
(Cost--$378,541)--0.1% 282,916
Beneficial
Interest Short-Term Securities
$ 112,096 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 5.11% (e)(f) 112,096
Total Short-Term Securities
(Cost--$112,096)--0.1% 112,096
Total Investments (Cost--$264,160,865*)--131.4% 265,135,604
Liabilities in Excess of Other Assets--(31.4%) (63,309,498)
--------------
Net Assets--100.0% $ 201,826,106
==============
* The cost and unrealized appreciation (depreciation) of investments
as of August 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 264,160,865
===============
Gross unrealized appreciation $ 2,466,699
Gross unrealized depreciation (1,491,960)
---------------
Net unrealized appreciation $ 974,739
===============
** Floating rate corporate debt in which the Fund invests generally pays
interest at rates that are periodically redetermined by reference to a
base lending rate plus a premium. The base lending rates are generally
(i) the lending rate offered by one or more major European Banks, such
as LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by
one or more major U.S. banks or (iii) the certificate of deposit rate.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate security.
(c) Convertible security.
(d) Non-income producing security.
(e) 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 $(49,771) $19,900
(f) Represents the current yield as of August 31, 2006.
o For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifications used
by one or more widely recognized market indexes or ratings group
indexes, and/or as defined by Fund management. This definition may
not apply for purposes of this report, which may combine industry
sub-classifications for reporting ease.
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Statement of Assets, Liabilities and Capital
As of August 31, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$264,048,769) $ 265,023,508
Investments in affiliated securities, at value (identified cost--$112,096) 112,096
Cash 1,845,435
Receivables:
Interest $ 3,426,058
Principal paydowns 120,198
Commitment fees 17,823 3,564,079
---------------
Prepaid expenses 4,527
---------------
Total assets 270,549,645
---------------
Liabilities
Loans 68,000,000
Unfunded loan commitment 247,485
Payables:
Dividends to shareholders 246,238
Investment adviser 136,299
Interest on loans 72,387
Other affiliates 1,665 456,589
---------------
Accrued expenses 19,465
---------------
Total liabilities 68,723,539
---------------
Net Assets
Net assets $ 201,826,106
===============
Capital
Common Stock, par value $.10 per share; 200,000,000 shares authorized
(10,496,930 shares issued and outstanding) $ 1,049,693
Paid-in capital in excess of par 199,119,933
Undistributed investment income--net $ 3,084,198
Accumulated realized capital losses--net (2,256,029)
Unrealized appreciation--net 828,311
---------------
Total accumulated earnings--net 1,656,480
---------------
Total capital--Equivalent to $19.23 net asset value per share of Common Stock
(market price--$17.51) $ 201,826,106
===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Statement of Operations
For the Six Months Ended August 31, 2006
Investment Income
Interest (including $19,900 from affiliates) $ 10,927,946
Facility and other fees 123,100
---------------
Total income 11,051,046
---------------
Expenses
Loan interest expense $ 1,630,372
Investment advisory fees 995,998
Borrowing costs 62,609
Accounting services 46,178
Professional fees 38,979
Directors' fees and expenses 22,072
Transfer agent fees 18,214
Printing and shareholder reports 17,170
Listing fees 8,337
Custodian fees 8,314
Pricing services 5,381
Other 9,471
---------------
Total expenses 2,863,095
---------------
Investment income--net 8,187,951
---------------
Realized & Unrealized Loss--Net
Realized loss on investments--net (301,500)
Change in unrealized appreciation/depreciation on:
Investments--net (2,659,893)
Unfunded corporate loans--net (3,423) (2,663,316)
--------------- ---------------
Total realized and unrealized loss--net (2,964,816)
---------------
Net Increase in Net Assets Resulting from Operations $ 5,223,135
===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
August 31, February 28,
Increase (Decrease) in Net Assets: 2006 2006
Operations
Investment income--net $ 8,187,951 $ 14,008,010
Realized loss--net (301,500) (1,954,529)
Change in unrealized appreciation/depreciation--net (2,663,316) (1,368,145)
--------------- ---------------
Net increase in net assets resulting from operations 5,223,135 10,685,336
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net (6,954,206) (13,283,655)
Realized gain--net -- (1,099,532)
--------------- ---------------
Net decrease from dividends and distributions to shareholders (6,954,206) (14,383,187)
--------------- ---------------
Net Assets
Total decrease in net assets (1,731,071) (3,697,851)
Beginning of period 203,557,177 207,255,028
--------------- ---------------
End of period* $ 201,826,106 $ 203,557,177
=============== ===============
* Undistributed investment income--net $ 3,084,198 $ 1,850,453
=============== ===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Statement of Cash Flows
For the Six Months Ended August 31, 2006
Cash Used for Operating Activities
Net increase in net assets resulting from operations $ 5,223,135
Adjustments to reconcile net increase in net assets resulting from operations to net cash
used for operating activities:
Increase in receivables (494,566)
Decrease in other liabilities (40,474)
Realized and unrealized loss--net 2,964,816
Amortization of premium and discount (137,318)
