As filed with the Securities and Exchange Commission on September 10, 1998
Securities Act Registration No.
Investment Company Act File No.
===========================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
o Pre-Effective Amendment No.
o Post-Effective Amendment No.
and
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
o Amendment No.
THE BLACKROCK HIGH YIELD TRUST
(Exact name of Registrant as specified in charter)
c/o BlackRock Financial Management, Inc.
345 Park Avenue
New York, New York 10154
(Address of principal executive offices)
(800) 227-7236
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein
President
The BlackRock High Yield Trust
345 Park Avenue
New York, New York 10154
(Name and address of Agent for Service)
with a copy to:
Thomas A. Hale
Skadden, Arps, Slate, Meagher & Flom (Illinois) and Affiliates
333 West Wacker Drive
Chicago, Illinois 60606-1285
--------------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the Registration Statement.
If any securities on this form are to be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933, other than
securities offered in connection with a dividend reinvestment plan, check
the following box . . . . . . . . . . . .[ ]
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities
Act registration statement number of the earlier effective registration
statement for the same offering is 33-__________.
--------------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
==============================================================================================
Proposed Proposed
Amount Maximum Maximum
Being Offering Aggregate Amount of
Title of Securities Registered(1) Price Offering Registration
Being Registered Per Share Price Fee
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Shares, no par value 690,000 $15.00 10,350,000 $3,054
==============================================================================================
</TABLE>
(1) Includes 90,000 shares which may be purchased by the Underwriters to
cover over-allotments, if any.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
the Registration Statement shall thereafter become effective in accordance
with Section 8 (a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the Commission, acting
pursuant to said Section 8(a), may determine.
THE BLACKROCK HIGH YIELD TRUST
CROSS REFERENCE SHEET
(Pursuant to Rule 404(c) under the Securities Act of 1933)
Parts A & B of Prospectus*
Item 1. Outside Front Cover.................. Front Cover Page
Item 2. Inside Front and Outside
Back Cover Page.................... Front Cover Page; Inside Front
Cover Page; Outside Back Cover
Page
Item 3. Fee Table and Synopsis................ Prospectus Summary; Fee Table
Item 4. Financial Highlights.................. Not Applicable
Item 5. Plan of Distribution.................. Front Cover Page; Prospectus
Summary; Distribution
Item 6. Selling Shareholders.................. Not Applicable
Item 7. Use of Proceeds....................... Use of Proceeds; Investment
Objective and Policies
Item 8. General Description of the
Registrant.......................... Front Cover Page; Prospectus
Summary; The Trust; Investment
Objective and Policies; Risk
Factors
Item 9. Management............................ Management of the Trust
Item 10. Capital Stock, Long-Term Debt,
and Other Securities................ Description of the Shares
Item 11. Defaults and Arrears on Senior
Securities.......................... Not Applicable
Item 12. Legal Proceedings..................... Not Applicable
Item 13. Table of Contents of the Statement
of Additional Information........... Not Applicable
Item 14. Cover Page.......................... Not Applicable
Item 15. Table of Contents..................... Not Applicable
Item 16. General Information and History....... The Trust
Item 17. Investment Objective
and Policies........................ Investment Objective and
Policies
Item 18. Management............................ Management of the Trust
Item 19. Control Persons and Principal
Holders of Securities................. Management of the Trust
Item 20. Investment Advisory
and Other Services.................. Management of the Trust
Item 21. Brokerage Allocation and
Other Practices..................... Investment Objective and
Policies
Item 22. Tax Status............................ Taxes
Item 23. Financial Statements.................. Statements of Assets and
Liabilities
* Pursuant to the General Instructions of Form N-2, all information
required to be set forth in Part B: Statement of Additional Information has
been included in Part A: The Prospectus. Information required to be
included in Part C is set forth under the appropriate item, so numbered in
Part C of this Registration Statement.
SUBJECT TO COMPLETION--DATED SEPTEMBER 9, 1998
PROSPECTUS
- ----------------------------------------------------------------------------
SHARES
THE BLACKROCK HIGH YIELD TRUST
- ----------------------------------------------------------------------------
The BlackRock High Yield Trust (the "Trust") is a newly organized,
closed-end, diversified management investment company. The Trust's primary
investment objective is to seek high current income. The Trust will also
seek capital appreciation as a secondary objective, to the extent
consistent with its primary objective of seeking high current income. Under
normal market conditions, at least 65% of the total assets of the Trust
will be invested in high-yield debt instruments which are rated in the
lower rating categories of the established rating services (Ba or lower by
Moody's Investors Service Inc. ("Moody's ) or BB or lower by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P")) or in
unrated securities determined by the Trust's investment adviser to be of
comparable quality. The Trust may engage in various portfolio strategies to
seek to enhance income and hedge its portfolio against investment and
interest rate risks, including the use of leverage and the use of
derivative financial instruments. There is no assurance that the Trust will
achieve its objectives.
Investments in lower grade securities are subject to special risks,
including greater price volatility and a greater risk of loss of principal
and interest. The Trust is designed for investors willing to assume
additional risk in return for the potential for high current income and for
capital appreciation. An investment in the Trust may be speculative in that
it involves a high degree of risk and should not constitute a complete
investment program. Investors should carefully assess the risks associated
with an investment in the Trust. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS."
In connection with the scheduled liquidation of The BlackRock 1998
Term Trust Inc. (the "1998 Term Trust") on or about December 31, 1998, the
Trust is offering to the holders of record as of the close of business on
November __, 1998 (the "Record Date") of common shares of the 1998 Term
Trust (the "1998 Term Trust Shares") the right to request to subscribe (the
"Subscription Rights") for common shares of the Trust (the "Shares") at a
price of $15.00 per Share (the "Subscription Price"), without paying a
sales charge. Such 1998 Term Trust Shareholders may direct that their
portion of the liquidation proceeds from the 1998 Term Trust be used to pay
the Subscription Price for the Shares. The Trust is also offering
Subscription Rights to Record Date holders of common shares of each other
closed-end investment company for which BlackRock Financial Management Inc.
acts as investment adviser (together with the 1998 Term Trust, the
"BlackRock Trusts"). The Subscription Rights allow the Record Date holders
of common shares (the "BlackRock Trust Shares") of each BlackRock Trust
(the "Eligible Shareholders") to request to subscribe for Shares in the
Trust's initial public offering (the "Offering") at a rate of one Share for
each BlackRock Trust Share held on the Record Date and to request to
subscribe for additional Shares in the Offering as described herein. The
Subscription Rights expire on December __, 1998 (the "Expiration Date"),
unless the Offering is extended as described herein. The Subscription
Rights are non-transferable and may not be purchased or sold. [The Board of
Trustees of the Trust has determined not to consummate the Offering unless
requests to subscribe for at least Shares (the "Minimum Offering Amount")
are received in the Offering. In connection with seeking to achieve the
Minimum Offering Amount,] the Trust reserves the right to offer Shares to
clients of the Dealer Managers who may not be Record Date Eligible
Shareholders.
BlackRock, Inc., a global asset management company with over $120
billion of assets under management, will act as the Trust's investment
adviser (the "Investment Adviser"). The Investment Adviser has entered into
a sub-advisory agreement with BlackRock Financial Management, Inc.
("BlackRock"), pursuant to which the responsibilities of managing the
Trust's portfolio on a daily basis have been delegated to BlackRock.
(Continued on the following page)
- ----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
Subscription Price Sales Load(1) Proceeds to Trust (2)
- ----------------------------------------------------------------------------
Per Share...... $15.00 None $15.00
- ----------------------------------------------------------------------------
Total (3)...... $ None $
- ----------------------------------------------------------------------------
(Notes on the following page)
The Shares are offered by the several Dealer Managers, subject to
delivery by the Trust and acceptance by the Dealer Managers, to prior sale
and to withdrawal, cancellation or modification of the offer without
notice. Delivery of the Shares to the Dealer Managers is expected to be
made at the office of , New York, New York on or about
____________, 1998.
December , 1998
[FLAG]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
----------------
IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SHARES OF THE TRUST AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE NASDAQ MARKET OR OTHERWISE. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------
(Continued from cover page)
At times, the Trust expects to utilize financial leverage through
borrowings, including the issuance of debt securities, or the issuance of
preferred shares or through other transactions such as reverse repurchase
agreements, which have the effect of financial leverage. The Trust intends
to utilize financial leverage in an initial amount up to approximately 33
1/3% of its total assets (including the amount obtained through leverage).
The Trust generally will not utilize leverage if it anticipates that the
Trust's leveraged capital structure would result in a lower return to
Shareholders than that obtainable over time with an unleveraged capital
structure. Use of financial leverage creates an opportunity for increased
income and capital growth for the common shareholders but, at the same
time, creates special risks. The Trust may invest up to 25% of its total
assets in loans extended to corporate borrowers by commercial banks or
other financial institutions ("Bank Loans"). The Trust also may invest up
to 10% of its total assets in securities which are the subject of
bankruptcy proceedings or otherwise in default or in significant risk of
being in default ("Distressed Securities"). SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS"
Prior to this Offering, there has been no market for the Trust's
shares. The Trust intends to apply to list its Shares on the New York Stock
Exchange under the symbol " ." Shares of closed-end investment companies
have in the past frequently traded at a discount from their net asset
values and the Trust's Shares may likewise trade at such a discount. The
risks associated with this characteristic of closed-end investment
companies may be greater for investors expecting to sell shares of a
closed-end investment company soon after completion of an initial public
offering of the company's shares. The minimum investment in this Offering
is 100 Shares ($1,500). This Prospectus sets forth in concise form
information about the Trust that a prospective investor should know before
investing in the Trust. Investors are advised to read this Prospectus
carefully and to retain it for future reference.
The Trust's shares do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured depositary
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
Additional information about the Trust the (" Statement of Additional
Information") has been filed with the SEC and may be obtained without
charge by calling or writing the Trust at 345 Park Avenue, New York, New
York 10154, telephone number 800-227-7236. The SEC maintains an Internet
World Wide Web site (http://www.sec.gov) that contains this Prospectus and
the Statement of Additional Information.
------------------------
(Notes from cover page)
(1) BlackRock or an affiliate from its own assets will pay the Dealer
Managers a commission in the amount of _% of the Subscription Price
per Share in connection with the sale of the Shares in the Offering.
The Trust and the Investment Adviser have agreed to indemnify the
Dealer Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
See "Distribution."
(2) Before deducting organizational and offering expenses payable by the
Trust estimated at $_______ and $_______, respectively. Offering
expenses will be deducted from net proceeds, and organizational
expenses will be capitalized and amortized against income as
described in the footnotes to the Statement of Assets and
Liabilities.
(3) The Trust has granted the several Dealer Managers a [45] day
over-allotment option, which may be exercised up to three times
during such [45] day period, to purchase up to additional
Shares on the same terms and conditions as set forth above. If all
such additional Shares are purchased by the Dealer Managers, the
total Price to Public will be $ , the total Sales Load will be
$ and the total Proceeds to the Trust will be $ . See
"Distribution."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus. Investors
should carefully consider information set forth under the heading "Risk
Factors and Special Considerations."
THE TRUST The BlackRock High Yield Trust (the "Trust"), is a
newly organized, diversified, closed-end management
investment company. The Trust's primary investment
objective is to seek high current income.
BlackRock, Inc., a global asset management company
with over $120 billion of assets under management,
will act as the Trust's investment adviser (the
"Investment Adviser"). The Investment Adviser has
entered into a sub- advisory agreement with
BlackRock Financial Management, Inc. ("BlackRock"),
pursuant to which the responsibilities of managing
the Trust's portfolio on a daily basis have been
delegated to BlackRock. BlackRock believes that by
investing in high yield U.S. debt securities,
supplemented by high yield foreign debt securities,
the Trust can diversify its risk and enhance the
overall credit quality of its portfolio while
maintaining a high level of current income.
THE OFFERING In connection with the scheduled liquidation of The
BlackRock 1998 Term Trust Inc. (the "1998 Term
Trust") on or about December 31, 1998, the Trust is
offering to the holders of record as of the close
of business on November __, 1998 (the "Record
Date") of common shares of the 1998 Term Trust (the
"1998 Term Trust Shares") the right to request to
subscribe (the "Subscription Rights") for common
shares of the Trust (the "Shares") at a price of
$15.00 per Share (the "Subscription Price"),
without paying a sales charge. Such 1998 Term Trust
Shareholders may direct that their portion of the
liquidation proceeds from the 1998 Term Trust be
used to pay the Subscription Price for the Shares.
The Trust is also offering Subscription Rights to
Record Date holders of common shares of each other
closed-end investment company for which BlackRock
acts as investment adviser (together with the 1998
Term Trust, the "BlackRock Trusts"). The
Subscription Rights allow the Record Date holders
of common shares (the "BlackRock Trust Shares") of
each BlackRock Trust (the "Eligible Shareholders")
to request to subscribe for Shares in the Trust's
initial public offering (the "Offering") at a rate
of one Share for each BlackRock Trust Share held on
the Record Date and to request to subscribe for
additional Shares in the Offering as described
herein. The Subscription Rights expire on December
__, 1998 (the "Expiration Date"), unless the
Offering is extended as described herein. The
Subscription Rights are non-transferable and may
not be purchased or sold. The Board of Trustees of
the Trust has determined not to consummate the
Offering unless requests to subscribe for at least
[ ] Shares (the "Minimum Offering Amount")
are received in the Offering. [In connection with
seeking to achieve the Minimum Offering Amount, the
Trust reserves the right to offer Shares to clients
of the Dealer Managers who may not be Record Date
Eligible Shareholders.] The minimum purchase in the
Offering is 100 Shares ($1,500). The Shares are
offered by the Trust through Dealer Managers led by
. See "Terms of the Offering" and
"Distribution."
NO SALES CHARGE The Shares will be sold in the Offering without any
sales load or underwriting discounts payable by
investors or the Trust. BlackRock, Inc. or an
affiliate (not the Trust) from its own assets will
pay a commission to the Dealer Managers in
connection with sales of Shares in this offering.
See "Distribution."
INVESTMENT OBJECTIVES
AND POLICIES The Trust's primary investment objective is to seek
high current income. The Trust will also seek
capital appreciation as a secondary objective, to
the extent consistent with its primary objective of
seeking high current income. The Trust is designed
for investors willing to assume additional risk in
return for the potential for high current income
and for capital appreciation. The Trust is not
intended to be a complete investment program and
there is no assurance that the Trust will achieve
its objectives.
Under normal market conditions, at least 80% of the
total assets of the Trust will be invested in debt
securities and at least 65% of the total assets of
the Trust will be invested in high-yield debt
instruments which are rated in the lower rating
categories of the established rating services (Ba
or lower by Moody's Investors Service Inc.
("Moody's ) or BB or lower by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P")
or similarly rated by any other nationally
recognized rating agency ("Rating Agencies")) or in
unrated securities determined by the Trust's
investment adviser to be of comparable quality.
Securities rated below Baa by Moody's or below BBB
by S&P, and unrated securities of comparable
quality, are commonly known as "junk bonds." The
Trust may invest up to 35% of its total assets in
debt securities of issuers domiciled outside the
United States or that are denominated in various
foreign currencies and multinational currency
units. Typically, the Trust will not hold any
securities of emerging market issuers, and in any
case such securities will not comprise more than
10% of the Trust's net assets. The Trust may invest
up to 25% of its total assets in loans extended to
corporate borrowers by commercial banks or other
financial institutions ("Bank Loans"). The Trust
also may invest up to 10% of its total assets in
securities of issuers which are the subject of
bankruptcy proceedings or otherwise in default or
in significant risk of being in default
("Distressed Securities"). Additionally, the Trust
may invest up to 30% of its total assets in
stripped and zero coupon securities, pay-in-kind
bonds and deferred payment securities, and up to
20% of the Trust's total assets may be invested in
equity securities (certain equity securities may be
treated as debt securities for purposes of the
Trust's policy to invest at least 65% of its total
assets, in normal market conditions, in high yield
debt securities). An investment in the Trust may be
speculative in that it involves a high degree of
risk and should not constitute a complete
investment program.
The Trust expects to utilize financial leverage
through borrowings, including the issuance of debt
securities, or the issuance of preferred shares or
through other transactions such as reverse
repurchase agreements, which have the effect of
financial leverage. The Trust intends to utilize
financial leverage in an amount up to approximately
331/3% of its total assets (including the amount
obtained through leverage). The Trust generally
will not utilize leverage if it anticipates that
the Trust's leveraged capital structure would
result in a lower return to Shareholders than that
obtainable over time with an unleveraged capital
structure. Use of financial leverage creates the
opportunity for increased income and capital
appreciation for the Shareholders but, at the same
time, creates special risks, including
magnification of losses, and there can be no
assurance that a leveraging strategy will be
successful during any period in which it is
employed.
In selecting high yield investments for the Trust's
portfolio, BlackRock will seek to identify issuers
and industries that BlackRock believes are likely
to experience stable or improving financial
conditions. BlackRock believes this strategy should
enhance the Trust's ability to earn high current
income and achieve capital appreciation.
BlackRock's analysis may include consideration of
general industry trends, the issuer's managerial
strength, changing financial condition, borrowing
requirements or debt maturity schedules, and its
responsiveness to changes in business conditions
and interest rates. BlackRock may also consider
relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and
earnings prospects.
In certain market conditions, BlackRock may
determine that securities rated investment grade
(i.e., at least Baa by Moody's or BBB by S&P or
comparably rated by another Rating Agency) or U.S.
Government Obligations offer significant
opportunities for high income and capital
appreciation. In such conditions, the Trust may
invest less than 65% of its total assets in lower
grade debt securities of U.S. issuers. In addition,
the Trust may implement various temporary
"defensive" strategies at times when BlackRock
determines that conditions in the markets make
pursuing the Trust's basic investment strategy
inconsistent with the best interests of its
shareholders. These strategies may include
investing all or a portion of the Trust's assets in
higher-quality debt securities including short-term
securities.
The Trust may use various other investment
management techniques that also involve special
considerations, including engaging in interest rate
and credit derivatives transactions, engaging in
foreign currency transactions in connection with
the Trust's investment in foreign securities,
utilization of options and financial futures,
making forward commitments and lending its Trust
securities.
MANAGEMENT OF THE
TRUST BlackRock, Inc., a global asset management company
with approximately $120 billion of assets under
management, will act as the Trust's investment
adviser. The Investment Adviser has entered into
a sub-advisory agreement with BlackRock, a
wholly-owned subsidiary of the Investment Adviser,
pursuant to which the responsibilities of managing
the Trust on a daily basis have been delegated to
BlackRock. BlackRock was founded in 1988 and has
expertise in the government, mortgage, corporate,
asset-backed, non-dollar, high yield and municipal
sectors of the fixed-income securities market.
BlackRock currently has over $62 billion in
discretionary fixed-income assets under management
invested in a broad array of fixed income products
across the yield curve. The Trust will pay the
Investment Adviser a monthly fee at the annual rate
of [1.05%] of the Trust's average weekly value of
the total assets of the Trust minus the sum of
accrued liabilities (other than the aggregate
indebtedness constituting financial leverage) (the
"Managed Assets"). During periods in which the
Trust is utilizing financial leverage, the advisory
fee, which is payable to the Investment Adviser as
a percentage of the Trust's Managed Assets
(including those purchased with the leverage), will
be higher than if the Trust did not utilize a
leveraged capital structure. The Investment Adviser
will pay BlackRock from its own assets.
ADMINISTRATOR BlackRock and will act as the Trust's
administrators. The Trust will pay each
Administrator a monthly fee based on the Trust's
average weekly Managed Assets (as defined above) at
the per annum rate of [.05%].
LISTING Prior to this Offering, there has been no market
for the Shares. The Shares will be listed for
trading on the New York Stock Exchange under the
symbol " ."
DIVIDENDS AND OTHER
DISTRIBUTIONS The Trust intends, in accordance with its present
policy (which may be changed by the Board of
Trustees), to pay monthly distributions to its
Shareholders from its net investment income. The
initial distribution to Shareholders is expected to
be paid approximately 60 days after the completion
of this Offering. All net realized capital gains,
if any, either will be distributed to the Trust's
Shareholders at least annually or will be retained
by the Trust, and subject to Trust-level associated
tax liabilities thereon.
AUTOMATIC DIVIDEND
REINVESMENT PLAN The Trust has established an Automatic Dividend
Reinvestment Plan (the "Plan"). Under the Plan,
unless a Shareholder elects to receive cash, all
dividend and capital gains distributions will be
automatically reinvested in additional Shares of
the Trust either purchased in the open market, or
issued by the Trust if the Shares are trading at or
above their net asset value. Shareholders who
intend to hold their shares through a broker or
nominee should contact such broker or nominee to
determine whether or how they may participate in
the Plan. See "Automatic Dividend Reinvestment
Plan."
CLOSED-END FUND
STRUCTURE The Trust has been organized as a closed-end
management investment company (commonly referred to
as a closed-end fund). Closed-end funds differ from
open-end management investment companies (commonly
referred to as mutual funds) in that closed-end
funds generally list their shares for trading on a
securities exchange and do not redeem their shares
at the option of the shareholder. By comparison,
mutual funds issue securities redeemable at net
asset value at the option of the shareholder and
typically engage in a continuous offering of their
shares. Mutual funds are subject to continuous
asset in-flows and out-flows that can complicate
portfolio management, whereas closed-end funds
generally can stay more fully invested in
securities consistent with the closed-end fund's
investment objective and policies. In addition, in
comparison to open-end funds, closed-end funds have
greater flexibility in the employment of financial
leverage and in the ability to make certain types
of investments, such as investments in illiquid
securities. However, shares of closed-end funds
frequently trade at a discount from their net asset
value.