Proceeds from sales and paydowns of long-term securities 82,799,924
Other investment related transactions (13,007)
Purchases of long-term securities (90,980,241)
Proceeds from sales of short-term investments 49,771
---------------
Cash used for operating activities (627,960)
---------------
Cash Used for Financing Activities
Cash receipts from borrowings 90,600,000
Cash payments on borrowings (84,000,000)
Dividends paid to shareholders (6,998,714)
---------------
Cash used for financing activities (398,714)
---------------
Cash
Net decrease in cash (1,026,674)
Cash at beginning of period 2,872,109
---------------
Cash at end of period $ 1,845,435
===============
Cash Flow Information
Cash paid for interest $ 1,590,356
===============
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Financial Highlights
For the Six For the For the Period
Months Ended Year Ended July 30, 2004++ to
The following per share data and ratios have been derived August 31, February 28, February 28,
from information provided in the financial statements. 2006 2006 2005
Per Share Operating Performance
Net asset value, beginning of period $ 19.39 $ 19.74 $ 19.10
------------ ------------ ------------
Investment income--net*** .78 1.33 .58
Realized and unrealized gain (loss)--net (.28) (.31) .57
------------ ------------ ------------
Total from investment operations .50 1.02 1.15
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net (.66) (1.27) (.47)
Realized gain--net -- (.10) (.01)
------------ ------------ ------------
Total dividends and distributions (.66) (1.37) (.48)
------------ ------------ ------------
Offering costs resulting from the issuance of Common Stock -- -- (.03)
------------ ------------ ------------
Net asset value, end of period $ 19.23 $ 19.39 $ 19.74
============ ============ ============
Market price per share, end of period $ 17.51 $ 17.76 $ 19.44
============ ============ ============
Total Investment Return**
Based on net asset value per share 2.96%+++ 6.07% 5.97%+++
============ ============ ============
Based on market price per share 2.35%+++ (1.35%) (.34%)+++
============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver and excluding interest expense 1.21%* 1.25% .92%*
============ ============ ============
Expenses, net of waiver 2.80%* 2.46% 1.30%*
============ ============ ============
Expenses 2.80%* 2.46% 1.48%*
============ ============ ============
Investment income--net 8.01%* 6.88% 5.11%*
============ ============ ============
Leverage
Amount of borrowings, end of period (in thousands) $ 68,000 $ 61,400 $ 60,300
============ ============ ============
Average amount of borrowings outstanding during the period (in thousands) $ 60,666 $ 63,725 $ 29,072
============ ============ ============
Average amount of borrowings outstanding per share during the period*** $ 5.78 $ 6.07 $ 2.80
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 201,826 $ 203,557 $ 207,255
============ ============ ============
Portfolio turnover 31.63% 72.49% 29.68%
============ ============ ============
* Annualized.
** Total investment returns based on market price, which can be significantly greater or lesser
than the net asset value, may result in substantially different returns. Total investment
returns exclude the effects of sales charges.
*** Based on average shares outstanding.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Floating Rate Income Strategies Fund II, Inc. was
renamed BlackRock Floating Rate Income Strategies Fund II, Inc. (the "Fund").
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the
interim period. All such adjustments are of a normal, recurring nature. 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 FRB.
(a) Corporate debt obligations--The Fund invests principally in floating rate
obligations of companies, including floating rate loans made by banks and
other financial institutions and both privately and publicly offered corporate
bonds and notes. Because agents and intermediaries are primarily commercial
banks or other financial institutions, the Fund's investment in floating rate
loans could be considered concentrated in financial institutions.
(b) Valuation of investments--Floating rate loans are valued in accordance
with guidelines established by the Fund's Board of Directors. Floating rate
loans are valued at the mean between the last available bid and asked prices
from one or more brokers or dealers as obtained from Loan Pricing Corporation.
As of October 2, 2006, floating rate loan interests will be valued at the mean
between the last available bid prices. For the limited number of floating rate
loans for which no reliable price quotes are available, such floating rate
loans may be valued by Loan Pricing Corporation through the use of pricing
matrixes to determine valuations. If the pricing service does not provide a
value for a floating rate loan, Fund Asset Management, L.P. ("FAM") will value
the floating rate loan at fair value, which is intended to approximate market
value.
Debt securities are traded primarily in over-the-counter ("OTC") markets and
are valued at the last available bid price in the OTC market or on the basis
of values obtained by a pricing service. Pricing services use valuation
matrixes that incorporate both dealer-supplied valuations and valuation
models. The procedures of the pricing service and its valuations are reviewed
by the officers of the Fund under the general direction of the Board of
Directors. Such valuations and procedures will be reviewed periodically by the
Board of Directors of the Fund.