In recognition of the possibility that the Shares
might trade at a discount to net asset value and
that any such discount may not be in the interests
of Shareholders, the Trust's Board of Trustees
might consider open market repurchases or tender
offers for Shares at net asset value. There can be
no assurance that the Board of Trustees will decide
to undertake any of these actions or that, if
undertaken, such actions would result in the Shares
trading at a price equal or close to net asset
value per Share. The Board of Trustees might also
consider the conversion of the Trust to an open-end
mutual fund, which would also require a vote of the
Shareholders of the Trust. The Board of Trustees
believes, however, that the closed-end structure is
desirable, given the Trust's investment objective
and policies. Investors should assume, therefore,
that it is unlikely that the Board of Trustees
would vote to convert the Trust to an open-end
investment company.
RISK FACTORS
AND SPECIAL
CONSIDERATIONS Investment in the Trust involves special
considerations. Investors should consider carefully
their ability to assume the following risks before
making an investment in the Trust. An investment in
Shares of the Trust may not be appropriate for all
investors and should not be considered as a
complete investment program. See "Risk Factors and
Special Considerations."
General. The Trust is a newly organized,
diversified, closed-end management investment
company and has no operating history. The Shares
are designed primarily for long-term investors and
should not be considered a vehicle for trading
purposes. The net asset value of the Trust's Shares
will fluctuate with interest rate changes as well
as with price changes of the Trust's Trust
securities and these fluctuations are likely to be
greater in the case of a Trust having a leveraged
capital structure, as contemplated for the Trust.
Lower-Grade Securities. Lower grade securities are
regarded as being predominantly speculative as to
the issuer's ability to make payments of principal
and interest. Investment in such securities
involves substantial risk. Lower grade securities
are commonly referred to as "junk bonds." Issuers
of lower grade securities may be highly leveraged
and may not have available to them more traditional
methods of financing. Therefore, the risks
associated with acquiring the securities of such
issuers generally are greater than is the case with
higher-rated securities. For example, during an
economic downturn or a sustained period of rising
interest rates, issuers of lower grade securities
may be more likely to experience financial stress,
especially if such issuers are highly leveraged.
During periods of economic downturn, such issuers
may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability
to service its debt obligations also may be
adversely affected by specific issuer developments,
the issuer's inability to meet specific projected
business forecasts or the unavailability of
additional financing. Therefore, there can be no
assurance that in the future there will not exist a
higher default rate relative to the rates currently
existing in the market for lower grade securities.
The risk of loss due to default by the issuer is
significantly greater for the holders of lower
grade securities because such securities may be
unsecured and may be subordinated to other
creditors of the issuer. Other than with respect to
Distressed Securities, discussed below, the lower
grade securities in which the Trust may invest do
not include securities which, at the time of
investment, are in default or the issuers of which
are in bankruptcy. However, there can be no
assurance that such events will not occur after the
Trust purchases a particular security, in which
case the Trust may experience losses and incur
costs.
Lower grade securities frequently have call or
redemption features that would permit an issuer to
repurchase the security from the Trust. If a call
were exercised by the issuer during a period of
declining interest rates, the Trust is likely to
have to replace such called security with a lower
yielding security, thus decreasing the net
investment income to the Trust and dividends to
shareholders.
Lower grade securities tend to be more volatile
than higher-rated fixed-income securities, so that
adverse economic events may have a greater impact
on the prices of lower grade securities than on
higher-rated fixed-income securities. Factors
adversely affecting the market value of such
securities are likely to affect adversely the
Trust's net asset value. [Recently, demand for
lower grade securities has increased significantly
and the difference between the yields paid by lower
grade securities and investment grade bonds (i.e.,
the "spread") has narrowed]. To the extent this
differential increases, the value of lower grade
securities in the Trust's portfolio could be
adversely affected.
Like higher-rated fixed-income securities, lower
grade securities generally are purchased and sold
through dealers who make a market in such
securities for their own accounts. However, there
are fewer dealers in the lower grade securities
market, and this market may be less liquid than the
market for higher-rated fixed-income securities,
even under normal economic conditions. Also, there
may be significant disparities in the prices quoted
for lower grade securities by various dealers. As a
result, during periods of high demand in the lower
grade securities market, it may be difficult to
acquire lower grade securities appropriate for
investment by the Trust. Adverse economic
conditions and investor perceptions thereof
(whether or not based on economic reality) may
impair liquidity in the lower grade securities
market and may cause the prices the Trust receives
for its lower grade securities to be reduced. In
addition, the Trust may experience difficulty in
liquidating a portion of its portfolio when necessary
to meet the Trust's liquidity needs or in response
to a specific economic event such as deterioration
in the creditworthiness of the issuers. Under such
conditions, judgment may play a greater role in
valuing certain of the Trust's portfolio instruments
than in the case of instruments trading in a more
liquid market. In addition, the Trust may incur
additional expense to the extent that it is
required to seek recovery upon a default on a port-
folio holding or to participate in the restructuring
of the obligation.
Mortgage-Related and Asset-Backed Securities. The
Trust may invest in residential and commercial
mortgage-related and other asset-backed securities
(i.e., securities backed by home equity loans,
installment sale contracts, credit card receivables
or other assets) issued by governmental entities
and private issuers.
The Trust's investments in commercial
mortgage-backed securities ("CMBS") will typically
consist of CMBS which are subordinated to more
senior classes of such securities ("Subordinated
CMBS"). CMBS are generally multi-class debt or
pass-through securities backed by a mortgage loan
or pool of mortgage loans secured by commercial
property, such as industrial and warehouse
properties, office buildings, retail space and
shopping malls, multi-family properties and
cooperative apartments, hotels and motels, nursing
homes, hospitals, senior living centers and
agricultural property. Assets underlying CMBS may
relate to only a few properties or to a single
property. The commercial mortgage loans that
underlie CMBS have certain distinct
characteristics. Commercial mortgage loans are
generally not amortizing or not fully amortizing.
At their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid
through the attainment of an additional loan or
sale of the property. Unlike most single family
residential mortgages, commercial real property
loans often contain provisions which substantially
reduce the likelihood that such securities will be
prepaid. The provisions generally impose
significant prepayment penalties on loans and, in
some cases, there may be prohibitions on principal
prepayments for several years following
origination.
CMBS generally are structured to protect the senior
class investors against potential losses on the
underlying mortgage loans. This is generally
provided by having the Subordinated CMBS take the
first loss on any defaults on the underlying
commercial mortgage loans. In general, Subordinated
CMBS are entitled to receive repayment of principal
only after all required principal payments have
been made to more senior classes and have
subordinate rights as to receipt of interest
distributions. Such Subordinated CMBS are subject
to a substantially greater risk of nonpayment than
are senior classes of CMBS. Even within a class of
subordinated securities, most CMBS are structured
with a hierarchy of levels (or "loss positions").
Loss positions are the order in which
non-recoverable losses of principal are applied to
the securities within a given structure. For
instance, a first loss Subordinated CMBS will
absorb any principal losses before any higher loss
position Subordinated CMBS.
The yield and maturity characteristics of
mortgage-related and other asset-backed securities
differ from traditional debt securities. A major
difference is that the principal amount of the
obligations may normally be prepaid at any time
because the underlying assets (i.e., loans)
generally may be prepaid at any time. In
calculating the average weighted maturity of the
Trust, the maturity of mortgage-related and other
asset-backed securities held by the Trust will be
based on estimates of average life which take
prepayments into account.
The relationship between prepayments and interest
rates may give some high-yielding mortgage-related
and asset-backed securities less potential for
growth in value than conventional bonds with
comparable maturities. In addition, in periods of
falling interest rates, the rate of prepayments
tends to increase. During such periods, the
reinvestment of prepayment proceeds by the Trust
will generally be at lower rates than the rates
that were carried by the obligations that have been
prepaid. Because of these and other reasons, a
mortgage related or asset-backed security's total
return and maturity may be difficult to predict
precisely. To the extent that the Trust purchases
mortgage-related or asset-backed securities at a
premium, prepayments (which may be made without
penalty) may result in loss of the Trust's
principal investment to the extent of premium paid.
Non-mortgage asset-backed securities involve
certain risks that are not presented by
mortgage-related securities. Primarily, these
securities do not have the benefit of the same
security interest in the underlying collateral.
Credit card receivables are generally unsecured,
and the debtors are entitled to the protection of a
number of state and Federal consumer credit laws
many of which give debtors the right to set off
certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of
automobile receivables permit the servicers to
retain possession of the underlying obligations. If
the servicer were to sell these obligations to
another party, there is a risk that the purchaser
would acquire an interest superior to that of the
holders of the related automobile receivables. In
addition, because of the large number of vehicles
involved in a typical issuance and technical
requirements under state laws, the trustee for the
holders of the automobile receivables may not have
an effective security interest in all of the
obligations backing such receivables.
Therefore, there is a possibility that recoveries
on repossessed collateral may not, in some cases,
be able to support payments on these securities.
Bank Loans. The Trust may invest up to 25% of its
total assets in secondary market purchases of loans
extended to corporate borrowers by commercial banks
and other financial institutions ("Bank Loans"). As
in the case of junk bonds, the Bank Loans in which
the Trust may invest may be rated in the lower
rating categories of the Rating Agencies, or may be
unrated investments of comparable quality. As in
the case of junk bonds, such Bank Loans can be
expected to provide higher yields than
lower-yielding, higher quality fixed income
securities buy may be subject to greater risk of
loss of principal and income. There are, however,
some significant differences between Bank Loans and
junk bonds. Bank Loan obligations are frequently
secured by pledges of liens and security interests
in the assets of the borrower, and the holders of
Bank Loans are frequently the beneficiaries of debt
service subordination provisions imposed on the
borrower's bondholders. These arrangements are
designed to give Bank Loan investors preferential
treatment over junk bond investors in the event of
a deterioration in the credit quality of the
issuer. On the other hand, the secondary dealer
market for Bank Loans is not so well developed as
the secondary dealer market for junk bonds, and
therefore presents increased market risk relating
to liquidity and pricing concerns.
Mezzanine Investments. The Trust may invest up to
15% of its total assets in certain high yield
securities known as mezzanine investments, which are
subordinated debt securities that are generally
issued in private placements in connection with an
equity security (e.g., with attached warrants) or
may be convertible into equity securities. Such
mezzanine investments may be issued with or without
registration rights. Similar to other high yield
securities, maturities of mezzanine investments are
typically seven to ten years, but the expected
average life is significantly shorter at three to
five years. Mezzanine investments are usually
unsecured and subordinated to other obligations of
the issuer.
In connection with its purchase of mezzanine
investments, the Trust may participate in rights
offerings and may purchase warrants, which are
privileges issued by corporations enabling the
owners to subscribe and purchase a specified number
of shares of the corporation at a specified price
during a specified period of time. Subscription
rights normally have a short life span to
expiration. The purchase of rights or warrants
involves the risk that the Trust could lose the
purchase value of a right or warrant if the right
to subscribe to additional shares is not exercised
prior to the rights' and warrants' expiration.
Also, the purchase of rights and/or warrants
involves the risk that the effective price paid for
the right and/or warrant added to the subscription
price of the related security may exceed the value
of the subscribed security's market price such as
when there is no movement in the level of the
underlying security.
Collateralized Bond Obligations. The Trust may
invest up to 15% of its total assets in
collateralized bond obligations ("CBOs"), which are
structured products backed by a diversified pool of
high yield, public or private fixed income
securities. These may be fixed pools or may be
"market value" or managed pools of collateral. The
pool of high yield securities is typically
separated into tranches representing different
degrees of credit quality. The top tranche of CBOs,
which represents the highest credit quality in the
pool, has the greatest collateralization and pays
the lowest interest rate. Lower CBO tranches
represent lower degrees of credit quality and pay
higher interest rates to compensate for the
attendant risks. The bottom tranche specifically
receives the residual interest payments (i.e. money
that is left over after the higher tiers have been
paid) rather than a fixed interest rate. The return
on the bottom tranche of CBOs is especially
sensitive to the rate of defaults in the collateral
pool.
Distressed Securities. The Trust may invest up to
10% of its total assets in securities which are the
subject of bankruptcy proceedings or otherwise in
default as to the repayment of principal and/or
payment of interest at the time of acquisition by
the Trust or are rated in the lower rating
categories (Ca or lower by Moody's and CC or lower
by S&P) or which, if unrated, are in the judgment
of BlackRock of equivalent quality ("Distressed
Securities"). Investment in Distressed Securities
is speculative and involves significant risk,
including possible loss of the principal invested.
Distressed Securities frequently do not produce
income while they are outstanding and may require
the Trust to bear certain extraordinary expenses in
order to protect and recover its investment.
Therefore, to the extent the Trust pursues its
secondary objective of capital appreciation through
investment in Distressed Securities, the Trust's
ability to achieve current income for its
Shareholders may be diminished.
Foreign Securities. The Trust may invest up to 35%
of its total assets in debt securities of issuers
domiciled outside of the United States or that are
denominated in various foreign currencies and
multinational foreign currency units ("Foreign
Securities"). The Trust's investment in Foreign
Securities may include debt securities issued by
foreign governments and other sovereign entities
and debts securities issued by foreign
corporations. Typically, the Trust will not hold
any Foreign Securities of emerging markets issuers,
and in any case such securities will not comprise
more than 10% of the Trust's net assets.
Investments in such securities are particularly
speculative. Investing in securities of foreign
entities and securities denominated in foreign
currencies involves certain risks not involved in
domestic investments, including, but not limited
to, fluctuations in foreign exchange rates, future
foreign political and economic developments,
different legal systems and the possible imposition
of exchange controls or other foreign governmental
laws or restrictions. Investing in foreign
sovereign debt securities, especially in emerging
market countries, will expose the Trust to the
direct and indirect consequences of political,
social or economic changes in the relevant
countries. The ability and willingness of sovereign
obligors to pay principal and interest on such debt
when due may depend on general economic and
political conditions within the relevant country,
and will also be strongly influenced by the
obligor's balance of payments, including export
performance, its access to international credits
and investments and the extent of its foreign
reserves. Securities prices in different countries
are subject to different economic, financial,
political and social factors. Since the Trust may
invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in
foreign currency exchange rates may affect the
value of securities in the Trust and the unrealized
appreciation or depreciation of investments.
Currencies of certain countries may be volatile and
therefore may affect the value of securities
denominated in such currencies. In addition, with
respect to certain foreign countries, there is the
possibility of expropriation of assets,
confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, economic, political or
social instability or diplomatic developments that
could affect investments in those countries.
Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in
such respects as growth of gross domestic product,
rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments
position. Certain foreign investments also may be
subject to foreign withholding taxes. These risks
often are heightened for investments in emerging
capital markets.
As a result of these potential risks, BlackRock may
determine that, notwithstanding otherwise favorable
investment criteria, it may not be practicable or
appropriate to invest in a particular country. The
Trust may invest in countries in which foreign
investors, including BlackRock, have had no or
limited prior experience.
Leverage. The use of leverage by the Trust creates
an opportunity for increased net income and capital
appreciation for the Shares, but, at the same time,
creates special risks. There can be no assurance
that a leveraging strategy will be successful
during any period in which it is employed. The
Trust intends to utilize leverage to provide the
Shareholders with a potentially higher return.
Leverage creates risks for Shareholders including
the likelihood of greater volatility of net asset
value and market price of the Shares and the risk
that fluctuations in interest rates on borrowings
and short-term debt or in the dividend rates on any
preferred stock may affect the return to the
Shareholders. To the extent the income or capital
appreciation derived from securities purchased with
funds received from leverage exceeds the cost of
leverage, the Trust's return will be greater than
if leverage had not been used. Conversely, if the
income or capital appreciation from the securities
purchased with such funds is not sufficient to
cover the cost of leverage, the return to the Trust
will be less than if leverage had not been used,
and therefore the amount available for distribution
to Shareholders as dividends and other
distributions will be reduced. Moreover, any
decline in the value of the Trust's assets will be
borne entirely by Shareholders in the form of
reductions in the Trust's net asset value, and any
requirement that the Trust sell assets at a loss in
order to redeem or pay any leverage or for other
reasons would make it difficult for the net asset
value to recover. Accordingly, the effect of
leverage in a declining market is likely to be a
greater decline in the net asset value of the
Shares than if the Trust were not leveraged, which
may be reflected in a greater decline in the market
price of the Shares. BlackRock in its best judgment
nevertheless may determine to maintain the Trust's
leveraged position if it expects that the benefits
to the Trust's Shareholders of maintaining the
leveraged position will outweigh the current
reduced return.
During periods in which the Trust is utilizing
financial leverage, the investment advisory fees
payable to the Investment Adviser will be higher
than if the Trust did not utilize a leveraged
capital structure. Certain types of borrowings by
the Trust may result in the Trust being subject to
covenants in credit agreements relating to asset
coverage and Trust composition requirements. The
Trust may be subject to certain restrictions on
investments imposed by guidelines of one or more
Rating Agencies, which may issue ratings for the
short-term corporate debt securities or preferred
stock issued by the Trust. These guidelines may
impose asset coverage or Trust composition
requirements that are more stringent than those
imposed by the Investment Company Act of 1940, as
amended (the "Investment Company Act"). It is not
anticipated that these covenants or guidelines will
impede BlackRock from managing the Trust's
portfolio in accordance with the Trust's investment
objectives and policies. The Trust at times may
borrow from affiliates of BlackRock, provided that
the terms of such borrowings are no less favorable
than those available from comparable sources of
funds in the marketplace. As discussed under
Management of the Trust, the fee paid to the
Investment Adviser will be calculated on the basis
of the Trust's assets including proceeds from
borrowings for leverage and the issuance of
preferred shares.
Other Investment Management Techniques. The Trust
may use various other investment management
techniques that also involve special
considerations, including engaging in interest rate
and foreign currency transactions, utilization of
options and futures transactions, making forward
commitments and lending its Trust securities.
Illiquid Securities. The Trust may invest in
securities for which no readily available market
exists or which are otherwise illiquid. The Trust
may not be able readily to dispose of such
securities at prices that approximate those at
which the Trust could sell such securities if they
were more widely traded and, as a result of such
illiquidity, the Trust may have to sell other
investments or engage in borrowing transactions if
necessary to raise cash to meet its obligations.
Market Price, Discount and Net Asset Value of
Shares. Whether investors will realize gains or
losses upon the sale of Shares will not depend
directly upon the Trust's net asset value, but will
depend upon the market price of the Shares at the
time of sale. Since the market price of the Shares
will be determined by such factors as relative
demand for and supply of the Shares in the market,
general market and economic conditions and other
factors beyond the control of the Trust, the Trust
cannot predict whether the Shares will trade at,
below or above net asset value or at, below or
above the initial public offering price. Shares
of closed-end investment companies in the past
frequently have traded at a discount to their net
asset values. The risk of loss associated with this
characteristic of closed-end investment companies
may be greater for investors purchasing Shares in
the initial public offering and expecting to sell
the Shares soon after the completion thereof. The
Shares are designed primarily for long-term
investors, and investors in the Shares should not
view the Trust as a vehicle for trading purposes.
See "Risk Factors and Special Considerations" and
"Description of Shares."
Anti-Takeover Provisions. The Trust's Agreement and
Declaration of Trust (the "Trust Agreement")
contains provisions limiting (i) the ability of
other entities or persons to acquire control of the
Trust, (ii) the Trust's freedom to engage in
certain transactions, and (iii) the ability of the
Trust's Board of Trustees or Shareholders to amend
the Trust Agreement. These provisions of the Trust
Agreement may be regarded as "anti-takeover"
provisions. These provisions could have the effect
of depriving the Shareholders of opportunities to
sell their shares at a premium over prevailing
market prices by discouraging a third party from
seeking to obtain control of the Trust in a tender
offer or similar transaction. See "Investment
Objectives and Policies," "Risk Factors and Special
Considerations" and "Description of Shares."
FEE TABLE
The following tables are intended to assist investors in
understanding the various costs and expenses that an investor in the Trust
will bear, directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Sales load (as a percentage of offering price).........................None
Dividend reinvestment plan fees........................................None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO SHARES)(1)
Management Fee......................................................[1.05%]
Administrative Fee..................................................[0.10%]
Interest Payments on Borrowed Funds....................................None
Other expenses..........................................................__%
Total Annual Trust Expenses.......................................__%
- -------------
(1) See "Management of the Trust" for additional information. In the
event the Trust utilizes leverage by borrowing in an amount equal to
approximately 331/3% of the Trust's total assets (including the
amount obtained from leverage), it is estimated that, as a percentage
of net assets attributable to the Shares, the Management Fee would be
1.58%, the Administrative Fee would be 0.15%, Interest Payments on
Borrowed Funds (assuming an interest rate of [6.00%]) would be
[3.00%]%, Other Expenses would be 0.__% and Total Annual Expenses
would be _.__%. "Other Expenses" have been estimated. See "Risk
Factors and Considerations-Leverage" and "Other Investment
Policies-Leverage."
EXAMPLE
The following Example demonstrates the projected dollar amount of
total cumulative expense that would be incurred over various periods with
respect to a hypothetical investment in the Trust. These amounts are based
upon payment by the Trust of operating expenses at the levels set forth in
the above table.
1 Year 3 Years 5 Years 10 Years
An investor would directly or
indirectly pay the following
expenses on a $1,000 investment
in the Trust, assuming (i) total
annual expenses of _.__% (assuming
no leverage) and _.__% (assuming
leverage of 331/3% of the Trust's
total assets) and (ii) a 5% annual
return throughout the periods and
reinvestment of all dividends and
other distributions at net asset
value:
Assuming No Leverage.............
Assuming 331/3% Leverage.........
This Example assumes that the percentage amounts listed under Total
Annual Expenses remain the same in the years shown. The above tables and
the assumption in the Example of a 5% annual return and reinvestment at net
asset value are required by regulation of the Securities and Exchange
Commission ("SEC") applicable to all investment companies; the assumed 5%
annual return is not a prediction of, and does not represent, the projected
or actual performance of the Shares. Actual expenses and annual rates of
return may be more or less than those assumed for purposes of the Example.
In addition, although the Example assumes reinvestment of all dividends and
other distributions at net asset value, participants in the Trust's
Automatic Dividend Reinvestment Plan may receive Shares obtained by the
Plan Agent at or based on the market price in effect at that time, which
may be at, above or below net asset value.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES, AND THE TRUST'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
THE TRUST
The BlackRock High Yield Trust (the "Trust") is registered under the
Investment Company Act as a diversified, closed-end management investment
company. The Trust was organized as a business trust under the laws of
Delaware on August 10, 1998 and has no operating history. The Trust's
principal office is located at 345 Park Avenue, New York, New York 10154,
and its telephone number is 1-800- . BlackRock, Inc. is the Trust's
investment adviser (the "Investment Adviser"). The Investment Adviser has
entered into a sub-advisory agreement with its wholly-owned subsidiary,
BlackRock Financial Management, Inc. ("BlackRock"), pursuant to which the
responsibilities of managing the Trust's portfolio on a daily basis have
been delegated to BlackRock. See "Management of the Trust."
The Trust has been organized as a closed-end management investment
company. Closed-end management investment companies (also called closed-end
funds) differ from open-end management investment companies (commonly
referred to as mutual funds) in that closed-end management investment
companies do not redeem their securities at the option of the shareholder,
whereas mutual funds issue securities redeemable at net asset value at any
time at the option of the shareholder and typically engage in a continuous
offering of their shares. Mutual funds are subject to continuous asset
in-flows and outflows that can complicate portfolio management, whereas
closed-end funds generally can stay more fully invested. To facilitate
redemption obligations, mutual funds are subject to more stringent
regulatory limitations on certain investments, such as investments in
illiquid securities, than are closed-end funds. However, shares of
closed-end funds frequently trade at a discount of net asset value. This
risk may be greater for investors expecting to sell their shares relatively
soon after the completion of the Offering.
USE OF PROCEEDS
The net proceeds of the Trust from this Offering are approximately
[__________] ([__________] if the Dealer Managers' over-allotment option is
exercised in full) after deducting organizational and estimated offering
expenses. The net proceeds will be invested in accordance with the Trust's
investment objectives and policies during a period not to exceed [six]
months from the closing of this Offering. Pending such investment, the net
proceeds may be invested in high quality, short-term debt securities. [A
portion of the Trust's organizational and offering expenses has been
advanced by __________ and will be repaid by the Trust upon completion of
this Offering.] BlackRock or an affiliate (not the Trust) will pay a
commission from its own assets to the Dealer Managers in connection with
sales of Shares in this Offering. See "Distribution."
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Trust's primary investment objective is to seek high current
income. The Trust will also seek capital appreciation as a secondary
objective, to the extent consistent with its primary objective of seeking
high current income. The Trust is designed for investors willing to assume
additional risk in return for the potential for high current income and
for capital appreciation. The Trust is not intended to be a complete
investment program and there is no assurance that the Trust will achieve
its objectives. The Trust's investment objectives cannot be changed without
approval by the holders of a majority (as defined in the Investment Company
Act) of the Trust's outstanding voting shares.
INVESTMENT POLICIES
Under normal market conditions, at least 80% of the total assets of
the Trust will be invested in debt securities and at least 65% of the total
assets of the Trust will be invested in high-yield debt instruments which
are rated in the lower rating categories of the established rating services
(Ba or lower by Moody's Investors Service, Inc. ("Moody's"), below BB or
lower by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P") or similarly rated by any other nationally recognized securities
rating organization (each, a "Rating Agency")), or in unrated income
securities that BlackRock determines to be of comparable quality.
Securities rated below Baa by Moody's or below BBB by S&P, and unrated
securities of comparable quality, are commonly known as "junk bonds." The
Trust may invest up to 35% of its total assets in debt securities of
issuers domiciled outside of the United States or that are denominated in
various foreign currencies and multinational currency units ("Foreign
Securities"). Typically, the Trust will not hold any Foreign Securities of
emerging market issuers, and in any case such securities will not comprise
more than 10% of the Trust's net assets. The Trust may invest up to 25% of
its total assets in loans extended to corporate borrowers by commercial
banks or other financial institutions ("Bank Loans"). The Trust may also
invest up to 10% of its total assets in securities that are the subject of
bankruptcy proceedings or otherwise in default or in significant risk of
being in default ("Distressed Securities"). Additionally, the Trust may
invest up to 30% of its total assets in stripped and zero coupon
securities, pay-in-kind bonds and deferred payment securities, and up to
20% of the Trust's total assets may be invested in equity securities
(certain equity securities may be treated as debt securities for purposes
of the Trust's policy to invest at least 65% of its total assets, in normal
market conditions, in high yield debt securities). The foregoing
percentages are as of the time of investment by the Trust and could
thereafter be exceeded as a result of market value fluctuations of the
Trust's portfolio.
In selecting high-yield investments for the Trust's portfolio,
BlackRock will seek to identify issuers and industries that BlackRock
believes are likely to experience stable or improving financial conditions.
BlackRock believes that this strategy should enhance the Trust's ability to
earn high current income and provide opportunities for capital
appreciation. BlackRock's analysis may include consideration of general
industry trends, the issuer's managerial strength, changing financial
condition, borrowing requirements or debt maturity schedules, and its
responsiveness to changes in business conditions and interest rates.
BlackRock may also consider relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and earnings prospects.
The Trust expects to utilize financial leverage through borrowings,
including the issuance of debt securities, or the issuance of preferred
shares or through other transactions, such as reverse repurchase
agreements, which have the effect of financial leverage. The Trust intends
to utilize financial leverage in an initial amount equal to approximately
331/3% of its total assets (including the amount obtained through
leverage). The Trust generally will not utilize leverage if it anticipates
that the Trust's leveraged capital structure would result in a lower return
to Shareholders than that obtainable over time with an unleveraged capital
structure. Use of financial leverage creates an opportunity for increased
income and capital appreciation for the Shareholders but, at the same time,
creates special risks and there can be no assurance that a leveraging
strategy will be successful during any period in which it is employed. See
"Other Investment Practices-Leverage" and "Risk Factors and Special
Considerations-Leverage."
In certain market conditions, BlackRock may determine that securities
rated investment grade (i.e., at least Baa by Moody's or BBB by S&P or
comparably rated by another Rating Agency) or U.S. Government Obligations
offer significant opportunities for high income and capital growth. In such
conditions, the Trust may invest less than 65% of its total assets in lower
grade debt securities of U.S. issuers. In addition, the Trust may implement
various temporary "defensive" strategies at times when BlackRock determines
that conditions in the markets make pursuing the Trust's basic investment
strategy inconsistent with the best interests of its shareholders. These
strategies may include investing all or a portion of the Trust's assets in
higher-quality debt securities.
The Trust's will invest primarily in bonds, debentures, notes and
other debt instruments. The Trust's portfolio securities may have fixed or
variable rates of interest, and may include convertible debt obligations
and convertible preferred stock, warrant and equity shares,
mortgage-related securities, asset-backed securities, Bank Loans, Mezzanine
Investments, government securities, collateralized bond obligations,
Distressed Securities, zero-coupon securities, pay-in-kind bonds and
deferred payment securities. The issuers of the Trust's portfolio
securities may include domestic and foreign corporations, partnerships,
trusts or similar entities, and governmental entities or their political
subdivisions, agencies or instrumentalities. The Trust may invest in
securities of any maturity. In connection with its investments in corporate
debt securities, or restructuring of investments owned by the Trust, the
Trust may receive warrants or other non-income producing equity securities.
The Trust may retain such securities, including equity shares received upon
conversion of convertible securities, until BlackRock determines it is
appropriate in light of current market conditions to effect a disposition
of such securities.
STATISTICAL INFORMATION REGARDING HIGH-YIELD SECURITIES
[The annualized compound total return from 1991 through , 1998 of
high yield bonds, represented by the Merrill Lynch High Yield Master Index,
is 15.65%. The annualized compound total return in that period for
long-term treasuries, represented by the Merrill Lynch Governments, U.S.
Treasury, Long Term Index (15+ Years), is 11.03%. The annualized compound
total return in that period of corporate bonds, represented by the Merrill
Lynch Corporate Master Index (All Maturities), is 9.97%. The annualized
compound total return in that period for intermediate-term treasuries,
represented by the Merrill Lynch Governments, U.S. Treasury, Intermediate
Term Index (1-9.99 Years), is 7.53%. The annualized compound total return
in that period of 91-day treasury bills, represented by the Merrill Lynch
U.S. Treasury, 91-Day Index, is 4.73%. The Merrill Lynch High Yield Master
Index is an unmanaged index of U.S. bonds and U.S. dollar-denominated bonds
of non-U.S. issuers, in each case with at least $100 million par amount
outstanding, with a maturity equal to or greater than one year and rated by
S&P in the categories ranging from "BB+" to "C" and rated by Moody's in the
categories ranging from "Ba1" to "C." The Merrill Lynch Corporate Master
Index (All Maturities) is an unmanaged index of fixed-coupon U.S.
investment grade bonds with at least $100 million par amount outstanding
with a quality range between BBB3 and AAA based on composite Moody's and
S&P ratings. The calculation of composite ratings is based on an averaging
that is biased to the lower of the two ratings. The Merrill Lynch
Governments, U.S. Treasury, Long Term Index (15+ Years) is an unmanaged
index of all U.S. treasury notes and bonds with at least $100 million par
amount outstanding and with a maturity greater than or equal to fifteen
years. The Merrill Lynch Governments, U.S. Treasury, Intermediate Term
Index (1-9.99 Years) is an unmanaged index of all U.S. treasury notes and
bonds with at least $100 million par amount outstanding and with a maturity
greater than or equal to one year and less than ten years. The Merrill
Lynch U.S. Treasury, 91-Day Index is an unmanaged index which, at the
beginning of every month, is comprised of the U.S. Treasury Bill with a
maturity closest to, but not longer than, 91 days from that date. It is
assumed that this issue is held for one month, then sold with the net
proceeds reinvested in the bill selected at the beginning of the next
month. Differences exist between the securities that comprise the indices
shown above, particularly the Merrill Lynch High Yield Master Index, and
the securities in which the Trust will invest. The Trust will not seek to
match the composition or performance of any such indices. The performance
of the various indices should not be viewed as indicative of the
performance of the Trust.]
In addition, past performance is no guarantee of future performance.
The statistical information described above reflects a comparison of the
annualized compound total return percentages of various asset classes as
represented by their respective indices for the period from January 1991
through 1998. The statistical information described above does not reflect
the past or future performance of the Trust. An investor cannot invest
directly in an index. High yield bonds and emerging markets debt are
subject to greater risks and uncertainties than other securities set forth
in the statistical information described above, including U.S. Treasury
securities which are guaranteed as to the payment of principal and interest
by the U.S. Government.
BlackRock believes that the credit quality of outstanding U.S. high
yield debt has improved over the last decade. For example, the default loss
rates (defined as the percentage of high yield bonds (based on par value)
which missed any scheduled interest or principal payments (in that year,
net of any recovery)) for U.S. high yield bonds were approximately 1.66%,
2.93%, 8.42%, 7.16%, 1.91%, 0.56%, 0.96%, 1.24%, 0.65% and 0.65% for
calendar years 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and
1997, respectively. The statistical information with respect to historical
default loss rates is based on information contained in Edward I. Altman
and Vellore M. Kishore, Defaults and Returns on High Yield Bonds: Analysis
through 1997 (New York University Salomon Center 1998), and is intended to
demonstrate default loss-rate trends over the period indicated. It should
not be reviewed as a definitive indication of the relative magnitude of
changes in credit quality from year to year. Although other methods of
analyzing default experience, such as comparing default experience of
seasoned issues, would produce different relative figures, BlackRock
believes that the foregoing default loss-rate data evidence a general trend
of improving credit quality.
For the period January 1, 1989 through December 31, 1997, the
cumulative gross default rate for high yield corporate bonds was 38.34%.
This figure represents the probability that a high yield bond issued on
January 1, 1989 would default by December 31, 1997. The rate is based on
the ratio of the number of issuers that defaulted on high yield bonds
outstanding on January 1, 1989 to the number of issuers at risk of
defaulting on such bonds as of such date and is based only on bonds that
have been rated by Moody's. The foregoing is derived from information
obtained by the Trust from the February 1998 issue of a Moody's publication
entitled "Historical Default Rates of Corporate Bond Issuers, 1920-1997."
The market of outstanding high yield securities has generally
increased since 1977. The aggregate outstanding principal amount of high
yield securities was approximately $24.0 billion, $26.0 billion, $28.0
billion, $30.0 billion, $32.0 billion, $35.0 billion, $43.0 billion, $59.0
billion, $83.3 billion, $138.4 billion, $182.8 billion, $207.3 billion,
$244.2 billion, $214.6 billion, $200.9 billion, $199.6 billion, $233.6
billion, $271.5 billion, $296.9 billion, $352.7 billion and $452.3 billion
for calendar years 1977, 1978, 1979, 1980, 1981, 1982, 1983, 1984, 1985,
1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997,
respectively. The statistical information with respect to historical
outstanding principal amounts of high yield securities is based on
information the Trust obtained from Chase Securities Inc.
PORTFOLIO SECURITIES
LOWER GRADE SECURITIES. The Trust generally will invest in securities
rated below investment grade such as those rated Ba or lower by Moody's and
BB or lower by S&P or securities comparably rated by other Rating Agencies
or in unrated securities determined by BlackRock to be of comparable
quality. Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate.
Securities rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term
vulnerability to default than other speculative grade debt, they face major
ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. Securities rated C by Moody's are regarded
as having extremely poor prospects of ever attaining any real investment
standing. Securities rated D by S&P are in default and the payment of
interest and/or repayment of principal is in arrears. See "Appendix
A-Description of Corporate Bond Ratings" for additional information
concerning rating categories.
Lower grade securities, though high yielding, are characterized by
high risk. They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding,
higher rated securities. The retail secondary market for lower grade
securities may be less liquid than that of higher rated securities; adverse
conditions could make it difficult at times for the Trust to sell certain
securities or could result in lower prices than those used in calculating
the Trust's net asset value.
The prices of debt securities generally are inversely related to
interest rate changes; however, the price volatility also is inversely
related to coupon. Accordingly, below investment grade securities may be
relatively less sensitive to interest rate changes than higher quality
securities of comparable maturity, because of their higher coupon. This
higher coupon is what the investor receives in return for bearing greater
credit risk. The higher credit risk associated with below investment grade
securities potentially can have a greater effect on the value of such
securities than may be the case with higher quality issues of comparable
maturity, and will be a substantial factor in the Trust's relative Share
price volatility.
Lower grade securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely
the market for such securities and may have an adverse impact on the value
of such securities. In addition, it is likely that any such economic
downturn could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon and increase the
incidence of default for such securities.
The ratings of Moody's, S&P and the other Rating Agencies represent
their opinions as to the quality of the obligations which they undertake to
rate. Ratings are relative and subjective and, although ratings may be
useful in evaluating the safety or interest and principal payments, they do
not evaluate the market value risk of such obligations. Although these
ratings may be an initial criterion for selection of portfolio investments,
BlackRock also will evaluate these securities and the ability of the
issuers of such securities to pay interest and principal. To the extent
that the Trust invests in lower grade securities that have not been rated
by a Rating Agency, the Trust's ability to achieve its investment objective
will be more dependent on BlackRock' credit analysis than would be the case
when the Trust invests in rated securities.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. The Trust
may invest up to 30% of its total assets in zero coupon, pay-in-kind or
deferred payment lower grade securities. Zero coupon securities are
securities that are sold at a discount to par value and on which interest
payments are not made during the life of the security. Upon maturity, the
holder is entitled to receive the par value of the security. While interest
payments are not made on such securities, holders of such securities are
required each year, for federal income tax purposes, to accrue income with
respect to these securities as if it were actually received. Because the
Trust must distribute this notional non-cash income to Shareholders, to the
extent that Shareholders elect to receive dividends in cash rather than
reinvesting such dividends in additional shares the Trust will have fewer
assets with which to purchase income producing securities. The Trust
accrues income with respect to these securities prior to the receipt of
cash payments. Pay-in-kind securities are securities that have interest
payable by delivery of additional securities. Upon maturity, the holder is
entitled to receive the aggregate par value of the securities. Deferred
payment securities are securities that remain zero coupon securities until
a predetermined date, at which time the stated coupon rate becomes
effective and interest becomes payable at regular intervals. Zero coupon,
pay-in-kind and deferred payment securities are subject to greater
fluctuation in value and may have lesser liquidity in the event of adverse
market conditions than comparably rated securities paying cash interest at
regular interest payment periods.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are a form
of derivative collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private
organizations. These securities may include complex instruments such as
collateralized mortgage obligations, stripped mortgage-backed securities,
mortgage pass-through securities, interests in real estate mortgage
investment conduits ("REMICs"), adjustable rate mortgages, real estate
investment trusts ("REITs"), including debt and preferred stock issued by
REITs, as well as other real estate-related securities. The
mortgage-related securities in which the Trust may invest include those
with fixed, floating or variable interest rates, those with interest rates
that change based on multiples of changes in a specified index of interest
rates and those with interest rates that change inversely to changes in
interest rates, as well as those that do not bear interest.
Commercial Mortgage-Related Securities. Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. These mortgage-related
securities generally are structured to provide protection to the senior
classes investors against potential losses on the underlying mortgage
loans. This protection generally is provided by having the holders of
subordinated classes of securities ("Subordinated Securities") take the
first loss if there are defaults on the underlying commercial mortgage
loans. Other protection, which may benefit all of the classes or particular
classes, may include issuer guarantees, reserve funds, additional
Subordinated Securities, cross-collateralization and
over-collateralization.
The Trust may invest in Subordinated Securities issued or sponsored
by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers.
Subordinated Securities have no governmental guarantee, and are
subordinated in some manner as to the payment of principal and/or interest
to the holders of more senior mortgage-related securities arising out of
the same pool of mortgages. The holders of Subordinated Securities
typically are compensated with a higher stated yield than are the holders
of more senior mortgage-related securities. On the other hand, Subordinated
Securities typically subject the holder to greater risk than senior
mortgage-related securities and tend to be rated in a lower rating
category, and frequently a substantially lower rating category, than the
senior mortgage-related securities issued in respect of the same pool of
mortgage. Subordinated Securities generally are likely to be more sensitive
to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional fixed-income
securities and senior mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is
viewed as exposing the lender to a greater risk of loss than one-to-four
family residential lending. Commercial lending, for example, typically
involves larger loans to single borrowers or groups of related borrowers
than residential one-to-four family mortgage loans. In addition, the
repayment of loans secured by income producing properties typically is
dependent upon the successful operation of the related real estate project
and the cash flow generated therefrom. Consequently, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on commercial
properties than on those secured by loans on residential properties.
Government-Agency Securities. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are
guaranteed as to the timely payment of principal and interest by GNMA and
such guarantee is backed by the full faith and credit of the United States.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Government-Related Securities. Mortgage-related securities issued by
the Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the
full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private shareholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate
payment of principal at any time after default on an underlying mortgage,
but in no event later than one year after it becomes payable.
Private Entity Securities. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage
bankers, private mortgage insurance companies and other non-governmental
issuers. Timely payment of principal and interest on mortgage-related
securities backed by pools created by non-governmental issuers often is
supported partially by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies, so that if
the issuers default on their obligations the holders of the security could
sustain a loss. No insurance or guarantee covers the Trust or the price of
the Trust's shares. Mortgage-related securities issued by non-governmental
issuers generally offer a higher rate of interest than government-agency
and government-related securities because there are no direct or indirect
government guarantees of payment.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a multi-class
bond backed by a pool of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie
Mac pass-through certificates, (b) unsecuritized mortgage loans insured by
the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other
mortgage-related securities, or (e) any combination thereof. Each class of
CMOs, often referred to as a "tranche," is issued at a specific coupon rate
and has a stated maturity or final distribution date. Principal prepayments
on collateral underlying a CMO may cause it to be retired substantially
earlier than the stated maturities or final distribution dates. The
principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. One or more tranches
of a CMO may have coupon rates which reset periodically at a specified
increment over an index, such as the London Interbank Offered Rate
("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The
Trust also may invest in inverse floating rate CMOs. Inverse floating rate
CMOs constitute a tranche of a CMO with a coupon rate that moves in the
reverse direction to an applicable index such a LIBOR. Accordingly, the
coupon rate thereon will increase as interest rates decrease. Inverse
floating rate CMOs are typically more volatile than fixed or floating rate
tranches of CMOs. Many inverse floating rate CMOs have coupons that move
inversely to a multiple of the applicable indexes. The effect of the coupon
varying inversely to a multiple of an applicable index creates a leverage
factor. Inverse floaters based on multiples of a stated index are designed
to be highly sensitive to changes in interest rates and can subject the
holders thereof to extreme reductions of yield and loss of principal. The
markets for inverse floating rate CMOs with highly leveraged
characteristics at times may be very thin. The Trust's ability to dispose
of its positions in such securities will depend on the degree of liquidity
in the markets for such securities. It is impossible to predict the amount
of trading interest that may exist in such securities, and therefore the
future degree of liquidity.
Stripped Mortgage-Backed Securities. The Trust also may invest in
stripped mortgage-backed securities. Stripped mortgage-backed securities
are created by segregating the cash flows from underlying mortgage loans or
mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each
investor class receives some interest and some principal. When securities
are completely stripped, however, all of the interest is distributed to
holders of one type of security, known as an interest-only security, or IO,
and all of the principal is distributed to holders of another type of
security known as a principal-only security, or PO. Strips can be created
in a pass-through structure or as tranches of a CMO. The yields to maturity
on IOs and POs are very sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. If the
underlying mortgage assets experience greater than anticipated prepayments
of principal, the Trust may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the yield on POs could be materially
and adversely affected.