Securities that are held by the Fund that are traded on stock exchanges or the
Nasdaq National Market are valued at the last sale price or official close
price on the exchange on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available
asked price for short positions. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Fund. Long positions in securities traded in the OTC market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield
equivalent obtained from one or more dealers or pricing services approved by
the Board of Directors of the Fund. Short positions traded in the OTC market
are valued at the last available asked price. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market. When the Fund writes an option,
the amount of the premium received is recorded on the books of the Fund as an
asset and an equivalent liability. The amount of the liability is subsequently
valued to reflect the current market value of the option written, based on the
last sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last asked price. Options purchased by
the Fund are valued at their last sale price in the case of exchange traded
options or, in the case of options traded in the OTC market, the last bid
price. Swap agreements are valued based upon quoted fair valuations received
daily by the Fund from a pricing service or counterparty. Other investments,
including futures contracts and related options, are stated at market value.
Obligations with remaining maturities of 60 days or less are valued at
amortized cost unless FAM believes that this method no longer produces fair
valuations. Valuation of other short-term investment vehicles is generally
based on the net asset value of the underlying investment vehicle or amortized
cost. Repurchase agreements will be valued at cost plus accrued interest.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of
business on the NYSE.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE. As
of October 2, 2006, foreign currency exchange rates will be determined at the
close of business on the NYSE. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of the Fund's net asset value. If events (for
example, a company announcement, market volatility or a natural disaster)
occur during such periods that are expected to materially affect the value of
such securities, those securities may be valued at their fair value as
determined in good faith by the Fund's Board of Directors or by FAM using a
pricing service and/or procedures approved by the Fund's Board of Directors.
(c) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract,
the Fund deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
* Options--The Fund may write and purchase call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction is less than or exceeds the premiums paid or
received).
Written and purchased options are non-income producing investments.
* Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of
time or may be triggered by a predetermined credit event. The net periodic
payments may be based on a fixed or variable interest rate; the change in
market value of a specified security, basket of securities, or index; or the
return generated by a security. These periodic payments received or made by
the Fund are recorded in the accompanying Statement of Operations as realized
gains or losses, respectively. Gains or losses are also realized upon
termination of swap agreements. Swaps are marked-to-market daily and changes
in value are recorded as unrealized appreciation (depreciation). Risks include
changes in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack of
liquidity with respect to the swap agreements.
(d) 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. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
(e) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the fund's financial statements, if any, is currently
being assessed.
(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) 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.
(h) 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The
general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. FAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .75% of the Fund's
average daily net assets plus the proceeds of any outstanding borrowings used
for leverage.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, or its
affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private
investment company managed by MLIM, LLC or in registered money market funds
advised by Merrill Lynch Investment Managers, L.P. ("MLIM"), an affiliate
of FAM.
For the six months ended August 31, 2006, the Fund reimbursed FAM $2,052 for
certain accounting services.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction will close
on September 29, 2006.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Notes to Financial Statements (concluded)
On August 15, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized
into BlackRock Advisors, LLC. The new advisory agreement will become effective
on September 29, 2006 and the investment advisory fee is unchanged. In
addition, the Manager has entered into a sub-advisory agreement with BlackRock
Financial Management, Inc., an affiliate, under which the Manager pays the Sub-
Adviser, for services it provides, a fee equal to 59% of the management fee
paid to the Manager.
In connection with the closing, MLIM, LLC, the security lending agent, will
become BlackRock Investment Management, LLC.
During the six months ended August 31, 2006, certain officers and/or directors
of the Fund are officers and/or directors of FAM, PSI, MLIM, ML & Co., and/or
MLIM, LLC.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended August 31, 2006 were $86,012,059 and
$82,890,306, respectively.
4. 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.
5. Short-Term Borrowings:
On May 22, 2006, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The
agreement was renewed for one year and has a maximum limit of $100,000,000.
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 5.33% and the average borrowing
was approximately $60,666,000 for the six months ended August 31, 2006.
6. Unfunded Corporate Loans:
As of August 31, 2006, the Fund had unfunded loan commitments of approximately
$14,341,000 which would be extended at the option of the borrower pursuant to
the following loan agreements:
(in Thousands)
Unfunded
Borrower Commitment Value
Alon U.S.A. Inc. $ 111 $ 112
Aquila, Inc. $3,000 $2,985
Calpine Corp. $1,500 $1,485
LSP General Finance Co. LLC $ 71 $ 71
MGM Mirage Revolving Line
of Credit $2,064 $2,007
MEG Energy Corp. $ 500 $ 499
Spanish Broadcasting System, Inc. $2,500 $2,431
Trump Entertainment Delay Draw $ 990 $ 998
Trump Entertainment Resorts
Holdings LP $2,000 $1,940
Venetian Macau U.S. Finance Co. $ 500 $ 500
Vought Aircraft Industries, Inc. $1,000 $ 960
Wastequip, Inc. $ 105 $ 106
7. Capital Loss Carryforward:
On February 28, 2006, the Fund had a net capital loss carryforward of
$467,774, all of which expires in 2014. This amount will be available to
offset like amounts of any future taxable gains.
8. Subsequent Event:
The Fund paid an ordinary income dividend to holders of Common Stock in the
amount of $.120834 per share on September 29, 2006 to shareholders of record
on September 15, 2006.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Disclosure of Investment Advisory Agreement
The Board of Directors met in August 2006 to consider approval of the Fund's
investment advisory agreement with Fund Asset Management, L.P. ("FAM"), the
Fund's investment adviser at the time.
Activities and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director, whose
only association with FAM or other Merrill Lynch affiliates was as a director
of the Fund and as a trustee or director of certain other funds advised by FAM
or its affiliates. The Chairman of the Board is also an independent director.
New director nominees are chosen by a Nominating Committee comprised of
independent directors. All independent directors also are members of the
Board's Audit Committee, and the independent directors meet in executive
session at each in-person Board meeting. The Board and the Audit Committee
meet in person for at least two days each quarter and conduct other in-person
and telephone meetings throughout the year, some of which are formal Board
meetings and some of which are informational meetings. The independent counsel
to the independent directors attends all in-person Board and Audit Committee
meetings and other meetings at the independent directors' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement. The Board assesses the nature, scope and quality of the services
provided to the Fund by the personnel of the investment adviser and its
affiliates, including administrative services, shareholder services, oversight
of fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. The Board also receives and assesses information
regarding the services provided to the Fund by certain unaffiliated service
providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
investment adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the investment adviser and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services provided by the
investment adviser and its affiliates.
The Board noted its view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. The Board also noted its view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest
financial firms. The Board works closely with the investment adviser in
overseeing the investment adviser's efforts to achieve good performance. As
part of this effort, the Board discusses portfolio manager effectiveness and,
when performance is not satisfactory, discusses with the investment adviser
taking steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the investment
advisory agreement, the Board requests and receives materials specifically
relating to the investment advisory agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses,
investment performance and leverage of the Fund as compared to a comparable
group of funds as classified by Lipper; (b) information comparing the Fund's
market price with its net asset value per share; (c) a discussion by the
Fund's portfolio management team regarding investment strategies used by the
Fund during its most recent fiscal year; (d) information on the profitability
to the investment adviser and its affiliates of the investment advisory
agreement and other relationships with the Fund; and (e) information provided
by the investment adviser concerning investment advisory fees charged to other
retail, retail closed-end and retail offshore funds and an institutional
client under similar investment mandates. The Board also considers other
matters it deems important to the approval process, such as payments made for
services related to the valuation and pricing of Fund portfolio holdings, the
Fund's portfolio turnover statistics, and direct and indirect benefits to the
investment adviser and its affiliates from their relationship with the Fund.
The Board did not identify any particular information as controlling, and each
member of the Board may have attributed different weights to the various items
considered.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's investment advisory
agreement with FAM (the "FAM Investment Advisory Agreement") in August 2006,
the independent directors' and Board's review included the following:
Services Provided by the Investment Adviser--The Board reviewed the nature,
extent and quality of services provided by FAM, including the investment
advisory services and the resulting performance of the Fund. The Board focused
primarily on FAM's investment advisory services and the Fund's investment
performance. The Board compared Fund performance - both including and
excluding the effects of the Fund's fees and expenses - to the performance of
a comparable group of funds and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the investment adviser's investment goals, the
Board attaches more importance to performance over relatively long periods of
time, typically three to five years.
The Board noted that according to Lipper's ranking of all closed-end leveraged
loan participation funds, the Fund's performance after fees and expenses
ranked in the second quintile for the one-year period ended May 31, 2006. The
Board also considered the Fund's performance based on annualized total return
and annualized yield and noted that the Fund's total return and yield each
were in the second quintile for the one-year period ended May 31, 2006. The
Board concluded that the Fund's performance supported the continuation of the
FAM Investment Advisory Agreement.
FAM's Personnel and Investment Process--The Board reviewed the Fund's
investment objectives and strategies. The Board discusses with senior
management of the investment adviser responsible for investment operations and
the senior management of the investment adviser's taxable fixed-income
investing group the strategies being used to achieve the stated objectives.
Among other things, the Board considers the size, education and experience of
the investment adviser's investment staff, its use of technology, and the
investment adviser's approach to training and retaining portfolio managers and
other research, advisory and management personnel. The Board also reviews the
investment adviser's compensation policies and practices with respect to the
Fund's portfolio manager. The Board also considered the experience of the
Fund's portfolio manager. It was noted that Mr. Patel, the Fund's portfolio
manager, has more than fifteen years' experience in portfolio management. The
Board considered the extensive experience of FAM and its investment staff in
analyzing and managing the types of investments used by the Fund. The Board
concluded that the Fund benefits from that experience.