Real Estate Investment Trusts. A REIT is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and
making the REIT a pass-through vehicle for federal income tax purposes. To
meet the definitional requirements of the Code, a REIT must, among other
things, invest substantially all of its assets in interests in real estate
(including mortgages and other REITs) or cash and government securities,
derive most of its income from rents from real property or interest on
loans secured by mortgages on real property, and distribute to shareholders
annually a substantial portion of its otherwise taxable income. REITs are
characterized as equity REITs, mortgage REITs and hybrid REITs. Equity
REITs, which may include operating or finance companies, own real estate
directly and the value of, and income earned by, the REITs depends upon the
income of the underlying properties and the rental income they earn. Equity
REITs also can realize capital gains (or losses) by selling properties that
have appreciated (or depreciated) in value. Mortgage REITs can make
construction, development or long-term mortgage loans and are sensitive to
the credit quality of the borrower. Mortgage REITs derive their income from
interest payments on such loans. Hybrid REITs combine the characteristics
of both equity and mortgage REITs, generally by holding both ownership
interests and mortgage interests in real estate. The value of securities
issued by REITs are affected by tax and regulatory requirements and by
perceptions of management skill. They also are subject to heavy cash flow
dependency, defaults by borrowers or tenants, self-liquidation and the
possibility of failing to qualify for tax-free status under the Code or to
maintain exemption from the Investment Company Act.
Adjustable-Rate Mortgage Loans ("ARMs"). ARMs eligible for inclusion
in a mortgage pool will generally provide for a fixed initial mortgage
interest rate for a specified period of time, generally for either the
first three, six, twelve, thirteen, thirty-six, or sixty scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index. ARMs typically have minimum and maximum rates
beyond which the mortgage interest rate may not vary over the lifetime of
the loans. Certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single
adjustment period. Negatively amortizing ARMs may provide limitations on
changes in the required monthly payment. Limitations on monthly payments
can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or
indirectly represent a participation in, or are secured by and payable
from, mortgage loans on real property, including CMO residuals. Other
mortgage-related securities may be equity or debt securities issued by
agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment
banks, partnerships, trusts and special purpose entities of the foregoing.
ASSET-BACKED SECURITIES. Asset-backed securities are a form of
derivative securities. The securitization techniques used for asset-backed
securities are similar to those used for mortgage-related securities. The
collateral for these securities has included home equity loans, automobile
and credit card receivables, boat loans, computer leases, airplane leases,
mobile home loans, recreational vehicle loans and hospital account
receivables. The Trust may invest in these and other types of asset-backed
securities that may be developed in the future. Asset-backed securities
present certain risks that are not presented by mortgage-backed securities.
Primarily, these securities may provide the Trust with a less effective
security interest in the related collateral than do mortgage-backed
securities. Therefore, there is the possibility that recoveries on the
underlying collateral may not, in some cases, be available to support
payments on these securities.
BANK LOANS. The Trust may invest up to 25% of its total assets in
Bank Loans denominated in U.S. and foreign currencies that are originated,
negotiated and structured by a syndicate of lenders ("Co- Lenders")
consisting of commercial banks, thrift institutions, insurance companies,
financial companies or other financial institutions one or more of which
administers the security on behalf of the syndicate (the "Agent Bank").
Co-Lenders may sell such securities to third parties called "Participants."
The Trust may invest in such securities either by participating as a
Co-Lender at origination or by acquiring an interest in the security from a
Co-Lender or a Participant (collectively, "Participation Interests").
Co-Lenders and Participants interposed between the Trust and the corporate
borrower (the "Borrower"), together with Agent Banks, are referred herein
as "Intermediate Participants." The Trust also may purchase a participation
interest in a portion of the rights of an Intermediate Participant, which
would not establish any direct relationship between the Trust and the
Borrower. In such cases, the Trust would be required to rely on the
Intermediate Participant that sold the participation interest not only for
the enforcement of the Trust's rights against the Borrower but also for the
receipt and processing of payments due to the Trust under the security.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event the Borrower
fails to pay principal and interest when due, the Trust may be subject to
delays, expenses and risks that are greater than those that would be
involved if the Trust would enforce its rights directly against the
Borrower. Moreover, under the terms of a participation interest, the Trust
may be regarded as a creditor of the Intermediate Participant (rather than
of the Borrower), so that the Trust may also be subject to the risk that
the Intermediate Participant may become insolvent. Similar risks may arise
with respect to the Agent Bank if, for example, assets held by the Agent
Bank for the benefit of the Trust were determined by the appropriate
regulatory authority or court to be subject to the claims of the Agent
Bank's creditors. In such case, the Trust might incur certain costs and
delays in realizing payment in connection with the participation interest
or suffer a loss of principal and/or interest. Further, in the event of the
bankruptcy or insolvency of the Borrower, the obligation of the Borrower to
repay the loan may be subject to certain defenses that can be asserted by
such Borrower as a result of improper conduct by the Agent Bank or
Intermediate Participant.
MEZZANINE INVESTMENTS. The Trust may invest up to 15% of its total
assets in certain high yield securities known as mezzanine investments,
which are subordinated debt securities which are generally issued in
private placements in connection with an equity security (e.g., with
attached warrants) or may be convertible into equity securities. Such
mezzanine investments may be issued with or without registration rights.
Similar to other high yield securities, maturities of mezzanine investments
are typically seven to ten years, but the expected average life is
significantly shorter at three to five years. Mezzanine investments are
usually unsecured and subordinated to other obligations of the issuer.
In connection with its purchase of mezzanine investments, the Trust
may participate in rights offerings and may purchase warrants, which are
privileges issued by corporations enabling the owners to subscribe and
purchase a specified number of shares of the corporation at a specified
price during a specified period of time. Subscription rights normally have
a short life span to expiration. The purchase of rights or warrants
involves the risk that the Trust could lose the purchase value of a right
or warrant if the right to subscribe to additional shares is not exercised
prior to the rights' and warrants' expiration. Also, the purchase of rights
and/or warrants involves the risk that the effective price paid for the
right and/or warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
COLLATERALIZED BOND OBLIGATIONS. The Trust may invest up to 15% of
its total assets in collateralized bond obligations ("CBOs"), which are
structured products backed by a diversified pool of high yield, public or
private fixed income securities. These may be fixed pools or may be "market
value" or managed pools of collateral. The pool of high yield securities is
typically separated into tranches representing different degrees of credit
quality. The top tranche of CBOs, which represents the highest credit
quality in the pool, has the greatest collateralization and pays the lowest
interest rate. Lower CBO tranches represent lower degrees of credit quality
and pay higher interest rates to compensate for the attendant risks. The
bottom tranche specifically receives the residual interest payments (i.e.
money that is left over after the higher tranches have been paid) rather
than a fixed interest rate. The return on the bottom tranche of CBOs is
especially sensitive to the rate of defaults in the collateral pool. Under
normal market conditions, the Trust expects to invest in the lower tranches
of CBOs.
DISTRESSED SECURITIES. The Trust may invest up to 10% of its total
assets in Distressed Securities. Investment in Distressed Securities is
speculative and involves significant risk. Distressed Securities frequently
do not produce income while they are outstanding and may require the Trust
to bear certain extraordinary expenses (including legal, accounting,
valuation and transaction expenses) in order to protect and recover its
investment. Therefore, to the extent the Trust invests in Distressed
Securities, the Trust's ability to achieve current income for its
Shareholders may be diminished. The Trust also will be subject to
significant uncertainty as to when and in what manner and for what value
the obligations evidenced by the Distressed Securities will eventually be
satisfied (e.g., through a liquidation of the obligor's assets, an exchange
offer or plan of reorganization involving the Distressed Securities or a
payment of some amount in satisfaction of the obligation). In addition,
even if an exchange offer is made or plan of reorganization is adopted with
respect to Distressed Securities held by the Trust, there can be no
assurance that the securities or other assets received by the Trust in
connection with such exchange offer or plan or reorganization will not have
a lower value or income potential than may have been anticipated when the
investment was made. Moreover, any securities received by the Trust upon
completion of an exchange offer or plan of reorganization may be restricted
as to resale. As a result of the Trust's participation in negotiations with
respect to any exchange offer or plan of reorganization with respect to an
issuer of Distressed Securities, the Trust may be restricted from disposing
of such securities. See "Risk Factors and Special Considerations."
FOREIGN SECURITIES. The Trust may invest up to 35% of its total
assets in Foreign Securities, which may include debt securities issued by
foreign governments and other sovereign entities and debt securities issued
by foreign corporations. Under normal market conditions, the Trust will not
hold any Foreign Securities of emerging market issuers, and, in the event
the Trust decides to hold any such Foreign Securities of emerging market
issuers, such securities will not comprise more than 10% of the Trust's net
assets. Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of some foreign issuers
are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can
be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Trust will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect or restrict the payment of
principal and interest on the foreign securities to investors located
outside the country of the issuer, whether from currency blockage or
otherwise.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations.
CONVERTIBLE SECURITIES. The Trust may invest in convertible
securities, which are income securities that may, at the holder's option,
be converted into or exchanged for a prescribed amount of equity securities
of the same or a different issuer within a particular period of time.
Convertible securities may be converted at either a stated price or stated
rate into underlying shares of common stock. Convertible securities have
characteristics similar to both fixed-income and equity securities.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to shares of
common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value
of the underlying common stock. A unique feature of convertible securities
is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so
may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same
issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stock. There can
be no assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation.
VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate
securities provide for a periodic adjustment in the interest rate paid on
the obligations. The terms of such obligations must provide that interest
rates are adjusted periodically based upon an interest rate adjustment
index as provided in the respective obligations. The adjustment intervals
may be regular, and range from daily up to annually, or may be event based,
such as based on a change in the prime rate.
The Trust may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Trust with
a certain degree of protection against rises in interest rates, although
the Trust will participate in any declines in interest rates as well. The
Trust also may invest in inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed or inversely to a multiple of the applicable index. An inverse
floating rate security may exhibit greater price volatility than a fixed
rate obligation of similar credit quality.
EQUITY SECURITIES. The Trust may invest up to 20% of its total assets
in common stock, warrants, preferred stock or other equity securities of
U.S. and foreign issuers when consistent with the Trust's objectives. The
Trust will generally, but not exclusively, hold such investments as a
result of purchases of unit offerings of debt securities which include such
securities or in connection with an actual or proposed conversion or
exchange of debt securities. The Trust will treat investments acquired in
this manner, together with any holdings of convertible securities, as debt
securities for purposes of its policy to invest at least 65% of its total
assets, under normal market conditions, in high yield debt securities. The
Trust may also purchase equity securities not associated with debt
securities when, in the opinion of the investment manager, such purchase is
appropriate.
STRIPPED SECURITIES. The Trust may invest in zero coupon U.S.
Treasury securities, which are Treasury Notes and Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Such stripped securities also are issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying U.S. Treasury securities. A
stripped security pays no interest to its holder during its life and is
sold at a discount to its face value at maturity. The market prices of such
securities generally are more volatile than the market prices of securities
that pay interest periodically and are likely to respond to a greater
degree to changes in interest rates than coupon securities having similar
maturities and credit qualities.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others by the right of the issuer to borrow from the
Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others
only by the credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies and
instrumentalities, no assurance can be given that it will always do so
since it is not so obligated by law.
OTHER INVESTMENT PRACTICES
The Trust may utilize other investment practices and portfolio
management techniques as set forth below.
LEVERAGE
The Trust expects to utilize leverage through borrowings or issuance
of debt securities or preferred shares. The Trust intends to utilize
leverage in an initial amount equal to approximately 331/3% of its total
assets (including the amount obtained from leverage). The Trust generally
will not utilize leverage if it anticipates that the Trust's leveraged
capital structure would result in a lower return to Shareholders than that
obtainable if the Shares were unleveraged for any significant amount of
time. The use of leverage by the Trust creates an opportunity for increased
net income and capital appreciation for the Shares, but, at the same time,
creates special risks. The Trust also may borrow money as a temporary
measure for extraordinary or emergency purposes, including the payment of
dividends and the settlement of securities transactions which otherwise may
require untimely dispositions of Trust securities. Subject to applicable
regulatory requirements, the Trust at times may borrow from affiliates of
BlackRock, provided that the terms of such borrowings are no less favorable
than those available from comparable sources of funds in the marketplace.
The concept of leveraging is based on the premise that the cost of
the assets to be obtained from leverage will be based on short-term rates
which normally will be lower than the return earned by the Trust on its
longer term portfolio investments. Since the total assets of the Trust
(including the assets obtained from leverage) will be invested in the
higher yielding portfolio investments or portfolio investments with the
potential for capital appreciation, the holders of Shares will be the
beneficiaries of the incremental return. Should the differential between
the underlying assets and cost of leverage narrow, the incremental return
"pick up" will be reduced. Furthermore, if long-term rates rise, the net
asset value of the Shares will reflect the decline in the value of
portfolio holdings resulting therefrom.
Leverage creates risks for holders of the Shares, including the
likelihood of greater volatility of net asset value and market price of the
Shares, and the risk that fluctuations in interest rates on borrowings and
debt or in the dividend rates on any preferred stock may affect the return
to the holders of the Shares. To the extent the income or capital
appreciation derived from securities purchased with funds received from
leverage exceeds the cost of leverage, the Trust's return will be greater
than if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such funds is not
sufficient to cover the cost of leverage, the return on the Trust will be
less than if leverage had not been used, and therefore the amount available
for distribution to Shareholders as dividends and other distributions will
be reduced. In the latter case, BlackRock in its best judgment nevertheless
may determine to maintain the Trust's leveraged position if it expects that
the benefits to the Trust's Shareholders of maintaining the leveraged
position will outweigh the current reduced return. As discussed under
"Management of the Trust," the fee paid to BlackRock will be calculated on
the basis of the Trust's assets including proceeds from borrowings for
leverage and the issuance of preferred stock. During periods in which the
Trust is utilizing financial leverage, the investment advisory fees payable
to the Investment Adviser will be higher than if the Trust did not utilize
a leveraged capital structure.
Capital raised through leverage will be subject to interest costs or
dividend payments which may not exceed the income and capital appreciation
on the assets purchased. The Trust also may be required to maintain minimum
average balances in connection with borrowings or to pay a commitment or
other fee to maintain a line of credit; either of these requirements will
increase the cost of borrowing over the stated interest rate. The issuance
of additional classes of preferred stock involves offering expenses and
other costs and may limit the Trust's freedom to pay dividends on Shares or
to engage in other activities. Borrowings and the issuance of a class of
preferred stock having priority over the Trust's Shares create an
opportunity for greater return per Share, but at the same time such
borrowing is a speculative technique in that it will increase the Trust's
exposure to capital risk. Unless the income and capital appreciation, if
any, on assets acquired with borrowed funds or offering proceeds exceed the
cost of borrowing or issuing additional classes of securities, the use of
leverage will diminish the investment performance of the Trust compared
with what it would have been without leverage.
Certain types of borrowings may result in the Trust being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Trust may be subject to certain restrictions
on investments imposed by guidelines of one or more Rating Agencies, which
may issue ratings for the short-term corporate debt securities or preferred
stock issued by the Trust. These guidelines may impose asset coverage or
portfolio composition requirements that are more stringent than those
imposed by the Investment Company Act. It is not anticipated that these
covenants or guidelines will impede BlackRock from managing the Trust's
portfolio in accordance with the Trust's investment objectives and
policies.
Under the Investment Company Act, the Trust is not permitted to incur
indebtedness unless immediately after such incurrence the Trust has an
asset coverage of at least 300% of the aggregate outstanding principal
balance of indebtedness (i.e., such indebtedness may not exceed 331/3% of
the Trust's total assets). Additionally, under the Investment Company Act,
the Trust may not declare any dividend or other distribution upon any class
of its capital shares, or purchase any such capital shares, unless the
aggregate indebtedness of the Trust has, at the time of the declaration of
any such dividend or distribution or at the time of any such purchase, an
asset coverage of at least 300% after deducting the amount of such
dividend, distribution, or purchase price, as the case may be. Under the
Investment Company Act, the Trust is not permitted to issue preferred
shares unless immediately after such issuance the net asset value of the
Trust's portfolio is at least 200% of the liquidation value of the
outstanding preferred shares (i.e., such liquidation value may not exceed
50% of the Trust's total assets). In addition, the Trust is not permitted
to declare any cash dividend or other distribution on its Shares unless, at
the time of such declaration, the net asset value of the Trust's portfolio
(determined after deducting the amount of such dividend or distribution) is
at least 200% of such liquidation value. In the event preferred shares are
issued, the Trust intends, to the extent possible, to purchase or redeem
preferred shares from time to time to maintain coverage of any preferred
shares of at least 200%. In addition, during any period when preferred
shares are outstanding, the Investment Company Act would require that two
of the Trust's Trustees be elected by holders of the preferred shares,
voting separately as a class, and that during any period in which the Trust
were in arrears in an amount equal to two full years' dividends on such
preferred shares, a majority of the Trust's Trustees be so elected.
The Trust's willingness to borrow money and issue new securities for
investment purposes, and the amount the Trust will borrow or issue, will
depend on many factors, the most important of which are investment outlook,
market conditions and interest rates. Successful use of a leveraging
strategy depends on BlackRock's ability to predict correctly interest rates
and market movements, and there is no assurance that a leveraging strategy
will be successful during any period in which it is employed.
Assuming the utilization of leverage by borrowings in the amount of
approximately 331/3% of the Trust's total assets, and an annual interest
rate of [6.0%] payable on such leverage based on market rates as of the
date of this Prospectus, the annual return on the assets attributable to
the Shares that the Trust's portfolio must experience (net of expenses) in
order to cover such interest payments would be [3.0%].
The following table is designed to illustrate the effect on the
return to a holder of the Trust's Shares of the leverage obtained by
borrowings in the amount of approximately 331/3% of the Trust's total
assets, assuming hypothetical annual returns of the Trust's portfolio of
minus 10% to plus 10%. As the table shows, the leverage generally increases
the return to Shareholders when portfolio return is positive and greater
than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing
in the table are hypothetical and actual returns may be greater or less
than those appearing in the table.
Assumed Portfolio Return
(net of expenses) (10)% (5)% 0 % 5% 10%
Corresponding Share Return [(15)%] [(9)%] [(2)%] [5%] [11%]
Until the Trust borrows or issues preferred shares, the Trust's
Shares will not be leveraged, and the risks and special considerations
related to leverage described in this Prospectus will not apply. Such
leveraging of the Shares cannot be fully achieved until the proceeds
resulting from the use of leverage have been invested in longer-term debt
instruments in accordance with the Trust's investment objectives and
policies.
HEDGING
Consistent with its investment objectives and policies as set forth
herein, the Trust may also enter into certain hedging transactions. In
particular, the Trust may purchase and sell futures contracts,
exchange-listed and over-the-counter put and call options on securities,
financial indices and futures contracts, forward foreign currency contracts
and may enter into various interest rate transactions (collectively,
"Hedging Transactions"). Hedging Transactions may be used to attempt to
protect against possible changes in the market value of the Trust's
portfolio resulting from fluctuations in the debt securities markets and
changes in interest rates, to protect the Trust's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such
securities for investment purposes or to establish a position in the
securities markets as a temporary substitute for purchasing particular
securities. Any or all of these techniques may be used at any time. There
is no particular strategy that requires use of one technique rather than
another. Use of any Hedging Transaction is a function of market conditions.
The Hedging Transactions that the Trust may use are described below. The
ability of the Trust to hedge successfully will depend on BlackRock's
ability to predict pertinent market movements, which cannot be assured.
Interest Rate Transactions. Among the Hedging Transactions into which
the Trust may enter are interest rate swaps and the purchase or sale of
interest rate caps and floors. The Trust expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio as a duration management technique
or to protect against any increase in the price of securities the Trust
anticipates purchasing at a later date. The Trust intends to use these
transactions as a hedge and not as a speculative investment. The Trust will
not sell interest rate caps or floors that it does not own. Interest rate
swaps involve the exchange by the Trust with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal
amount from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such
interest rate floor.
The Trust may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out,
with the Trust receiving or paying, as the case may be, only the net amount
of the two payments on the payment dates. Inasmuch as these Hedging
Transactions are entered into for good faith hedging purposes, BlackRock
and the Trust believe such obligations do not constitute senior securities
and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Trust will accrue the net amount of the excess, if any,
of the Trust's obligations over its entitlements with respect to each
interest rate swap on a daily basis and will segregate with a custodian an
amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess. The Trust will not enter into any
interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Trust will have
contractual remedies pursuant to the agreements related to the transaction.
[The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. Caps and floors are
more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps.]
Futures Contracts and Options on Futures Contracts. In connection
with its hedging and other risk management strategies, the Trust may also
enter into contracts for the purchase or sale for future delivery ("future
contracts") of debt securities, aggregates of debt securities, financial
indices, and U.S. Government debt securities or options on the foregoing to
hedge the value of its portfolio securities that might result from a change
in interest rates or market movements. The Trust will engage in such
transactions only for bona fide hedging, risk management and other
appropriate portfolio management purposes, in each case, in accordance with
the rules and regulations of the Commodity Futures Trading Commission.
Credit Derivatives. The Trust may engage in credit derivative
transactions. There are two broad categories of credit derivatives: default
price risk derivatives and market spread derivatives. Default price risk
derivatives are linked to the price of reference securities or loans after
a default by the issuer or borrower, respectively. Market spread
derivatives are based on the risk that changes in market factors, such as
credit spreads, can cause a decline in the value of a security, loan or
index. There are three basic transactional forms for credit derivatives:
swaps, options and structured instruments. The use of credit derivatives is
a highly specialized activity which involves strategies and risks different
from those associated with ordinary portfolio security transactions. If
BlackRock is incorrect in its forecasts of default risks, market spreads or
other applicable factors, the investment performance of the Trust would
diminish compared with what it would have been if these techniques were not
used. Moreover, even if BlackRock is correct in its forecasts, there is a
risk that a credit derivative position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the
amount of credit derivative transactions that may be entered into by the
Trust. The Trust's risk of loss in a credit derivative transaction varies
with the form of the transaction. For example, if the Trust purchases a
default option on a security, and if no default occurs with respect to the
security, the Trust's loss is limited to the premium it paid for the
default option. In contrast, if there is a default by the grantor of a
default option, the Trust's loss will include both the premium that it paid
for the option and the decline in value of the underlying security that the
default option hedged.
Calls on Securities, Indices and Futures Contracts. In order to
enhance income or reduce fluctuations in net asset value, the Trust may
sell or purchase call options ("calls") on securities and indices based
upon the prices of debt securities that are traded on U.S. securities
exchanges and in the over-the-counter markets. A call option gives the
purchaser of the option the right to buy, and obligates the seller to sell,
the underlying security, futures contract or index at the exercise price at
any time or at a specified time during the option period. All such calls
sold by the Trust must be "covered"as long as the call is outstanding
(i.e., the Trust must own the instrument subject to the call or other
securities or assets acceptable for applicable segregation and coverage
requirements). A call sold by the Trust exposes the Trust during the term
of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security, index or futures contract and
may require the Trust to hold an instrument which it might otherwise have
sold. The purchase of a call gives the Trust the right to buy the
underlying instrument or index at a fixed price. Calls on futures contracts
on Securities written by the Trust must also be covered by assets or
instruments acceptable under applicable segregation and coverage
requirements.
Puts on Securities, Indices and Futures Contracts. As with calls, the
Trust may purchase put options ("puts") on Securities (whether or not it
holds such securities in its portfolio). For the same purposes, the Trust
may also sell puts on Securities financial indices and puts on futures
contracts on Securities if the Trust's contingent obligations on such puts
are secured by segregated assets consisting of cash or liquid high grade
debt securities having a value not less than the exercise price. The Trust
will not sell puts if, as a result, more than 50% of the Trust's assets
would be required to cover its potential obligation under its hedging and
other investment transactions. In selling puts, there is a risk that the
Trust may be required to buy the underlying instrument or index at higher
than the current market price.
Appendix B contains further information about the characteristics,
risk and possible benefits of Hedging Transactions and the Trust's other
policies and limitations (which are not fundamental policies) relating to
investment by the Trust in futures contracts and options. The principal
risks relating to the use of futures and other Hedging Transactions are:
(i) less than perfect correlation between the prices of the hedging
instrument and the market value of the securities in the Trust's portfolio;
(ii) possible lack of a liquid secondary market for closing out a position
in such instruments; (iii) losses resulting from interest rate or other
market movements not anticipated by BlackRock; and (iv) the obligation to
meet additional variation margin or other payment requirements.
Certain provisions of the Code may restrict or affect the ability of
the Trust to engage in Hedging Transactions. See "Taxes".
REVERSE REPURCHASE AGREEMENTS
The Trust may enter into reverse repurchase agreements with respect
to its portfolio investments subject to the investment restrictions set
forth herein. Reverse repurchase agreements involve the sale of securities
held by the Trust with an agreement by the Trust to repurchase the
securities at an agreed upon price, date and interest payment. The use by
the Trust of reverse repurchase agreements involves many of the same risks
of leverage described under "Risk Factors and Special Considerations" and
"-Leverage" since the proceeds derived from such reverse repurchase
agreements may be invested in additional securities. At the time the Trust
enters into a reverse repurchase agreement, it may establish and maintain a
segregated account with the custodian containing liquid instruments having
a value not less than the repurchase price (including accrued interest). If
the Trust establishes and maintains such a segregated account, a reverse
repurchase agreement will not be considered a borrowing by the Trust;
however, under circumstances in which the Trust does not establish and
maintain such a segregated account, such reverse repurchase agreement will
be considered a borrowing for the purpose of the Trust's limitation on
borrowings. Reverse repurchase agreements involve the risk that the market
value of the securities acquired in connection with the reverse repurchase
agreement may decline below the price of the securities the Trust has sold
but is obligated to repurchase. Also, reverse repurchase agreements involve
the risk that the market value of the securities retained in lieu of sale
by the Trust in connection with the reverse repurchase agreement may
decline in price.
If the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, such buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the
Trust's obligation to repurchase the securities, and the Trust's use of the
proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision. Also, the Trust would bear the risk of loss to the
extent that the proceeds of the reverse repurchase agreement are less than
the value of the securities subject to such agreement.
LENDING OF SECURITIES
The Trust may lend its portfolio securities to Qualified
Institutions. By lending its portfolio securities, the Trust attempts to
increase its income through the receipt of interest on the loan. any gain
or loss in the market price of the securities loaned that may occur during
the term of the loan will be for the account of the Trust. The Trust may
lend its portfolio securities so long as the terms and the structure of
such loans are not inconsistent with requirements of the 1940 Act, which
currently require that (i) the borrower pledge and maintain with the Trust
collateral consisting of cash, a letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the U.S. government having a
value at all times not less than 100% of the value of the securities
loaned, (ii) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the value of the loan is "marked to the
market" on a daily basis), (iii) the loan be made subject to termination by
the Trust at any time and (iv) the Trust receive reasonable interest on the
loan (which may include the Trust's investing any cash collateral in
interest bearing short-term investments), any distributions on the loaned
securities and any increase in their market value. The Trust will not lend
portfolio securities if, as a result, the aggregate of such loans exceeds
331/3% of the value of the Trust's total assets (including such loans).
Loan arrangements made by the Trust will comply with all other applicable
regulatory requirements, including the rules of the New York Stock
Exchange, which rules presently require the borrower, after notice, to
redeliver the securities within the normal settlement time of five business
days. All relevant facts and circumstances, including the creditworthiness
of the Qualified Institution, will be monitored by BlackRock, and will be
considered in making decisions with respect to lending of securities,
subject to review by the Trust's board of directors.
The Trust may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Trust's Board of Trustees. In addition, voting rights
may pass with the loaned securities, but if a material event were to occur
affecting such a loan, the loan must be called and the securities voted.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Trust may purchase Securities on a "when-issued" basis and may
purchase or sell Securities on a "forward commitment" basis in order to
acquire the security or to hedge against anticipated changes in interest
rates and prices. When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later
date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Trust will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. If the Trust disposes of the right to
acquire a when-issued Security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it might incur a
gain or loss. At the time the Trust enters into a transaction on a
when-issued or forward commitment basis, it will segregate with the
custodian cash or liquid debt securities equal to at least the value of the
when-issued or forward commitment securities. The value of these assets
will be monitored daily to ensure that their marked to market value will at
all times equal or exceed the corresponding obligations of the Trust. There
is always a risk that the securities may not be delivered and that the
Trust may incur a loss. Settlements in the ordinary course, which may take
substantially more than five business days, are not treated by the Trust as
when-issued or forward commitment transactions and accordingly are not
subject to the foregoing restrictions.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest
rates rise) based upon the public's perception of the creditworthiness of
the issuer and changes, actual or anticipated, in the level of interest
rates. Securities purchased with a forward commitment or when-issued basis
may expose the Trust to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risks that the yield available in the
market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Trust is fully invested may result
in greater potential fluctuation in the value of the Trust's net assets and
its net asset value per share.
ILLIQUID SECURITIES
When purchasing securities that have not been registered under the
Securities Act, and are not readily marketable, the Trust will endeavor, to
the extent practicable, to obtain the right to registration at the expense
of the issuer. Generally, there will be a lapse of time between the Trust's
decision to sell any such security and the registration of the security
permitting sale. During any such period, the price of the securities will
be subject to market fluctuations. The Trust may purchase certain
securities eligible for resale to qualified institutional buyers as
contemplated by Rule 144A under the Securities Act ("Rule 144A
Securities"). Rule 144A provides an exemption from the registration
requirements of the Securities Act for the resale of certain restricted
securities to certain qualified institutional buyers. One effect of Rule
144A is that certain restricted securities may be considered liquid, though
no assurance can be given that a liquid market for Rule 144A Securities
will develop or be maintained. However, where a substantial market of
qualified institutional buyers has developed for certain unregistered
securities purchased by the Trust pursuant to Rule 144A under the
Securities Act, the Trust intends to treat such securities as liquid
securities in accordance with procedures approved by the Trust's Board of
Trustees. Because it is not possible to predict with assurance how the
market for Rule 144A Securities will develop, the Trust's Board of Trustees
has directed BlackRock to monitor carefully the Trust's investments in such
securities with particular regard to trading activity, availability of
reliable price information and other relevant information. To the extent
that, for a period of time, qualified institutional buyers cease purchasing
restricted securities pursuant to Rule 144A, the Trust's investing in such
securities may have the effect of increasing the level of illiquidity in
its investment portfolio during such period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors are advised to consider carefully the special risks
involved in investing in the Trust.
GENERAL
The Trust is a newly organized, non-diversified, closed-end
management investment company and has no operating history. Accordingly,
the Shares are designed primarily for long-term investors and should not be
considered a vehicle for trading purposes. The net asset value of the
Trust's Shares will fluctuate with interest rate changes as well as with
price changes of the Trust's portfolio securities and these fluctuations
are likely to be greater in the case of a Trust having a leveraged capital
structure, as contemplated for the Trust.
LOWER GRADE SECURITIES
Lower grade securities are regarded as being predominantly
speculative as to the issuer's ability to make payments of principal and
interest. Investment in such securities involves substantial risk. Lower
grade securities are commonly referred to as "junk bonds." Issuers of lower
grade securities may be highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risks associated with
acquiring the securities of such issuers generally are greater than is the
case with higher-rated securities. For example, during an economic downturn
or a sustained period of rising interest rates, issuers of lower grade
securities may be more likely to experience financial stress, especially if
such issuers are highly leveraged. During periods of economic downturn,
such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations
also may be adversely affected by specific issuer developments, the
issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. Therefore, there can be no
assurance that in the future there will not exist a higher default rate
relative to the rates currently existing in the market for lower grade
securities. The risk of loss due to default by the issuer is significantly
greater for the holders of lower grade securities because such securities
may be unsecured and may be subordinate to other creditors of the issuer.
Other than with respect to Distressed Securities, discussed below, the
lower grade securities in which the Trust may invest do not include
instruments which, at the time of investment, are in default or the issuers
of which are in bankruptcy. However, there can be no assurance that such
events will not occur after the Trust purchases a particular security, in
which case the Trust may experience losses and incur costs.
Lower grade securities frequently have call or redemption features
that would permit an issuer to repurchase the security from the Trust. If a
call were exercised by the issuer during a period of declining interest
rates, the Trust is likely to have to replace such called security with a
lower yielding security, thus decreasing the net investment income to the
Trust and dividends to shareholders.
Lower grade securities tend to be more volatile than higher-rated
fixed-income securities, so that adverse economic events may have a greater
impact on the prices of lower grade securities than on higher-rated
fixed-income securities. Factors adversely affecting the market value of
such securities are likely to affect adversely the Trust's net asset value.
Recently, demand for lower grade securities has increased significantly and
the difference between the yields paid by lower grade securities and
investment grade bonds (i.e., the "spread") has narrowed. To the extent
this differential increases, the value of lower grade securities in the
Trust's portfolio could be adversely affected.
Like higher-rated fixed-income securities, lower grade securities
generally are purchased and sold through dealers who make a market in such
securities for their own accounts. However, there are fewer dealers in the
lower grade securities market, which market may be less liquid than the
market for higher-rated fixed-income securities, even under normal economic
conditions. Also, there may be significant disparities in the prices quoted
for lower grade securities by various dealers. As a result, during periods
of high demand in the lower grade securities market, it may be difficult to
acquire lower grade securities appropriate for investment by the Trust.
Adverse economic conditions and investor perceptions thereof (whether or
not based on economic reality) may impair liquidity in the lower grade
securities market and may cause the prices the Trust receives for its lower
grade securities to be reduced. In addition, the Trust may experience
difficulty in liquidating a portion of its portfolio when necessary to meet
the Trust's liquidity needs or in response to a specific economic event
such as deterioration in the creditworthiness of the issuers. Under such
conditions, judgment may play a greater role in valuing certain of the
Trust's portfolio instruments than in the case of instruments trading in a
more liquid market. In addition, the Trust may incur additional expense to
the extent that it is required to seek recovery upon a default on a
portfolio holding or to participate in the restructuring of the obligation.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES.
The Trust may invest in residential and commercial mortgage-related
and other asset-backed securities (i.e., securities backed by home equity
loans, installment sale contracts, credit card receivables or other assets)
issued by governmental entities and private issuers. The Trust's
investments in commercial mortgage-backed securities ("CMBS") will
typically consist of CMBS which are subordinated to more senior classes of
such securities ("Subordinated CMBS"). CMBS are generally multi-class debt
or pass-through securities backed by a mortgage loan or pool of mortgage
loans secured by commercial property, such as industrial and warehouse
properties, office buildings, retail space and shopping malls, multi-family
properties and cooperative apartments, hotels and motels, nursing homes,
hospitals, senior living centers and agricultural property. Assets
underlying CMBS may relate to only a few properties or to a single
property. The commercial mortgage loans that underlie CMBS have certain
distinct characteristics. Commercial mortgage loans are generally not
amortizing or not fully amortizing. At their maturity date, repayment of
the remaining principal balance or "balloon" is due and is repaid through
the attainment of an additional loan or sale of the property. Unlike most
single family residential mortgages, commercial real property loans often
contain provisions which substantially reduce the likelihood that such
securities will be prepaid. The provisions generally impose significant
prepayment penalties on loans and, in some cases, there may be prohibitions
on principal prepayments for several years following origination.
CMBS generally are structured to protect the senior class investors
against potential losses on the underlying mortgage loans. This is
generally provided by having the Subordinated CMBS take the first loss on
any defaults on the underlying commercial mortgage loans. In general,
Subordinated CMBS are entitled to receive repayment of principal only after
all required principal payments have been made to more senior classes and
have subordinate rights as to receipt of interest distributions. Such
Subordinated CMBS are subject to a substantially greater risk of nonpayment
than are senior classes of CMBS. Even within a class of subordinate
securities, most CMBS are structured with a hierarchy of levels (or "loss
positions"). Loss positions are the order in which non-recoverable losses
of principal are applied to the securities within a given structure. For
instance, a first loss Subordinated CMBS will absorb any principal losses
before any higher loss position Subordinated CMBS.
The yield and maturity characteristics of mortgage-related and other
asset-backed securities differ from traditional debt securities. A major
difference is that the principal amount of the obligations may normally be
prepaid at any time because the underlying assets (i.e., loans) generally
may be prepaid at any time. In calculating the average weighted maturity of
the Trust, the maturity of mortgage-related and other asset-backed
securities held by the Trust will be based on estimates of average life
which take prepayments into account.
The relationship between prepayments and interest rates may give some
high-yielding mortgage-related and asset-backed securities less potential
for growth in value than conventional bonds with comparable maturities. In
addition, in periods of falling interest rates, the rate of prepayments
tends to increase. During such periods, the reinvestment of prepayment
proceeds by the Trust will generally be at lower rates than the rates that
were carried by the obligations that have been prepaid. Because of these
and other reasons, a mortgage related or asset-backed security's total
return and maturity may be difficult to predict precisely. To the extent
that the Trust purchases mortgage-related or asset-backed securities at a
premium, prepayments (which may be made without penalty) may result in loss
of the Trust's principal investment to the extent of premium paid.
Mortgage-related securities are subject to credit risks associated
with the performance of the underlying mortgage properties. Adverse changes
in economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commercial properties than on those secured by loans on residential
properties. In addition, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than
residential mortgages and prepayment protection features. In certain
instances, the credit risk associated with mortgage-related securities can
be reduced by third party guarantees or other forms of credit support.
Improved credit risk does not reduce prepayment risk which is unrelated to
the rating assigned to the mortgage-related security. Prepayment risk can
lead to fluctuations in value of the mortgage-related security which may be
pronounced. If a mortgage-related security is purchased at a premium, all
or part of the premium may be lost if there is a decline in the market
value of the security, whether resulting from changes in interest rates or
prepayments on the underlying mortgage collateral. Certain mortgage-related
securities that may be purchased by the Trust, such as inverse floating
rate collateralized mortgage obligations, have coupons that move inversely
to a multiple of a specific index which may result in a form of leverage.
As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true,
since in periods of declining interest rates the mortgages underlying the
security are more likely to be prepaid. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages, and, therefore, it is not possible
to predict accurately the security's return to the Trust. Moreover, with
respect to certain stripped mortgage-backed securities, if the underlying
mortgage securities experience greater than anticipated prepayments of
principal, the Trust may fail to fully recoup its initial investment even
if the securities are rated in the highest rating category by a rating
agency. During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity which generally would cause the value of such security to
fluctuate more widely in response to changes in interest rates. Were the
prepayments on the Trust's mortgage-related securities to decrease broadly,
the Trust's effective duration, and thus sensitivity to interest rate
fluctuations, would increase.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-related securities. Primarily, these securities
do not have the benefit of the same security interest in the underlying
collateral. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and Federal
consumer credit laws many of which give debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
Most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of the automobile receivables may
not have an effective security interest in all of the obligations backing
such receivables.
Therefore, there is a possibility that recoveries on repossessed
collateral may not, in some cases, be able to support payments on these
securities.
BANK LOANS
The Trust may invest up to 25% of its total assets in secondary
market purchases of loans extended to corporate borrowers by commercial
banks and other financial institutions ("Bank Loans"). As in the case of
junk bonds, the Bank Loans in which the Trust may invest may be rated in
the lower rating categories of the Rating Agencies, or may be unrated
investments of comparable quality. As in the case of junk bonds, such Bank
Loans can be expected to provide higher yields than lower-yielding, higher
quality fixed income securities buy may be subject to greater risk of loss
of principal and income. There are, however, some significant differences
between Bank Loans and junk bonds. Bank Loan obligations are frequently
secured by pledges of liens and security interests in the assets of the
borrower, and the holders of Bank Loans are frequently the beneficiaries of
debt service subordination provisions imposed on the borrower's
bondholders. These arrangements are designed to give Bank Loan investors
preferential treatment over junk bond investors in the event of a
deterioration in the credit quality of the issuer. On the other hand, the
secondary dealer market for Bank Loans is not so well developed as the
secondary dealer market for junk bonds, and therefore presents increased
market risk relating to liquidity and pricing concerns.
DISTRESSED SECURITIES
The Trust may invest up to 10% of its total assets in securities
which are the subject of bankruptcy proceedings or otherwise in default as
to the repayment of principal and/or payment of interest at the time of
acquisition by the Trust or are rated in the lower rating categories (Ca or
lower by Moody's and CC or lower by S&P) or which, if unrated, are in the
judgment of BlackRock of equivalent quality ("Distressed Securities").
Investment in Distressed Securities is speculative and involves significant
risk. Distressed Securities frequently do not produce income while they are
outstanding and may require the Trust to bear certain extraordinary
expenses in order to protect and recover its investment. Therefore, to the
extent the Trust pursues its secondary objective of capital appreciation
through investment in Distressed Securities, the Trust's ability to achieve
current income for its Shareholders may be diminished.
FOREIGN SECURITIES
The Trust may invest up to 35% of its total assets in debt securities
of issuers domiciled outside of the United States or that are denominated
in various foreign currencies and multinational foreign currency units
("Foreign Securities"). The Trust's investments in Foreign Securities may
include debt securities issued by foreign governments and other sovereign
entities and debts securities issued by foreign corporations. Typically,
the Trust will not hold any Foreign Securities of emerging market issuers,
and in any case such securities will not comprise more than 10% of the
Trust's net assets. Investments in such securities are particularly
speculative. Investing in Foreign Securities involves certain risks not
involved in domestic investments, including, but not limited to,
fluctuations in foreign exchange rates, future foreign political and
economic developments, different legal systems and the possible imposition
of exchange controls or other foreign governmental laws or restrictions.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Since the Trust may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of
securities in the Trust and the unrealized appreciation or depreciation of
investments. Currencies of certain countries may be volatile and therefore
may affect the value of securities denominated in such currencies. In
addition, with respect to certain foreign countries, there is the
possibility of expropriation of assets, confiscatory taxation, difficulty
in obtaining or enforcing a court judgment, economic, political or social
instability or diplomatic developments that could affect investments in
those countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Certain
investments in Foreign Securities also may be subject to foreign
withholding taxes. These risks often are heightened for investments in
smaller, emerging capital markets.
Investments in securities of foreign issuers may involve additional
risks arising from differences between U.S. and foreign securities markets
(including, among other things, less volume, much greater price volatility
and illiquidity of certain foreign securities markets, different trading
and settlement practices and less governmental supervision and regulation),
from changes in currency exchange rates, from high and volatile rates of
inflation and, as with domestic multinational corporations, from
fluctuating interest rates.
In addition, there may be less publicly available information about a
foreign issuer, especially one located in an emerging market country, than
about comparable U.S. issuers, and foreign issuers may not be subject to
the same accounting, auditing and financial record-keeping standards and
requirements as U.S. issuers. In particular, the assets and profits
appearing on the financial statements of a foreign issuer may not reflect
its financial position or results of operations in the way they would be
reflected if the financial statements had been prepared in accordance with
U.S. generally accepted accounting principles. In addition, for an issuer
that keeps accounting records in local currency, inflation accounting rules
may require, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and
may not accurately reflect the real condition of those issuers and
securities markets. Finally, in the event of a default in any such foreign
obligations, it may be more difficult for the Trust to obtain or enforce a
judgment against the issuers of such obligations.