Management Fees and Other Expenses--The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board considered the services
provided to and the fees charged by FAM to retail, retail closed-end and
retail offshore funds and an institutional client with similar investment
mandates. It was noted that the fees charged to the other funds of FAM with
similar investment mandates were equal to or higher than those being charged
to the Fund. The Board also noted that the fees charged by FAM to the
institutional client were less than the fees being charged to the Fund but
determined that FAM provided less extensive services to institutional clients.
The Board noted that the Fund's contractual and actual management fee rates
were slightly lower than the median fees charged by comparable funds, as
determined by Lipper, while the Fund's total expense ratio was slightly higher
than the median total expense ratios of comparable funds. The Board concluded
that the Fund's management fee rate and overall expense ratio were reasonable
compared to those of other comparable funds.
Profitability--The Board considers the cost of the services provided to the
Fund by the investment adviser and the investment adviser's and its
affiliates' profits relating to the management and distribution of the Fund
and the funds advised by the investment adviser and its affiliates. As part of
its analysis, the Board reviewed FAM's methodology in allocating its costs to
the management of the Fund and concluded that there was a reasonable basis for
the allocation. The Board also considered federal court decisions discussing
an investment adviser's profitability and profitability levels considered to
be reasonable in those decisions. The Board concluded that the profits of FAM
and its affiliates were acceptable in relation to the nature and quality of
services provided and given the level of fees and expenses overall.
Economies of Scale--The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
the Fund to participate in these economies of scale. The Board considered
economies of scale to the extent applicable to the Fund's closed-end structure
and determined that no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, the entire
Board, including all of the independent directors, approved the renewal of the
existing FAM Investment Advisory Agreement, concluding that the advisory fee
was reasonable in relation to the services provided and that a contract
renewal was in the best interests of the shareholders.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Fund's Board of
Directors considered and approved a new investment advisory agreement (the
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). The Fund's shareholders subsequently
approved the BlackRock Investment Advisory Agreement and it became effective
on September 29, 2006, replacing the investment advisory agreement with the
Previous Investment Adviser (the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including
the independent directors, approved the BlackRock Investment Advisory
Agreement at an in-person meeting held on May 12, 2006.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the BlackRock
Investment Advisory Agreement. The additional information was provided in
advance of the May 12, 2006 meeting. In addition, the independent directors
consulted with their counsel and Fund counsel on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to the directors' deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund. At these
Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser, and of its
affiliates, to be transferred to BlackRock in connection with the Transaction.
The independent directors of the Board also conferred separately and with
their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April
and May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors met in executive sessions with
their counsel to consider the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund and its shareholders by
BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
* that the Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
the Board before making any changes;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund
shareholders.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
The directors considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
would not increase under the BlackRock Investment Advisory Agreement, but
would remain the same;
* that in August 2005, the Board had performed a full annual review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Fund; and
that the advisory and/or management fees paid by the Fund, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the directors had
considered relevant in the exercise of their reasonable judgment; and
* that Merrill Lynch had agreed to pay all expenses of the Fund in
connection with the Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
the Fund would bear no costs in obtaining shareholder approval of the
BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board
assessed the nature, quality and scope of the services to be provided to the
Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting
and assistance in meeting legal and regulatory requirements. In its review of
the BlackRock Investment Advisory Agreement, the Board also considered a range
of information in connection with its oversight of the services to be provided
by BlackRock Advisors and its affiliates. Among the matters considered were:
(a) fees (in addition to management fees) to be paid to BlackRock Advisors and
its affiliates by the Fund; (b) Fund operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meeting to consider renewal of the Previous
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group
of funds as classified by Lipper; (b) information comparing the Fund's market
price with its net asset value per share; (c) a discussion by the Fund's
portfolio management team on investment strategies used by the Fund during its
most recent fiscal year; (d) information on the profitability to the Previous
Investment Adviser of the Previous Investment Advisory Agreement and other
payments received by the Previous Investment Adviser and its affiliates from
the Fund; and (e) information provided by the Previous Investment Adviser
concerning services related to the valuation and pricing of Fund portfolio
holdings, the Fund's portfolio turnover statistics, and direct and indirect
benefits to the Previous Investment Adviser and its affiliates from their
relationship with the Fund.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In their deliberations, the directors considered information received in
connection with their most recent approval of the continuance of the Previous
Investment Advisory Agreement, in addition to information provided by
BlackRock and BlackRock Advisors in connection with their evaluation of the
terms and conditions of the BlackRock Investment Advisory Agreement. The
directors did not identify any particular information that was all-important
or controlling, and each director attributed different weights to the various
factors. The directors, including a majority of the independent directors,
concluded that the terms of the BlackRock Investment Advisory Agreement are
appropriate, that the fees to be paid are reasonable in light of the services
to be provided to the Fund, and that the BlackRock Investment Advisory
Agreement should be approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided--The Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. The Board focused primarily on
the Previous Investment Adviser's investment advisory services and the Fund's
investment performance, but also considered certain areas in which both the
Previous Investment Adviser and the Fund received services as part of the
Merrill Lynch complex. The Board compared the Fund's performance - both
including and excluding the effects of fees and expenses - to the performance
of a comparable group of funds, and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of New
BlackRock and how it would affect the Fund; the ability of BlackRock Advisors
to perform its duties after the Transaction; and any anticipated changes to
the current investment and other practices of the Fund. The directors
considered BlackRock's advice as to proposed changes in portfolio management
personnel of the Fund after the closing of the Transaction.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. The directors
were advised that a revision of existing regulatory relief with respect to
these restrictions was being sought from the Securities and Exchange
Commission and were advised of the possibility of receipt of such revised
regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the BlackRock Investment Advisory Agreement were expected to be as good
as or better than that provided under the Previous Investment Advisory
Agreement. It was noted, however, that changes in personnel were expected to
follow the Transaction and the combination of the operations of the Previous
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if portfolio managers or other personnel were to cease to be
available prior to the closing of the Transaction, the Board would consider
all available options, including seeking the investment advisory or other
services of BlackRock affiliates. Accordingly, the directors concluded that,
overall, they were satisfied at the present time with assurances from
BlackRock and BlackRock Advisors as to the expected nature, quality and extent
of the services to be provided to the Fund under the BlackRock Investment
Advisory Agreement.