Investments in foreign sovereign debt securities, especially in
emerging market countries, will expose the Trust to the direct or indirect
consequences of political, social or economic changes in the countries that
issue the securities or in which the issuers are located. Certain countries
in which the Trust may invest, especially emerging market countries, have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts
of external debt, balance of payments and trade difficulties and extreme
poverty and unemployment. Many of these countries are also characterized by
political uncertainty and instability. The cost of servicing external debt
will generally be adversely affected by rising international interest rates
because many external debt obligations bear interest at rates which are
adjusted based upon international interest rates.
Investing in securities of companies in emerging markets may entail
special risks relating to potential political and economic instability and
the risks of expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment, convertibility of currencies into
U.S. dollars, the lack of hedging instruments, and on repatriation of
capital invested. Emerging securities markets are substantially smaller,
less developed, less liquid and more volatile than the major securities
markets. The limited size of emerging securities markets and limited
trading value compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of portfolio
securities, especially in these markets. In addition, securities traded in
certain emerging markets may be subject to risks due to the inexperience of
financial intermediaries, a lack of modern technology, the lack of a
sufficient capita base to expand business operations, and the possibility
of temporary or permanent termination of trading. Settlement mechanisms in
emerging securities markets may be less efficient and reliable than in more
developed markets. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation for
many years. Inflation and rapid fluctuations in inflation rates and
corresponding currency devaluations have had and may continue to have
negative effects of the economies and securities markets or certain
emerging market countries. Typically, the Trust will not hold any Foreign
Securities of emerging market issuers, and, if it does, such securities
will not comprise more than 10% of the Trust's net assets.
As a result of these potential risks, BlackRock may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Trust may
invest in countries in which foreign investors, including BlackRock, have
had no or limited prior experience.
LEVERAGE
The use of leverage by the Trust creates an opportunity for increased
net income and capital growth for the Shares, but, at the same time,
creates special risks. The Trust intends to utilize leverage to provide the
holders of Shares with a potentially higher return. Leverage creates risks
for holders of Shares including the likelihood of greater volatility of net
asset value and market price of the Shares and the risk that fluctuations
in interest rates on borrowings and short-term debt or in the dividend
rates on any preferred shares may affect the return to the holders of
Shares. To the extent the income or capital appreciation derived from
securities purchased with Trusts received from leverage exceeds the cost of
leverage, the Trust's return will be greater than if leverage had not been
used. Conversely, if the income or capital appreciation from the securities
purchased with such Trusts is not sufficient to cover the cost of leverage,
the return to the Trust will be less than if leverage had not been used,
and therefore the amount available for distribution to shareholders as
dividends and other distributions will be reduced. In the latter case,
BlackRock in its best judgment nevertheless may determine to maintain the
Trust's leveraged position if it expects that the benefits to the Trust's
Shareholders of maintaining the leveraged position will outweigh the
current reduced return. During periods in which the Trust is utilizing
financial leverage the management and administrative fees payable to
BlackRock will be higher than if the Trust did not utilize a leveraged
capital structure. Certain types of borrowings by the Trust may result in
the Trust being subject to covenants in credit agreements relating to asset
coverage and portfolio composition requirements. The Trust may be subject
to certain restrictions on investments imposed by guidelines of one or more
Rating Agencies, which may issue ratings for the corporate debt securities
or preferred shares issued by the Trust. These guidelines may impose asset
coverage or portfolio composition requirements that are more stringent than
those imposed by the Investment Company Act. It is not anticipated that
these covenants or guidelines will impede BlackRock from managing the
Trust's portfolio in accordance with the Trust's investment objectives and
policies. The Trust at times may borrow from affiliates of BlackRock,
provided that the terms of such borrowings are no less favorable than those
available from comparable sources of Trusts in the marketplace. As
discussed under "Management of the Trust," the fee paid to BlackRock will
be calculated on the basis of the Trust's assets including proceeds from
borrowings for leverage and the issuance of preferred shares.
ILLIQUID SECURITIES
The Trust may invest in securities for which no readily available
market exists or are otherwise considered illiquid. The Trust may not be
able readily to dispose of such securities at prices that approximate those
at which the Trust could sell such securities if they were more widely
traded and, as a result of such illiquidity, the Trust may have to sell
other investments or engage in borrowing transactions if necessary to raise
cash to meet its obligations.
MARKET PRICE, DISCOUNT AND NET ASSET VALUE OF SHARES
Shares of closed-end investment companies in the past frequently have
traded at a discount to their net asset values. The risk of loss associated
with this characteristic of closed-end investment companies may be greater
for investors purchasing Shares in the initial public offering and
expecting to sell the Shares soon after the completion thereof. Whether
investors will realize gains or losses upon the sale of Shares will not
depend directly upon the Trust's net asset value, but will depend upon the
market price of the Shares at the time of sale. Since the market price of
the Shares will be determined by such factors as relative demand for and
supply of the Shares in the market, general market and economic conditions
and other factors beyond the control of the Trust, the Trust cannot predict
whether the Shares will trade at, below or above net asset value or at,
below or above the initial offering price. The Shares are designed
primarily for long-term investors, and investors in the Shares should not
view the Trust as a vehicle for trading purposes.
ANTI-TAKEOVER PROVISIONS
The Trust's Agreement and Declaration of Trust (the "Trust
Agreement") contains provisions limiting (i) the ability of other entities
or persons to acquire control of the Trust, (ii) the Trust's freedom to
engage in certain transactions, and (iii) the ability of the Trust's
Trustees or Shareholders to amend the Trust Agreement. These provisions of
the Trust Agreement may be regarded as "anti-takeover" provisions. These
provisions could have the effect of depriving the Shareholders of
opportunities to sell their Shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the
Trust in a tender offer or similar transaction.
YEAR 2000 RISKS
Like other investment companies, financial and business organizations
and individuals around the world, the Trust could be adversely affected if
the computer systems used by BlackRock and the Trust's other service
providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." BlackRock is taking steps to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Trust's other major
service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Trust.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as
fundamental policies, which cannot be changed without approval by the
holders of a majority of the Trust's outstanding voting shares (as defined
in the Investment Company Act). All other investment policies of the Trust
are considered non-fundamental and may be changed by the Board of Trustees
of the Trust without prior approval of the Trust's outstanding voting
shares. The Trust may not:
1. Purchase any security if as a result 25% or more of the
total assets of the Trust would be invested in the securities of issuers
having their principal business activities in the same industry, provided
that there shall be no such limitation on the purchase of obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Purchase commodities or commodity contracts, except that the
Trust may purchase and sell options, futures contracts and options thereon
and may engage in interest rate and foreign currency transactions.
3. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, except that the
Trust may purchase and sell securities that are secured by, or issued by
companies that invest or deal in, real estate, oil, gas or other minerals,
or interests therein.
4. Issue senior securities or borrow money except as permitted
by the Investment Company Act.
5. Make loans to others, except through the purchase of debt
obligations (including Bank Loans) and the entry into repurchase
agreements. However, the Trust may lend its portfolio securities in an
amount not to exceed 33-1/3% of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established by
the SEC and the Trust's Board of Trustees.
6. Act as an underwriter of securities of other issuers, except to
the extent the Trust may be deemed an underwriter under the Securities Act,
by virtue of its purchase or sale of portfolio securities.
7. Invest in the securities of a company for the purpose of
exercising management or control, but the Trust will vote the securities it
owns in its portfolio as a shareholder or otherwise exercise its rights in
accordance with the terms of the securities in accordance with its views.
8. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related
to the purchase of securities on a when-issued or forward commitment basis
and the deposit of assets in escrow in connection with writing covered put
and call options and collateral and initial or variation margin
arrangements with respect to options, forward contracts, futures contracts,
options on futures contracts, swaps, caps, collars and floors.
9. Purchase securities of other investment companies, except to
the extent permitted under the Investment Company Act.
TERMS OF THE OFFERING
General. In connection with the scheduled liquidation of The
BlackRock 1998 Term Trust Inc. (the "1998 Term Trust") on or about December
31, 1998, the Trust is offering to the holders of record as of the close of
business on November __, 1998 (the "Record Date") of commons shares of the
1998 Term Trust (the "1998 Term Trust Shares") the right to request to
subscribe (the "Subscription Rights") for common shares of the Trust (the
"Shares") at a price of $15.00 per Share (the "Subscription Price"),
without paying a sales charge. As described below under "-Liquidation of
the 1998 Term Trust," Record Date holders of 1998 Term Trust Shares who
exercise their Subscription Rights may direct that all or a portion of
their scheduled liquidating distribution from the 1998 Term Trust be
applied to pay the Subscription Price for the Shares. The Trust is also
offering Subscription Rights to Record Date holders of common shares of
each other closed-end investment company for which BlackRock acts as
investment adviser (together with the 1998 Term Trust, the "BlackRock
Trusts"). As described below under "-Minimum Offering Amount," the Trust
reserves the right to offer Shares to clients of the Dealer Managers who
may not be Record Date Eligible Shareholders.
Subscription Privilege of Record Date Eligible Shareholders. The
Subscription Rights allow the Record Date holders of common shares (the
"BlackRock Trust Shares") of each BlackRock Trust, including the 1998 Term
Trust (the "Eligible Shareholders"), to request to subscribe for Shares in
the Trust's initial public offering (the "Offering") at a rate of one Share
for each BlackRock Trust Share held on the Record Date (the "Subscription
Privilege"). Attached to this Prospectus as Appendix C is a Subscription
Rights Exercise and Application Form (the "Subscription Form"). Eligible
Shareholders may indicate, on the Subscription Form, how many additional
Shares, if any, they would like to request to subscribe for in addition to
the Shares they may request to subscribe for pursuant to the Subscription
Privilege.
Subscription Price; Minimum Purchase. The Subscription Price for the
Shares to be issued pursuant to the Offering is $15.00 per Share, without
payment of a sales charge. BlackRock or an affiliate (not the Trust) from
its own assets will pay a commission to the Dealer Managers in connection
with sales of Shares in the Offering. The minimum purchase in the Offering
is 100 Shares ($1,500). Holders of fewer than 100 BlackRock Trust Shares
will be able to request to purchase 100 Shares pursuant to the Subscription
Privilege and may request additional Shares as described above.
Minimum Offering Amount. The Board of Trustees of the Trust has
determined not to consummate the Offering unless requests to subscribe for
at least [ ] Shares (the "Minimum Offering Amount") are received in
the Offering. In connection with the Minimum Offering Amount, the Trust
reserves the right to offer Shares to clients of the Dealer Managers who
may not be Record Date Eligible Shareholders. Such clients may request to
subscribe for Shares of the Trust at the Subscription Price by contacting
their broker-dealer.
Expiration of the Subscription Rights. The Subscription Rights will
expire at 5:00 p.m., New York City time, on December __, 1998, unless the
Offering is extended by the Trust until 5:00 p.m., New York City time, on
December __, 1998 (the "Expiration Date"). The right to request to
subscribe for Shares in the Offering will expire on the Expiration Date and
thereafter the Subscription Rights may not be exercised.
Non-Transferability of Subscription Rights. The Subscription Rights
are non-transferable and, therefore, may not be purchased or sold. The
Subscription Rights are granted to Record Date Eligible Shareholders, which
term, for purposes of the Offering, includes (i) the person or persons who
are the owners, co-owners and beneficiaries of the account in which the
BlackRock Trust Shares are held (collectively, the "Designated Persons")
and (ii) any account (including a trust, Individual Retirement Account,
qualified plan account or other similar arrangement) for which any
Designated Person is directly or indirectly an owner, a co-owner or a
beneficiary.
Method of Exercise of Subscription Rights. Requests to subscribe for
Shares pursuant to the exercise of Subscription Rights may only be made,
and Shares may only be purchased in the Offering through, the Dealer
Managers or through other broker-dealers and financial institutions
participating in the Offering. Eligible Shareholders seeking to participate
in the Offering should contact their broker or financial adviser who can,
on behalf of the Eligible Shareholder, complete the Subscription Form
attached to this Prospectus and arrange for payment for the Shares on
behalf of the Eligible Shareholder. In the event an Eligible Shareholder
does not have a broker or financial adviser or in the event an Eligible
Shareholder's broker or financial adviser is not participating in the
Offering, such Eligible Shareholder should contact the Dealer Managers at
the address and telephone number listed below, and the Dealer Managers can,
on behalf of such Eligible Shareholder, complete the Subscription Form and
arrange for payment for the Shares on behalf of the Eligible Shareholder.
[Subscription Rights may also be exercised by an Eligible Shareholder by
contacting a broker or financial adviser who can arrange, on behalf of the
Eligible Shareholder, to guarantee delivery of payment for Shares and of a
properly completed Subscription Form a "Notice of Guaranteed Delivery"). A
fee may be charged for this service.] Completed Subscription Forms or
Notices of Guaranteed Delivery must be received by the Subscription Agent
prior to 5:00 p.m., New York City time, on the Expiration Date.
[Dealer Managers]
c/o _________________
_____________________
_____________________
Eligible Shareholders Whose BlackRock Trust Shares Are Held By A Nominee.
Eligible Shareholders whose BlackRock Trust Shares are held by a nominee
such as a broker or trustee must contact the nominee to exercise their
Subscription Rights. In that case, the nominee will complete the
Subscription Form on behalf of the Eligible Shareholder and arrange for
payment for the Shares.
Nominees. Nominees who hold BlackRock Trust Shares for the account of
others should notify the respective beneficial owners of such BlackRock
Trust Shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to exercising the
Subscription Rights. If the beneficial owner so instructs, the nominee
should complete the Subscription Form and submit it to the Subscription
Agent.
Subscription Agent. The Subscription Agent is State Street Bank and
Trust Company (the "Subscription Agent"). The Subscription Agent is also
the Trust's transfer agent, dividend-paying agent and registrar for the
Shares. Questions regarding the Subscription Form should be directed to
State Street Bank and Trust Company, Two Heritage Drive, North Quincy,
Massachusetts 02171 U.S.A. (800) 426- 5523 (toll free); Eligible
Shareholders may also consult their brokers or nominees. Completed
Subscription Forms must be sent for all Shares requested to be purchased in
the Offering by one of the methods described below. [Alternatively, Notices
of Guaranteed Delivery may be sent by facsimile to (617) 794- 6333 to be
received by the Subscription Agent prior to 5:00 P.M., New York City time,
on the Expiration Date. Facsimiles should be confirmed by telephone at
(617) 794-6388.]
(1) BY FIRST CLASS MAIL OR EXPRESS MAIL:
State Street Bank and Trust Company
Corporate Reorganization
P.O. Box 9061
Boston, Massachusetts 02205-8686
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:
State Street Bank and Trust Company
Corporate Reorganization
c/o Boston EquiServe
70 Campanelli Drive
Braintree, Massachusetts 02184
(3) BY HAND:
Bank of Boston
c/o Boston EquiServe
55 Broadway - 3rd Floor
New York, New York 10006
[The Subscription Agent will receive a fee estimated to be $_____________,
including reimbursement for all out-of-pocket expenses related to the
Offering.]
Payment for Shares. Except as described below under "-Liquidation of
the 1998 Term Trust," payment for Shares requested to be subscribed for in
the Offering must be made to the Dealer Managers or other broker-dealers or
financial institutions participating in the Offering. Eligible Shareholders
seeking to participate in the Offering should contact their broker or
financial adviser who can, on behalf of the Eligible Shareholder, arrange
for payment for the Shares on behalf of the Eligible Shareholder. In the
event an Eligible Shareholder does not have a broker or financial adviser
or in the event an Eligible Shareholder's broker or financial adviser is
not participating in the Offering, such Eligible Shareholder should contact
the Dealer Managers at the address and telephone number listed above under
"-Method of Exercise of Subscription Rights" and the Dealer Managers can,
on behalf of such Eligible Shareholder, arrange for payment for the Shares
on behalf of the Eligible Shareholder. NO MONIES OR PAYMENT FOR SHARES
REQUESTED TO BE SUBSCRIBED FOR IN THE OFFERING SHOULD BE DELIVERED TO THE
SUBSCRIPTION AGENT. ANY DELIVERIES OF MONIES TO THE SUBSCRIPTION AGENT WILL
BE RETURNED WITHOUT INTEREST.
Liquidation of the 1998 Term Trust. Among the BlackRock Trusts is The
BlackRock 1998 Term Trust Inc. (the "1998 Term Trust"). The 1998 Term Trust
is a diversified, closed-end management investment company that completed
its initial public offering in ____________ and is listed on the NYSE under
the symbol "BBT". The investment objective of the 1998 Term Trust is to
manage a portfolio of high quality securities that will return $10 per
share to investors on or shortly before December 31, 1998 while providing
high monthly income. The 1998 Term Trust will [liquidate its portfolio of
securities] on or shortly before December 31, 1998 and will distribute
substantially all of the cash comprising its net assets to the holders of
shares of the 1998 Term Trust ("1998 Term Trust Shareholders") on or about
such date (the "Liquidating Distribution"). 1998 Term Trust Shareholders
who are Eligible Shareholders and who wish to participate in the Offering,
may, on the Subscription Form, instruct the Subscription Agent (who is also
the agent of the 1998 Term Trust in connection with the Liquidating
Distribution) to deliver that portion of the Liquidating Distribution equal
to the aggregate Subscription Price for Shares of the Trust requested to be
subscribed for by such 1998 Term Trust Shareholder to the Dealer Managers
for delivery to the Trust in connection with the purchase by the Dealer
Managers of the Shares. Any remaining portion of the Liquidating
Distribution above such aggregate Subscription Price will be paid to the
1998 Term Trust Shareholder in accordance with the terms of the plan of
liquidation of the 1998 Term Trust. 1998 Term Trust Shareholders who do not
exercise their Subscription Rights will be paid their pro rata portion of
the Liquidating Distribution in accordance with the terms of the plan of
liquidation of the 1998 Term Trust. In the event the Offering is not
consummated for any reason, 1998 Term Trust Shareholders who requested to
subscribe for Shares in the Offering will be paid their pro rata portion of
the Liquidating Distribution in accordance with the terms of the plan of
liquidation of the 1998 Term Trust.
Sale of Shares to the Dealer Managers. Based upon the requests for
Shares received by the Subscription Agent in connection with the exercise
of Subscription Rights, and upon other indications of interest received
from clients of the Dealer Managers who may not be Record Date Eligible
Shareholders, on the Expiration Date the Trust will sell, and the Dealer
Managers will agree to purchase for distribution, the number of Shares set
forth opposite their names under "Distribution". The Dealer Managers are
committed to purchase all of such Shares for distribution if any such
Shares are purchased. The Shares will commence trading on the New York
Stock Exchange on the business day immediately following the Expiration
Date. It is expected that delivery and payment for the Shares will take
place on the third business day after the commencement of such trading (the
"Settlement Date"). Confirmations for all Shares purchased by Eligible
Shareholders and such clients of the Dealer Managers will be sent on or
before the Settlement Date.
All questions as to the validity, form, eligibility (including times
of receipt and matters pertaining to beneficial ownership) and the
acceptance of the Subscription Forms and other requests to subscribe for
Shares in the Offering will be determined by the Dealer Managers, which
determinations will be final and binding. The Dealer Managers reserve the
absolute right to reject any or all requests for subscriptions for Shares
not properly submitted or the acceptance of which would, in the opinion of
counsel for the Dealer Managers, be unlawful. The Dealer Managers also
reserve the right to waiver any irregularities or conditions, and the
interpretations of the Dealer Managers of the terms and conditions of the
Offering shall be final and binding. Any irregularities in connection with
requests for subscriptions for Shares must be cured within such time as the
Dealer Managers shall determine unless waived. None of the Trust, the
Dealer Managers nor the Subscription Agent shall be under any duty to give
notification of defects in such requests for subscriptions for Shares or
incur any liability for failure to give such notifications. Requests for
subscriptions for Shares will not be deemed to have been made until such
irregularities have been cured or waived.
MANAGEMENT OF THE TRUST
BlackRock, Inc., a global asset management company with approximately
$120 billion of assets under management, will act as the Trust's Investment
Adviser. The Investment Adviser is a wholly-owned subsidiary of PNC Asset
Management Group. The Investment Adviser has entered into a sub-advisory
agreement with BlackRock, pursuant to which the responsibilities of
managing the Trust's portfolio on a daily basis have been delegated to
BlackRock. BlackRock was founded in 1988 and has expertise in the
government, mortgage, corporate, asset-backed, municipal, non-dollar and
high yield sectors of the fixed income securities market. BlackRock
currently has over $51 billion in discretionary fixed income assets under
management invested in a broad array of fixed income products across the
yield curve.
INVESTMENT ADVISORY AGREEMENT
Pursuant to the Investment Advisory Agreement (the "Advisory
Agreement"), the Trust has retained the Investment Adviser to manage the
investment of the Trust's assets and to provide such investment research,
advice and supervision, in conformity with the Trust's investment objective
and policies, as may be necessary for the operations of the Trust.
The Advisory Agreement provides, among other things, that the
Investment Adviser will bear all expenses of its employees and overhead
incurred in connection with its duties under the Advisory Agreement
(including the fees and expenses of BlackRock) and will pay all directors'
fees and salaries of the Trust's trustees and offices who are affiliated
persons (as such term is defined in the Investment Company Act) of the
Investment Adviser except that the Board of Trustees may approve
reimbursement for the time spent on Trust operations of the Investment
Adviser's personnel who spend substantial time on the operations (other
than the provision of investment advice) of the Trust or other investment
companies advised by the Investment Adviser. The Advisory Agreement
provides that the Trust shall pay to the Investment Adviser a monthly fee
for its services at the annual rate of [1.05%] of the Trust's average
weekly value of the total assets of the Trust minus the sum of accrued
liabilities (other than the aggregate indebtedness constituting financial
leverage) (the "Managed Assets").