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, the directors had received, among other things, a report from
Lipper comparing the Fund's fees and expenses to those of a peer group
selected by Lipper, and information as to the fees charged by the Previous
Investment Adviser or its affiliates to other registered investment company
clients for investment management services. The Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory
fees and the effects of any fee waivers - compared to the other funds in its
Lipper category. They also compared the Fund's total expenses to those of
other comparable funds. The information showed that the Fund had fees and
expenses within the range of fees and expenses of comparable funds. The Board
considered the services to be provided by and the fees to be charged by
BlackRock Advisors to other funds with similar investment mandates and noted
that the fees charged by BlackRock Advisors in those cases, including fee
waivers and expense reimbursements, were generally comparable to those being
charged to the Fund. The Board also noted that, as a general matter, according
to the information provided by BlackRock, fees charged to institutional
clients were lower than the fees charged to the Fund, but BlackRock Advisors
provided less extensive services to such clients. The Board concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the directors considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material
respects, including the rate of compensation, the directors determined that
the Transaction should not increase the total fees payable, including any fee
waivers and expense reimbursements, for advisory and administrative services.
The directors noted that it was not possible to predict how the Transaction
would affect BlackRock Advisors' profitability from its relationship with the
Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund. The directors noted that they expect to receive profitability
information from BlackRock Advisors on at least an annual basis and thus be in
a position to evaluate whether any adjustments in Fund fees and/or fee
breakpoints would be appropriate.
Fees and Economies of Scale--The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory
Agreement is substantially similar to the Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, the
directors determined that as a result of the Transaction, the Fund's total
advisory fees would be no higher than the fees under the Previous Investment
Advisory Agreement. The directors noted that in conjunction with their most
recent deliberations concerning the Previous Investment Advisory Agreement,
they had determined that the total fees for advisory and administrative
services for the Fund were reasonable in light of the services provided. It
was noted that in conjunction with the recent review of the Previous
Investment Advisory Agreement, the directors had received, among other things,
a report from Lipper comparing the Fund's fees, expenses and performance to
those of a peer group selected by Lipper, and information as to the fees
charged by the Previous Investment Adviser or its affiliates to other
registered investment company clients for investment management services. The
directors concluded that because the rates for advisory fees for the Fund
would be no higher than the fee rates in effect at the time, the proposed
management fee structure, including any fee waivers, was reasonable and that
no additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered whether BlackRock Advisors would experience such benefits
to the same extent that the Previous Investment Adviser was experiencing such
benefits under the Previous Investment Advisory Agreement. Based on their
review of the materials provided, including materials received in connection
with their most recent approval of the continuance of the Previous Investment
Advisory Agreement, and their discussions with management of the Previous
Investment Adviser and BlackRock, the directors determined that BlackRock
Advisors' benefits could include increased ability for BlackRock to distribute
shares of its funds and other investment products. The directors noted that
any fall-out benefits were difficult to quantify with certainty at this time,
and indicated that they would continue to evaluate them going forward.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Investment Performance--The directors considered investment performance for
the Fund. The directors compared the Fund's performance - both including and
excluding the effects of fees and expenses - to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper
showed Fund performance at various levels within the range of performance of
comparable funds over different time periods. While the Board reviews
performance data at least quarterly, consistent with the Previous Investment
Adviser's investment goals, the Board attaches more importance over relatively
long periods of time, typically three to five years. The directors believed
the Fund's performance was satisfactory. Also, the directors took into account
the investment performance of funds advised by BlackRock Advisors. The Board
considered comparative information from Lipper which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. The Board also
noted that, following the close of the Transaction, BlackRock Advisors
intended to implement steps to seek to improve the investment performance of
the Fund, including changes in the portfolio management personnel. The Board
noted BlackRock's considerable investment management experience and
capabilities, but was unable to predict what effect, if any, consummation of
the Transaction would have on the future performance of the Fund.
Conclusion--After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the BlackRock Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement in
advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Board
At an in-person meeting held on August 14 - 16, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Financial Management, Inc. (the "Sub-Adviser").
The BlackRock Sub-Advisory Agreement became effective on September 29, 2006,
at the same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received
by BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Fund expenses as a
result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of BlackRock Investment Advisory Agreement in May 2006. The Board relied on
the same information and considered the same factors as those discussed above
in connection with the approval of the BlackRock Investment Advisory
Agreement, and came to the same conclusions. In reviewing the sub-advisory fee
rate provided in the BlackRock Sub-Advisory Agreement, the Board noted the
fact that both BlackRock Advisors and the Sub-Adviser have significant
responsibilities under their respective advisory agreements. BlackRock
Advisors remains responsible for oversight of the Fund's operations and
administration, and the Sub-Adviser provides advisory services to the Fund and
is responsible for the day-to-day management of the Fund's portfolio under the
BlackRock Sub-Advisory Agreement. The Board also took into account the fact
that there is no increase in total advisory fees paid by the Fund as a result
of the BlackRock Sub-Advisory Agreement. Under all of the circumstances, the
Board concluded that it was a reasonable allocation of fees for the Sub-
Adviser to receive 59% of the advisory fee paid by the Fund to BlackRock
Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-
Advisory Agreement, concluding that the sub-advisory fee was reasonable in
relation to the services provided and that the Sub-Advisory Agreement was in
the best interests of shareholders.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
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
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
BLACKROCK FLOATING RATE INCOME STRATEGIES FUND II, INC. AUGUST 31, 2006
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-
annual report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
As of October 2, 2006
(a)(1) The Fund is managed by a team of investment professionals
that is responsible for the day-to-day management of the Fund's
portfolio. The lead members of this team are Mark J. Williams,
Managing Director at BlackRock, and Kevin J. Booth, Managing
Director at BlackRock. Mr. Williams and Mr. Booth each has been a
portfolio manager of the Fund since 2006. Mr. Williams is
responsible for setting the Fund's overall investment strategy and
overseeing the management of the Fund as of October 2, 2006. Mr.
Booth is responsible for the day-to-day management of the Fund's
portfolio and the selection of its investments.
Mr. Williams is the head of BlackRock's bank loan group and a
member of the Investment Strategy Group. His primary responsibility
is originating and evaluating bank loan investments for the firm's
collateralized bond obligations. He is also involved in the
evaluation and sourcing of mezzanine investments. Prior to joining
BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged
Finance Group. In that capacity he was responsible for structuring
proprietary middle market leveraged deals and sourcing and
evaluating broadly syndicated leveraged loans in the primary and
secondary markets for PNC Bank's investment portfolio. From 1984
until 1990, Mr. Williams worked in PNC Bank's Philadelphia office
in a variety of marketing and corporate finance positions.
Mr. Booth is a member of BlackRock's bank loan group. He joined
BlackRock in 2006. Prior to joining BlackRock, Mr. Booth was a
Managing Director (Global Fixed Income) of Merrill Lynch Investment
Managers, L.P. ("MLIM") since 2006 and a member of MLIM's bank loan
group from 2000 to 2006. He was a Director of MLIM from 2000 to
2006 and was a Vice President of MLIM from 1994 to 2000. He has
been portfolio manager with BlackRock or MLIM since 2000.
(a)(2) As of October 2, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Kevin J. Booth 7 5 1 0 2 0
$ 3,203,073,532 $ 2,357,557,822 $ 25,390,431 $ 0 $ 587,029,626 $ 0
Mark Williams 9 17 7 0 10 4
$ 4,346,795,560 $ 6,368,469,951 $1,222,718,181 $ 0 $ 2,908,136,350 $ 1,030,000,000
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed
to protect against potential incentives that may favor one account
over another. BlackRock has adopted policies and procedures that
address the allocation of investment opportunities, execution of
portfolio transactions, personal trading by employees and other
potential conflicts of interest that are designed to ensure that
all client accounts are treated equitably over time. Nevertheless,
BlackRock furnishes investment management and advisory services to
numerous clients in addition to the Fund, and BlackRock may,
consistent with applicable law, make investment recommendations to
other clients or accounts (including accounts which are hedge funds
or have performance or higher fees paid to BlackRock, or in which
portfolio managers have a personal interest in the receipt of such
fees), which may be the same as or different from those made to the
Fund. In addition, BlackRock, its affiliates and any officer,
director, stockholder or employee may or may not have an interest
in the securities whose purchase and sale BlackRock recommends to
the Fund. BlackRock, or any of its affiliates, or any officer,
director, stockholder, employee or any member of their families may
take different actions than those recommended to the Fund by
BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning
securities of companies of which any of BlackRock's (or its
affiliates') officers, directors or employees are directors or
officers, or companies as to which BlackRock or any of its
affiliates or the officers, directors and employees of any of them
has any substantial economic interest or possesses material non-
public information. Each portfolio manager also may manage accounts
whose investment strategies may at times be opposed to the strategy
utilized for the Fund. In this connection, it should be noted that
certain portfolio managers currently manage certain accounts that
are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled
to receive a portion of any incentive fees earned on such funds and
a portion of such incentive fees may be voluntarily or
involuntarily deferred. Additional portfolio managers may in the
future manage other such accounts or funds and may be entitled to
receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock
attempts to allocate investments in a fair and equitable manner
among client accounts, with no account receiving preferential
treatment. To this end, BlackRock has adopted a policy that is
intended to ensure that investment opportunities are allocated
fairly and equitably among client accounts over time. This policy
also seeks to achieve reasonable efficiency in client transactions
and provide BlackRock with sufficient flexibility to allocate
investments in a manner that is consistent with the particular
investment discipline and client base.