Although the Investment Adviser intends to devote such time and
effort to the business of the Trust as is reasonably necessary to perform
its duties to the Trust, the services of the Investment Adviser are not
exclusive and the Investment Adviser provides similar services to other
investment companies and other clients and may engage in other activities.
The Advisory Agreement also provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Adviser is not liable to the Trust
or any of the Trust's Shareholders for any act or omission by the
Investment Adviser in the supervision or management of its respective
investment activities or for any loss sustained by the Trust or the Trust's
Shareholders and provides for indemnification by the Trust of the
Investment Adviser, its partners, members, officers, employees, agents and
control persons for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions.
The Advisory Agreement was approved by BlackRock, as the Trust's
initial shareholder, on [November] ___, 1998, and by the Trust's Board of
Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (as such term is defined
in the Investment Company Act), on [November] ___, 1998. The Advisory
Agreement will be submitted to Shareholders for their approval at the first
meeting of shareholders of the Trust. The Advisory Agreement will continue
in effect for a period of two years from its effective date, and if not
sooner terminated, will continue in effect for successive periods of 12
months thereafter, provided that each continuance is specifically approved
at least annually by both (1) the vote of a majority of the Trust's Board
of Trustees or the vote of a majority of the outstanding voting securities
of the Trust (as such term is defined in the Investment Company Act) and
(2) by the vote of a majority of the Trustees, who are not parties to such
Agreement or interested persons (as such term is defined in the Investment
Company Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be
terminated as a whole at any time by the Trust, without the payment of any
penalty, upon the vote of a majority of the Trust's Board of Trustees or a
majority of the outstanding voting securities of the Trust or by the
Investment Adviser, on 60 days' written notice by either party to the
other. The Advisory Agreement will terminate automatically in the event of
its assignment (as such term is defined in the Investment Company Act and
the rules thereunder).
PORTFOLIO MANAGEMENT TEAM
DENNIS SCHANEY, Managing Director of BlackRock and Head of the High
Yield Team. Mr. Schaney has primary responsibility for BlackRock's high
yield efforts. Prior to joining BlackRock in 1998, Mr. Schaney spent nine
years with Merrill Lynch where he was a Managing Director in the firm's
Global Fixed Income Research and Economics Department. During the time Mr.
Schaney managed Merrill's Corporate and Municipal Bond Research
Departments, the group became the top-ranked Fixed Income Research
Department according to industry polls. Mr. Schaney's specific sector
specialties included the media, entertainment, and cable sectors for both
the high yield and investment grade markets for which he was named to
Institutional Investor's All American Fixed Income Team for five of the
last six years. In addition, throughout his career, Mr. Schaney has covered
the Auto, Transportation, Technology and Aerospace industries. Mr. Schaney
began his investment career with Standard & Poor's, followed by four years
with The First Boston Corporation; two years as an analyst in the firm's
Fixed Income and Research Department and two years as a Vice President in
the firm's Investment Banking Department. Mr. Schaney earned a BS degree in
finance from the University of Bridgeport and an MS degree in financial
management from Fairfield University. He is a member of the Fixed Income
Analyst Society.
MICHAEL C. BUCHANAN, CFA, Director of BlackRock. Mr. Buchanan has
primary responsibility for trading and overseeing risk management for the
High Yield Team. Prior to joining BlackRock in 1998, Mr. Buchanan was a
Vice President at Conseco Capital Management ("CCM") where he was a
portfolio manager responsible for high yield debt, bank loan and emerging
markets debt trading. He also oversaw investment grade corporate bond
trading. At CCM, Mr. Buchanan managed two high yield mutual Trusts, and was
involved in the management and oversight of three high yield debt CBOs and
a bank loan CLO. Prior to assuming trading responsibilities in the high
yield debt area, Mr. Buchanan's previous experience at CCM included credit
research on the aerospace, defense and paper/forest products sectors and
convertible securities trading. Mr. Buchanan graduated from Brown
University with a BA in business economics and organizational
behavior/management. He is a Chartered Financial Analyst and is on the
Indianapolis Society of Financial Analysts.
MARK J. WILLIAMS, Director of BlackRock. Mr. Williams has primary
responsibility for originating and evaluating Bank Loan investments for the
High Yield Team. He is also involved in the evaluation and sourcing of
Mezzanine Investments. Prior to joining BlackRock in 1998, Mr. Williams
spent eight years at PNC Bank's New York Office and was co-founder of the
bank's leveraged finance group. In that capacity, he was responsible for
originating and structuring proprietary middle market leveraged deals,
along with sourcing and evaluating broadly syndicated leveraged loans in
the primary and secondary markets for PNC Bank's investment portfolio. Mr.
Williams has developed extensive contacts over the years working with
private equity sponsors and major loan syndication groups. Prior to 1990,
he worked in PNC's Philadelphia Office in a variety of marketing and
corporate finance roles. Mr. Williams has a BA in Economics from Franklin
and Marshall College.
PETER SCHWARTZMAN, Vice President of BlackRock. Mr. Schwartzman is a
member of the High Yield Team and an analyst covering the health care,
gaming, retail, textile and lodging industries. Previously he spent over
four years with Alliance Capital management as an analyst covering a broad
range of high yield and high grade companies in the health care, gaming,
retail, textile and lodging sectors. In addition, Mr. Schwartzman has done
considerable work on a broad array of distressed situations in the
manufacturing, convenience store, and consumer produce sectors. During his
four years at Alliance, his recommendations contributed to the high yield
portfolio's consistently high level of performance. Prior to Alliance, Mr.
Schwartzman spent four years as an analyst at Moody's Investor Service in
the Tax-Exempt Health Care Group. At Moody's, Mr. Schwartzman was
responsible for the analysis of hospitals, health systems and long term
care facilities. During his four years at Moody's he rated over 100
transactions. Mr. Schwartzman received his MBA in Finance from New York
University - Stern School of Business and his BA from Trinity College. He
is a member of the Fixed Income Analysis Society and also serves on the
Finance Committee of the Board of Directors of the New York Society of the
Deaf.
THE ADMINISTRATION AGREEMENTS
BlackRock and will act as the Trust's administrators (the
"Administrators". Under the respective Administration Agreements with the
Trust (the "Administration Agreements"), the Administrators administer the
Trust's corporate affairs subject to the supervision of the Trust's board
of trustees and in connection therewith furnish the Trust with office
facilities together with such ordinary clerical and bookkeeping services
(e.g., preparation of annual and other reports to stockholders and the SEC
and filing of federal, state and local income tax returns) as are not being
furnished by the Custodian. The Administrators also may facilitate bank or
other borrowing by the Trust when the Investment Adviser determines that
leverage may be in the best interests of the Trust's Shareholders. In
connection with its administration of the corporate affairs of the Trust,
the Administrator will bear the following expenses:
(a) salaries and expenses of all personnel of the
Administrators; and
(b) all expenses incurred by the Administrators or by the Trust
in connection with administering the ordinary course of the Trust's
business, other than those assumed by the Trust, as described below.
The Administration Agreements provide that the Trust shall pay to
each Administrator a monthly fee for its services at an annual rate of
[.05%] of the Trust's average weekly Managed Assets (as described above).
The Administration Agreements were approved by the Trust's Board of
Trustees on [November] ___, 1998 and is effective until is terminated. Each
terminates automatically if it is assigned (as defined in the Investment
Company Act and the rules thereunder) and is otherwise terminable on 60
days' notice by either party to the other.
EXPENSES OF THE TRUST
Except as indicated above, the Trust will pay all of its expenses,
including fees of the trustees not affiliated with the Investment Adviser
and board meeting expenses; fees of the Investment Adviser and the
Administrator; interest charges; taxes; organizational expenses; charges
and expenses of the Trust's legal counsel and independent accountants, and
of the transfer agent, registrar and dividend disbursing agent of the
Trust; expenses of repurchasing shares; expenses of printing and mailing
share certificates, shareholder reports, notices, proxy statements and
reports to governmental offices; brokerage and other expenses connected
with negotiating, effecting purchase or sale, or registering privately
issued portfolio securities; fees and expenses of the Custodian for all
services to the Trust, including safekeeping Trusts and securities and
maintaining required books and accounts; expenses in calculating and
publishing the net asset value of the Trust's shares; expenses of
membership in investment company associations; expenses of fidelity bonding
and other insurance expenses including insurance premiums; expenses of
shareholders meetings; SEC and state blue sky registration fees; New York
Stock Exchange listing fees; fees payable to the National Association of
Securities Dealers, Inc. in connection with this offering; and its other
business and operating expenses.
TRUSTEES AND OFFICERS OF THE TRUST
The officers of the Trust manage its day to day operations. The
officers are directly responsible to the Trust's board of trustees which
sets broad policies for the Trust and chooses its officers. The following
is a list of the trustees and officers of the Trust and a brief statement
of their present positions and principal occupations during the past five
years. Trustees who are interested persons of the Trust (as defined in the
Investment Company) are denoted by an asterisk (*). The business address of
the Trust, the Investment Adviser, and their Board members and officers is
345 Park Avenue, New York, New York 10154, unless specified otherwise
below.
PRINCIPAL OCCUPATION
DURING THE PAST FIVE
NAME AND ADDRESS TITLE YEARS AND OTHER AFFILIATIONS
Andrew F. Brimmer Trustee President of Brimmer & Company,
4400 MacArthur Blvd., Inc., a Washington, D.C.-based
N.W. Suite 302 economic and financial consulting
Washington, DC 20007 firm. Formerly member of the Board
Age: 71 of Governors of the Federal Reserve
System. Director of BankAmerica
Corporation (Bank of America),
BellSouth Corporation, The
Blackstone Income Trust Inc.,
College Retirement Equities Trust
(Trustee), Commodity Exchange, Inc.
(Public Governor), Connecticut
Mutual Life Insurance Company, E.I.
du Pont de Nemours & Company,
Electronic Realty Associates,
Gannett Company (publishing), MNC
Financial Corporation (American
Security Bank), NMC Capital
Management, Navistar International
Corporation (truck manufacturing)
and UAL Corporation (United
Airlines).
Richard E. Cavanagh Trustee President and Chief Executive
845 Third Avenue Officer of The Conference Board,
New York, NY 10022 Inc., a leading global business
Age: 51 membership organization. Former
Executive Dean of the John F.
Kennedy School of Government at
Harvard University from 1988-1995.
Acting Director, Harvard Center for
Business and Government (1991-1993).
Formerly Partner (principal) of
McKinsey & Company, Inc.
(1980-1988). Former Executive
Director of Federal Cash Management,
White House Office of Management and
Budget (1977- 1979). Co-author, THE
WINNING PERFORMANCE (best selling
management book published in 13
national editions). Trustee,
Wesleyan University and Drucker
Foundation, Director, Olin Corp.
(chemicals and metals) and Fremont
Group (investments) and LCI
International (telecommunication).
Kent Dixon Trustee Consultant/Investor. Former
9495 Blind Pass Road President and Chief Executive
Unit #602 Officer of Empire Federal Savings
St. Petersburg, FL 33706 Bank of America and Banc PLUS
Age: 60 Savings Association, former Chairman
of the Board, President and Chief
Executive Officer of Northeast
Savings. Former Director of ISFA
(the owner of INVEST, a national
securities brokerage service
designed for banks and thrift
institutions).
Frank J. Fabozzi Trustee Consultant. Editor of THE JOURNAL OF
858 Tower View Circle PORTFOLIO MANAGEMENT and Adjunct
New Hope, PA 18938 Professor of Finance at the School
Age: 49 of Management at Yale University.
Director, Guardian Mutual Trusts
Group. Author and editor of several
books on fixed income portfolio
management. Visiting Professor of
Finance and Accounting at the Sloan
School of Management, Massachusetts
Institute of Technology from 1986 to
August 1992.
Laurence D. Fink* Trustee Chairman and Chief Executive Officer
Age: 45 of BlackRock Financial Management,
the Adviser. Formerly a Managing
Director of The First Boston
Corporation, member of its
Management Committee, co-head of its
Taxable Fixed Income Division and
head of its Mortgage and Real Estate
Products Group. Currently, Chairman
of the Board and Director of each of
BlackRock's Trusts and Anthracite
Capital, Inc. and as Director of
BlackRock Trust Investors I,
BlackRock Trust Investors II,
BlackRock Trust Investors III,
BlackRock Asset Investors
(collectively, "BAI") and BlackRock
MQE Investors, Trustee of New York
University Medical Center, Dwight
Englewood School and National
Outdoor Leadership School and
Phoenix House. A Director of VIMRx
Pharmaceuticals, Inc. and Innovir
Laboratories, Inc.
James Grosfeld Trustee Consultant/Investor. Director of
20500 Civic Center BlackRock Trust Investors I,
Drive BlackRock Trust Investors II,
Suite 3000 BlackRock Trust Investors III and
Southfield, MI 48076 BlackRock Asset Investors
Age: 60 (collectively, "BAI"). Formerly
Chairman of the Board and Chief
Executive Officer of Pulte
Corporation (homebuilding and
mortgage banking and finance) (May
1974-April 1990).
James Clayburn Trustee Dean Emeritus of The John E.
LaForce, Jr. Anderson Graduate School of
P.O. Box 1595 Management, University of California
Pauma Valley, CA 92061 since July 1, 1993. Director, Eli
Age: 69 Lilly and Company (pharmaceuticals),
Imperial Credit Industries (mortgage
banking), Jacobs Engineering Group,
Inc., Rockwell International
Corporation, Payden & Rygel
Investment Trust (mutual Trust),
Provident Investment Counsel Trusts
(investment companies), Timken
Company (roller bearing and steel),
Motor Cargo Industries
(transportation). Acting Dean of The
School of Business, Hong Kong
University of Science and Technology
1990- 1993. From 1978 to September
1993, Dean of The John E. Anderson
Graduate School of Management,
University of California.
Walter F. Mondale Trustee Partner, Dorsey & Whitney, a law
220 South Sixth Street firm (December 1996-, September
Minneapolis, MN 55402 1987-August 1993) Formerly U.S.
Age: 70 Ambassador to Japan (1993- 1996).
Formerly Vice President of the
United States, U.S. Senator and
Attorney General of the State of
Minnesota. 1984 Democratic Nominee
for President of the United States.
Ralph L. Schlosstein* Trustee President of BlackRock Financial
Age: 47 Management, the Adviser. Formerly a
Managing Director of Lehman
Brothers, Inc. and co-head of its
Mortgage and Savings Institutional
Group. Currently President of each
of BlackRock's Trusts. Trustee of
Denison University and New Visions
for Public Education in New York
City. A Director of the Pulte
Corporation and a member of the
Visiting Board of Overseers of the
John F. Kennedy School of Government
at Harvard University.
Scott Amero Vice Managing Director of BlackRock. From
Age: 34 President 1985 to 1990 Vice President at The
First Boston Corporation in the
Fixed Income Research Department.
Keith T. Anderson Vice Managing Director of BlackRock. From
Age: President February 1987 to April 1988 Vice
President at The First Boston
Corporation in the Fixed Income
Research Department. Previously Vice
President and Senior Portfolio
Manager at Criterion Investment
Management Company (now
Nicholas-Applegate).
Henry Gabbay Treasurer Managing Director and Chief
Age: 50 Operating Officer of BlackRock. From
September 1984 to February 1989 Vice
President at The First Boston
Corporation.
Michael C. Huebsch Vice Managing Director of BlackRock. From
Age: 39 President July 1985 to January 1989 Vice
President at The First Boston
Corporation in the Fixed Income
Research Department.
Robert S. Kapito Vice Managing Director and Vice Chairman
Age: 41 President of BlackRock. Formerly Vice
President at The First Boston
Corporation in the Mortgage Products
Group.
Kevin Klingert Vice Managing Director of BlackRock. From
Age: 35 President March 1985 to October 1991 Assistant
Vice President at Merrill Lynch,
Pierce, Fenner & Smith in the Unit
Investment Trust Department.
James Kong Assistant Managing Director of BlackRock. From
Age: 37 Treasurer April 1987 to April 1989 Assistant
Vice President at The First Boston
Corporation in the CMO/ABO
Administration Department.
Previously affiliated with
Deloittee, Haskins & Sells (now
Deloitte & Touche LLP).
Karen H. Sabath Secretary Managing Director of BlackRock. From
Age: 32 June 1986 to July 1988 Associate at
The First Boston Corporation in the
Mortgage Finance Department. From
August 1988 to December 1992
Associate Vice President of the
Adviser.
Richard Shea, Esq. Vice Director of BlackRock. From December
Age: 38 President/ 1988 to February 1993 Associate Vice
Tax President and Tax Counsel at
Prudential Securities, Inc. From
August 1984 to December 1988 Senior
Tax Specialist at Laventhol &
Horwath.
The address of each officer of the Trust is 345 Park Avenue, New York, New
York 10154.
Prior to this offering, all of the outstanding Shares of the Trust
are owned by BlackRock.
No officer or employee of the Trust receives any compensation from
the Trust for serving as an officer or Trustee of the Trust. The Trust pays
each Trustee who is not an "interested person" of the Trust (as defined in
the Investment Company Act) $______ per annum (and an additional $_____ for
the Chairman of the Board of Trustees of the Trust). In addition, the Trust
pays each Trustee who is not an "interested person" of the Trust (as
defined in the Investment Company Act) $_____ per Board meeting attended,
plus $______ per Audit Committee meeting attended, and reimburses each
Trustee who is not an "interested person" of the Trust (as defined in the
Investment Company Act) for travel and out-of-pocket expenses.
For the fiscal year ended December 31, 1997, the aggregate amount of
fees and expenses received by each current Trustee of the Trust and all
other funds in the BlackRock Family of Funds for which such person is a
Board member were as follows:
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION THE TRUST AND FUND COMPLEX
NAME OF BOARD MEMBER FROM TRUST PAID TO BOARD MEMBER*
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Andrew R. Brimmer $ 160,000
Richard E. Cavanagh $ 160,000
Kent Dixon $ 160,000
Frank J. Fabozzi $ 160,000
James Grosfeld $ 160,000
James Clayborne LaForce, Jr. $ 160,000
Walter F. Mondale $ 140,000
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* The BlackRock Family of Funds consists of [21] funds.
PORTFOLIO TRANSACTIONS
BlackRock is responsible for decisions to buy and sell securities for
the Trust, the selection of brokers and dealers to effect the transactions
and the negotiation of prices and any brokerage commissions. The securities
in which the Trust invests are traded principally in the over-the-counter
market. In the over-the-counter market, securities are generally traded on
a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a mark-up to the dealer. Securities purchased in underwritten
offerings generally include, in the price, a fixed amount of compensation
for the manager(s), underwriter(s) and dealer(s). The Trust may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid. Purchases and sales of bonds on
a stock exchange are effected through brokers who charge a commission for
their services.
BlackRock is responsible for effecting securities transactions of the
Trust and will do so in a manner deemed fair and reasonable to stockholders
of the Trust and not according to any formula. BlackRock's primary
considerations in selecting the manner of executing securities transactions
for the Trust will be prompt execution of orders, the size and breadth of
the market for the security, the reliability, integrity and financial
condition and execution capability of the firm, the size of and difficulty
in executing the order, and the best net price. There are many instances
when, in the judgment of BlackRock, more than one firm can offer comparable
execution services. In selecting among such firms, consideration is given
to those firms which supply research and other services in addition to
execution services. However, it is not the policy of BlackRock, absent
special circumstances, to pay higher commissions to a firm because it has
supplied such services.
BlackRock is able to fulfill its obligations to furnish a continuous
investment program to the Trust without receiving such information from
brokers; however, it considers access to such information to be an
important element of financial management. Although such information is
considered useful, its value is not determinable, as it must be reviewed
and assimilated by BlackRock, and does not reduce BlackRock's normal
research activities in rendering investment advice under the Advisory
Agreement. It is possible that BlackRock's expenses could be materially
increased it if attempted to purchase this type of information or generate
it through its own staff.
One or more of the other accounts which BlackRock manages may own
from time to time the same investments as the Trust. Investment decisions
for the Trust are made independently from those of such other accounts;
however, from time to time, the same investment decision may be made for
more than one company or account. When two or more companies or accounts
seek to purchase or sell the same securities, the securities actually
purchased or sold will be allocated among the companies and accounts on a
good faith equitable basis by BlackRock in its discretion in accordance
with the accounts' various investment objectives. In some cases, this
system may adversely affect the price or size of the position obtainable
for the Trust. In other cases, however, the ability of the Trust to
participate in volume transactions may produce better execution for the
Trust. It is the opinion of the Trust's board of directors that this
advantage, when combined with the other benefits available due to
BlackRock's organization, outweighs any disadvantages that may be said to
exist from exposure to simultaneous transactions.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the Trust's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Trust will not exceed 300%
excluding securities having a maturity of one year or less and is expected
to decline over time. Because it is difficult to predict accurately
portfolio turnover rates, actual turnover may be higher or lower. BlackRock
will monitor the Trust's tax status under the Code during periods in which
the Trust's annual turnover rate exceeds 100%. Higher portfolio turnover
results in increased Trust expenses, including brokerage commissions,
dealer mark-ups and other transaction costs on the sale of securities and
on the reinvestment in other securities. To the extent that increased
portfolio turnover results in sales at a profit of securities held less
than three months, the Trust's ability to qualify as a "regulated
investment company" under the Code may be affected.
DETERMINATION OF NET ASSET VALUE
The Trust's investments are valued after the close of business on the
New York Stock Exchange no less frequently than Thursday of each week
(except where such Thursday is not a business day, in which case the first
business day immediately preceding such Thursday) and the last business day
of each month, using available market quotations or at fair value.