(a)(3) As of October 2, 2006:
With respect to Mr. Williams, the following compensation structure applies:
BlackRock Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as
its Long-Term Retention and Incentive Plan and Restricted Stock
Program.
Base compensation. Generally, portfolio managers receive base
compensation based on their seniority and/or their position with
the firm.
Discretionary compensation. In addition to base compensation,
portfolio managers may receive discretionary compensation, which
can be a substantial portion of total compensation. Discretionary
compensation can include a discretionary cash bonus as well as one
or more of the following:
Long-Term Retention and Incentive Plan ("LTIP")--The LTIP is a long-
term incentive plan that seeks to reward certain key employees. The
plan provides for the grant of awards that are expressed as an
amount of cash that, if properly vested and subject to the
attainment of certain performance goals, will be settled in cash
and/or in BlackRock, Inc. common stock.
Deferred Compensation Program--A portion of the compensation paid
to each portfolio manager may be voluntarily deferred by the
portfolio manager into an account that tracks the performance of
certain of the firm's investment products. Each portfolio manager
is permitted to allocate his deferred amounts among various
options, including to certain of the firm's hedge funds and other
unregistered products. In addition, prior to 2005, a portion of the
annual compensation of certain senior managers was mandatorily
deferred in a similar manner for a number of years. Beginning in
2005, a portion of the annual compensation of certain senior
managers is paid in the form of BlackRock, Inc. restricted stock
units which vest ratably over a number of years.
Options and Restricted Stock Awards--While incentive stock options
are not currently being awarded to BlackRock employees, BlackRock,
Inc. previously granted stock options to key employees, including
certain portfolio managers who may still hold unexercised or
unvested options. BlackRock, Inc. also has a restricted stock award
program designed to reward certain key employees as an incentive to
contribute to the long-term success of BlackRock. These awards vest
over a period of years.
Incentive Savings Plans--The PNC Financial Services Group, Inc. has
created a variety of incentive savings plans in which BlackRock
employees are eligible to participate, including an Employee Stock
Purchase Plan ("ESPP") and a 401(k) plan. The 401(k) plan may
involve a company match of the employee's contribution of up to 6%
of the employee's salary. The company match is made using
BlackRock, Inc. common stock. The firm's 401(k) plan offers a range
of investment options, including registered investment companies
managed by the firm. Each portfolio manager is eligible to
participate in these plans.
Annual incentive compensation for each portfolio manager is a
function of several components: the performance of BlackRock, Inc.,
the performance of the portfolio manager's group within BlackRock,
the investment performance, including risk-adjusted returns, of the
firm's assets under management or supervision by that portfolio
manager relative to predetermined benchmarks, and the individual's
teamwork and contribution to the overall performance of these
portfolios and BlackRock. Unlike many other firms, portfolio
managers at BlackRock compete against benchmarks rather than each
other. In most cases, including for the portfolio managers of the
Fund, these benchmarks are the same as the benchmark or benchmarks
against which the performance of the Fund or other accounts are
measured. A group of BlackRock, Inc.'s officers determines the
benchmarks against which to compare the performance of funds and
other accounts managed by each portfolio manager. With respect to
Mr. Williams, such benchmarks will include the CSFB Leveraged Loan
Index.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. Senior
portfolio managers who perform additional management functions
within BlackRock may receive additional compensation for serving in
these other capacities.
(a)(4) Beneficial Ownership of Securities. As of October 2, 2006,
Mr. Williams does not beneficially own any stock issued by
the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send
nominations which include biographical information and sets forth
the qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these
procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last 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 - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Floating Rate Income Strategies Fund II, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Floating Rate Income Strategies Fund II, Inc.
Date: October 19, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Floating Rate Income Strategies Fund II, Inc.
Date: October 19, 2006
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Floating Rate Income Strategies Fund II, Inc.
Date: October 19, 2006