Substantially all of the Trust's fixed-income investments (excluding
short-term investments) are valued by one or more independent pricing
services (the "Service") approved by the Board of Trustees. Securities
valued by the Service for which quoted bid prices in the judgment of the
Service are readily available and are representative of the bid side of the
market are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments valued by the Service are carried at fair
value as determined by the Service, based on methods which include
consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and
general market conditions. Short-term investments are not valued by the
Service and are valued at the mean price or yield equivalent for such
securities or for securities of comparable maturity, quality and type as
obtained from market makers. Other investments that are not valued by the
Service are valued at the last sales price for securities traded primarily
on an exchange or the national securities market or otherwise at the
average of the most recent bid and asked prices. Bid price is used when no
asked price is available. Any assets or liabilities initially expressed in
terms of foreign currency will be translated into U.S. dollars at the
midpoint of the New York interbank market spot exchange rate as quoted on
the day of such translation by the Federal Reserve Bank of New York or, if
no such rate is quoted on such date, at the exchange rate previously quoted
by the Federal Reserve Bank of New York or at such other quoted market
exchange rate as may be determined to be appropriate by BlackRock. Expenses
and fees, including the management fee (reduced by the expense limitation,
if any), are accrued weekly and taken into account for the purpose of
determining the net asset value of the Trust's Shares.
Options, futures contracts and options thereon which are traded on
exchanges are valued at their last sale or settlement price as of the close
of the exchanges or, if no sales are reported, at the average of the quoted
bid and asked prices as of the close of the exchange. Portfolio securities
underlying listed call options will be valued at their market price and
reflected in net assets accordingly. Premiums received on call options
written by the Trust will be included in the liability section of the
financial statements as a deferred credit and subsequently adjusted
(marked-to-market) to the current market value of the option written.
Any assets or liabilities initially expressed in terms of foreign
currency will be translated into U.S. dollars at the prevailing rates of
exchange or, if no such rate is quoted on such date, at the exchange rate
utilized on the previous business day or at such other quoted market
exchange rate as may be determined to be appropriate by BlackRock. Expenses
and fees, including the Management Fee, are accrued weekly and taken into
account for the purpose of determining the net asset value of the Shares.
Illiquid securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by
the Service, are valued at fair value as determined in good faith by the
Board of Trustees. The Board will review the method of valuation on a
current basis. In making their good faith valuation of illiquid securities,
the Board members generally will take the following factors into
consideration: illiquid securities which are, or are convertible into,
securities of the same class of securities for which a public market exists
usually will be valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by the Board if
it believes that the discount no longer reflects the value of the illiquid
securities. Illiquid securities not of the same class as securities for
which a public market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations deemed
relevant by the Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS AND DISTRIBUTIONS
It is the Trust's present policy, which may be changed by the Board
of Trustees, to make monthly distributions of its net investment income.
All net realized capital gains, if any, either will be distributed to the
Trust's Shareholders at least annually or will be retained by the Trust,
and subject to Trust-level associated tax liabilities thereon. As a result
of the Trust's ability to invest in zero coupon securities and pay-in-kind
bonds, the Trust expects to make distributions of net investment income in
amounts greater than the total amount to cash actually received in order to
satisfy certain requirements under current federal income tax law. The
Trust may change the foregoing distribution policy if its experience
indicates, or its Board of Trustees for any reason determines, that changes
are desirable. See "Taxes."
Under the Investment Company Act, the Trust is not permitted to incur
indebtedness unless after such incurrence the Trust has an asset coverage
of at least 300% of the aggregate outstanding principal balance of
indebtedness. Additionally, under the Investment Company Act, the Trust may
not declare any dividend or other distribution upon any class of its
capital shares, or purchase any such capital shares, unless the aggregate
indebtedness of the Trust has, at the time of the declaration of any such
dividend or distribution or at the time of any such purchase, an asset
coverage of at least 300% after deducting the amount of such dividend,
distribution, or purchase price, as the case may be. While any preferred
shares are outstanding, the Trust may not declare any cash dividend or
other distribution on its Shares, unless at the time of such declaration,
(1) all accumulated preferred stock dividends have been paid and (2) the
net asset value of the Trust's portfolio (determined after deducting the
amount of such dividend or other distribution) is at least 200% of the
liquidation value of the outstanding preferred shares (expected to be equal
to the original purchase price per share plus any accumulated and unpaid
dividends thereon). In addition to the limitations imposed by the
Investment Company Act as described in this paragraph, certain lenders may
impose additional restrictions on the payment of dividends or distributions
on the Trust's Shares in the event of a default on the Trust's borrowings.
Any limitation on the Trust's ability to make distributions on its Shares
could in certain circumstances impair the ability of the Trust to maintain
its qualification for taxation as a regulated investment company. See
"Other Investment Practices-Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning
the manner in which dividends and distributions to holders of Shares may be
automatically reinvested in Shares of the Trust. Dividends and
distributions may be taxable to Shareholders whether they are reinvested in
Shares of the Trust or received in cash.
The Trust expects that it will commence paying dividends within 60
days of the date of this Prospectus.
TAXES
The Trust intends to qualify and to elect to be treated as a
regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended (the "Code"). For each taxable year that the Trust so
qualifies, the Trust (but not its Shareholders) will be relieved of federal
income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain
and net gains from certain foreign currency transactions) and net capital
gain that is distributed to its Shareholders.
In order to qualify for treatment as a RIC under the Code, the Trust
must make an election to be so treated and must distribute to its
Shareholders for each taxable year at least 90% of its investment company
taxable income ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the
Trust must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of securities or foreign currencies, or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) at the close of each quarter of the
Trust's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities
of other RICs and other securities that are limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Trust's
total assets; and (3) at the close of each quarter of the Trust's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities or the securities of
other RICs) of any one issuer.
The Trust will be subject to a non-deductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31st of that year, plus
certain other amounts. For these purposes, any such income retained by the
Trust, and on which it pays federal income tax, will be treated as having
been distributed.
The Trust may acquire zero coupon or other securities issued with
original issue discount. As the holder of such securities, the Trust must
include in its gross income the original issue discount that accrues on the
securities during the taxable year, even if it receives no corresponding
payment on the securities during the year. The Trust also must include in
its gross income each year any "interest" distributed in the form of
additional securities on payment-in-kind securities. Because the Trust
annually must distribute substantially all of its investment company
taxable income, including any accrued original issue discount and other
non-cash income, to satisfy the distribution requirement imposed on RICs
and to avoid imposition of the Excise Tax, the Trust may be required in a
particular year to distribute as a dividend an amount that is greater than
the total amount of cash it actually receives. Those distributions will be
made from the Trust's cash assets or from the proceeds of sales of
portfolio securities, if necessary. The Trust may realize capital gains or
losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain.
The use of certain Hedging Transactions, such as selling (writing)
and purchasing options and futures and entering into forward currency
contracts, involves complex rules that will determine for federal income
tax purposes the character and timing of recognition of the gains and
losses the Trust realizes in connection therewith. These rules also may
require the Trust to "mark to market" (that is, treat as sold for their
fair market value) at the end of each taxable year certain positions in its
portfolio, which may cause the Trust to recognize income or gain without
receiving cash with which to make distributions necessary to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax.
The Taxpayer Relief Act of 1997 (the "1997 Tax Act") included
constructive sale provisions that generally will apply if the Trust either
(1) holds an appreciated financial position with respect to stock, certain
debt obligations, or partnership interests ("appreciated financial
position") and then enters into a short sale, futures, forward, or
offsetting notional principal contract (collectively, a "Contract")
respecting the same or substantially identical property or (2) holds an
appreciated financial position that is a Contract and then acquires
property that is the same as, or substantially identical to, the underlying
property. In each instance, with certain exceptions, the Trust generally
will be taxed as if the appreciated financial position were sold at its
fair market value on the date the Trust enters into the financial position
or acquires the property, respectively. Transactions that are identified
hedging or straddle transactions under other provisions of the Code can be
subject to the constructive sale provisions.
Income from foreign currencies, and income from transactions in
options, futures and forward currency contracts derived by the Trust with
respect to its business of investing in securities or foreign currencies,
will be treated as qualifying income under the Income Requirement. Under
section 988 of the Code, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain
other gains or losses attributable to currency exchange rate fluctuations
are typically treated as ordinary income or loss. Such income or loss may
increase or decrease (or possibly eliminate) the Trust's income available
for distribution. If, under the rules governing the tax treatment of
foreign currency gain and losses, the Trust's income available for
distribution is decreased or eliminated, all or a portion of the dividends
declared by the Trust may be treated for federal income tax purposes as a
return of capital or, in some circumstances, as capital gain. Generally, a
Shareholder's tax basis in Trust Shares will be reduced to the extent that
an amount distributed to such Shareholder is treated as a return of
capital.
Income received by the Trust from investments in foreign securities
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions. Such taxes will not be deductible or
creditable by Shareholders. Tax conventions between certain countries and
the United States may reduce or eliminate such taxes
Dividends from the Trust's investment company taxable income (whether
received in cash or reinvested in additional Trust Shares) generally are
taxable to its Shareholders as ordinary income to the extent of the Trust's
earnings and profits. Distributions of the Trust's net capital gain
("capital gains dividends"), whether received in cash or reinvested in
additional Trust Shares, when designated as such, are taxable to its
Shareholders as long-term capital gain, regardless of how long they have
held their Trust Shares. See below for a summary of the tax rates
applicable to capital gains dividends. A participant in the Automatic
Dividend Reinvestment Plan will be treated as having received a
distribution in the amount of the cash used to purchase Shares on his or
her behalf, including a pro rata portion of the brokerage fees incurred by
the Transfer Agent. Distributions by the Trust to its Shareholders in any
year that exceed the Trust's earnings and profits generally may be applied
by each Shareholder against his or her basis for the Shares and will be
taxable at capital gains rates (assuming such Shares are held as a capital
asset) to any Shareholder only to the extent the distributions to the
Shareholder exceed the Shareholder's basis for his or her Shares. See below
for a discussion of capital gains rates. The Trust will notify its
Shareholders following the end of each calendar year of the amounts of
dividends and capital gain distributions paid (or deemed paid) that year.
Dividends and other distributions declared by the Trust in October,
November or December of any year and payable to Shareholders of record on a
date in any of those months will be deemed to have been paid by the Trust
and received by the Shareholders on December 31st of that year if the
distributions are paid by the Trust during the following January.
Accordingly, those distributions will be taxed to Shareholders for the year
in which that December 31st falls.
An investor should also be aware that, if Shares are purchased
shortly before the record date for any dividend or other distribution, the
investor will pay full price for the Shares and will receive some portion
of the purchase price back as a taxable distribution.
The Trust may elect in the future to retain net realized long-term
capital gains and pay corporate income tax thereon. In such event, the
Trust would most likely make an election which would require each
shareholder of record on the last day of the Trust's taxable year to
include in income for tax purposes his proportionate share of the Trust's
undistributed net realized long-term capital gains. If such an election is
made, each shareholder would be entitled to credit his proportionate share
of the tax paid by the Trust against his Federal income tax liability and
to claim reTrusts to the extent that the credit exceeds such liability. In
addition, the shareholder would be entitled to increase the basis of his
Shares for Federal tax purposes by an amount equal to 66% of his
proportionate share of the Trust's undistributed net realized long-term
capital gains.
Upon the sale or exchange of Shares (including a sale pursuant to a
Share repurchase or tender offer by the Trust), a Shareholder generally
will recognize a taxable gain or loss equal to the difference between his
or her adjusted basis for the Shares and the amount received. Any such gain
or loss will be treated as a capital gain or loss if the Shares are capital
assets in the Shareholder's hands and will be long-term capital gain or
loss if the Shares have been held for more than one year. See below for a
discussion of the tax rates applicable to capital gains. Any loss
recognized on a sale or exchange of Shares that were held for six months or
less will be treated as long-term, rather than short-term, capital loss to
the extent of any capital gain distributions previously received thereon. A
loss recognized on a sale or exchange of Shares will be disallowed to the
extent those Shares are replaced by other Shares within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition
of the Shares (which could occur, for example, as a result of participation
in the Automatic Dividend Reinvestment Plan). In that event, the basis of
the replacement Shares will be adjusted to reflect the disallowed loss.
Under the 1997 Tax Act, the maximum tax rates applicable to net
capital gains recognized by individuals and other non-corporate taxpayers
are (i) the same as ordinary income rates for capital assets held for one
year or less; (ii) 28% for capital assets held for more than one year but
not more than 18 months and (iii) 20% for capital assets held for more than
18 months. The 1997 Tax Act did not affect the maximum long-term capital
gains rate for corporations, which remains at 35%. The tax rates for
capital gains under the 1997 Tax Act described above apply to distributions
of capital gains dividends by RICs such as the Trust as well as to sales
and exchanges of shares in RICs such as the Trust. With respect to capital
losses recognized on dispositions of Shares held six months or less where
such losses are treated as long-term capital losses to the extent of prior
capital gains dividends received thereon (see discussion in the preceding
paragraph), it is unclear how such capital losses offset the capital gains
referred to above. Shareholders should consult their own tax advisers as to
the application of the new capital gains rates to their particular
circumstances.
The Trust is required to withhold 31% of all dividends, capital gains
dividends and repurchase proceeds payable to any individual Shareholders
and certain other non-corporate Shareholders who do not provide the Trust
with a correct taxpayer identification number. The Trust is also required
to withhold 31% of all dividends and capital gain dividends paid to such
Shareholders who otherwise are subject to backup withholding.
The foregoing is only a brief summary of some of the important
federal income tax considerations generally affecting the Trust and its
Shareholders. There may be other federal, state, local or foreign tax
considerations applicable to a particular investor. Prospective investors
are urged to consult their tax advisers regarding the specific federal
income tax consequences of purchasing, holding and disposing of Shares, as
well as the effects of state, local and foreign tax laws and any proposed
tax law changes.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Trust's Automatic Dividend Reinvestment Plan (the
"Plan"), unless a Shareholder elects to receive cash, all dividend and
capital gains distributions will be automatically reinvested by
_________________ as agent for Shareholders in administering the Plan (the
"Plan Agent") in additional Shares of the Trust. Shareholders who elect not
to participate in the Plan will receive all dividends and distributions in
cash paid by check mailed directly to the Shareholder of record (or, if the
Shares are held in street or other nominee name, then to such nominee) by
__________, as dividend disbursing agent. Plan participants may elect not
to participate in the Plan and to receive all distributions of dividends
and capital gains in cash by sending written instructions
to________________, as dividend disbursing agent, at the address set forth
below. Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if
received by the Plan Agent not less than ten days prior to any dividend
record date; otherwise such termination will be effective with respect to
any subsequently declared dividend or distribution.
Whenever the Trust declares an ordinary income dividend or a capital
gain dividend (collectively referred to in this section as "dividends")
payable either in shares or in cash, non-participants in the Plan will
receive cash, and participants in the Plan will receive the equivalent in
Shares. The Shares will be acquired by the Plan Agent for the participant's
account, depending upon the circumstances described below, either (i)
through receipt of additional unissued but authorized Shares from the Trust
("newly issued shares") or (ii) by purchase of outstanding Shares on the
open market ("open-market purchases") on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per Share is equal to or
less than the market price per Share plus estimated brokerage commissions
(such condition being referred to herein as "market premium"), the Plan
Agent will invest the dividend amount in newly issued Shares on behalf of
the participant. The number of newly issued Shares to be credited to the
participant's account will be determined by dividing the dollar amount of
the dividend by the net asset value per share on the date the Shares are
issued, provided that the maximum discount from the then current market
price per Share on the date of issuance may not exceed 5%. If on the
dividend payment date the net asset value per Share is greater than the
market value (such condition being referred to herein as "market
discount"), the Plan Agent will invest the dividend amount in Shares
acquired on behalf of the participants in open-market purchases.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next date on
which the Shares trade on an "ex-dividend" basis or in no event more than
30 days after the dividend payment date (the "last purchase date") to
invest the dividend amount in Shares acquired in open-market purchases. It
is contemplated that the Trust will pay monthly income dividends.
Therefore, the period during which open-market purchases can be made will
exist only from the payment date on the dividend through the date before
the next "ex-dividend" date, which typically will be approximately ten
days. If, before the Plan Agent has completed its open-market purchases,
the market price of a Share exceeds the net asset value per Share, the
average per Share purchase price paid by the Plan Agent may exceed the net
asset value of the Trust's Shares, resulting in the acquisition of fewer
Shares than if the dividend had been paid in newly issued Shares on the
dividend payment date. Because of the foregoing difficulty with respect to
open-market purchases, the Plan provides that if the Plan Agent is unable
to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will cease making open-market purchases
and will invest the uninvested portion of the dividend amount in newly
issued Shares at the close of business on the last purchase date.
The Plan Agent maintains all Shareholders' account in the Plan and
furnishes written confirmation of all transactions in the account,
including information needed by Shareholders for tax records. Shares in the
account of each Plan participant will be held by the Plan Agent on behalf
of the Plan participant, and each Shareholder proxy will include those
Shares purchased or received pursuant to the Plan. The Plan Agent will
forward all proxy solicitation materials to participants and vote proxies
for shares held pursuant to the Plan in accordance with the instructions of
the participants.
In the case of Shareholders such as banks, brokers or nominees which
hold Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number off Shares certified from
time to time by the record Shareholder's name and held for the account of
beneficial owners who are to participate in the Plan.
There will be no brokerage charges with respect to Shares issued
directly by the Trust as a result of dividends or capital gains
distributions payable either in Shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open-market purchases in connection with
the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any Federal, state or local income tax that may be
payable (or required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not
available to Shareholders not participating in the Plan. If the market
price plus commissions of the Trust's Shares is above the net asset value,
participants in the Plan will receive Shares of the Trust at less than they
could otherwise purchase them and will have Shares with a cash value
greater than the value of any cash distribution they would have received on
their Shares. If the market price plus commissions is below the net asset
value, participants will receive distributions in Shares with a net asset
value greater than the value of any cash distribution they would have
received on their Shares. However, there may be insufficient Shares
available in the market to make distributions in Shares at prices below the
net asset value. Also, since the Trust does not redeem its Shares, the
price on resale may be more or less than the net asset value.
See "Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the
Trust reserves the right to amend the Plan to include a service charge
payable by the participants.
All correspondence concerning the Plan should be directed to the Plan
Agent at _________________________.
CUSTODIAN AND
TRANSFER AND DIVIDEND DISBURSING AGENT
____________________________, will act as the Trust's Custodian. The
Custodian may employ sub-custodians outside the U.S. approved by the Board
of Trustees in accordance with regulations under the Investment Company
Act. __________________ will act as the Trust's Transfer and Dividend
Disbursing Agent.
DESCRIPTION OF SHARES
The Trust is a newly organized unincorporated business trust under
the laws of Delaware pursuant to an Agreement and Trust Agreement (the
"Trust Agreement") dated August __, 1998. The Trust is authorized to issue
an unlimited number of shares of beneficial interest, par value $.001 per
share ("Shares"). Each share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Trust shares are of one class and have equal rights as to
dividends and in liquidation. The Trust may reclassify Shares as preferred
shares, with such rights and designations as the Board of Trustees shall
determine. Shares have no preemptive, subscription or conversion rights and
are freely transferable. The Trust will send annual and semi-annual
financial statements to all its Shareholders.
The Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed
by the Trust or a Trustee. The Trust Agreement provides for indemnification
from the Trust's property for all losses and expenses of any shareholder
held personally liable for the obligations of the Trust. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to
meet its obligations, a possibility which management believes is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying
such liability will be entitled to reimbursement from the general assets of
the Trust. The Trust intends to conduct its operations in such a way so as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Trust has no present intention of offering additional Shares,
except as described herein and under the Automatic Dividend Reinvestment
Plan, as it may be amended from time to time. See "Automatic Dividend
Reinvestment Plan." Other offerings of its Shares, if made, will require
approval of the Trust's Board of Trustees. Any additional offering will not
be sold at a price per Share below the then current net asset value
(exclusive of underwriting discounts and commissions) except in connection
with an offering to existing Shareholders or with the consent of a majority
of the Trust's outstanding Shares.
The Trust intends to apply to list the Shares on the New York Stock
Exchange under the symbol " ."
ANTI-TAKEOVER PROVISIONS
The Trust's Agreement and Declaration of Trust (the "Trust
Agreement") includes provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Trust or to
change the composition of its Board of Trustees, and could have the effect
of depriving Shareholders of an opportunity to sell their Shares at a
premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Trust. These provisions may have the
effect of discouraging attempts to acquire control of the Trust, which
attempts could have the effect of increasing the expenses of the Trust and
interfering with the normal operation of the Trust. The Board of Trustees
is divided into three classes, with the terms of one class expiring at each
annual meeting of Shareholders. At each annual meeting, one class of
Trustees is elected to a three-year term. This provision could delay for up
to two years the replacement of a majority of the Board of Trustees. A
Trustee may be removed from office only for cause [by a written instrument
signed by at least two thirds of the remaining Trustees] or by a vote of
the holders of at least two-thirds of the Shares.
In addition, the Trust Agreement requires the favorable vote of the
holders of at least 75% of the outstanding Shares of each class of the
Trust, voting as a class, then entitled to vote to approve, adopt or
authorize certain transactions with 5%-or-greater holders of a class of
Shares and their associates, unless the Board of Trustees shall by
resolution have approved a memorandum of understanding with such holders,
in which case normal voting requirements would be in effect. For purposes
of these provisions, a 5%-or-greater holder of a class of Shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and
associates, beneficially owns 5% or more of the outstanding shares of any
class of beneficial interest of the Trust. The transactions subject to
these special approval requirements are: (i) the merger or consolidation of
the Trust or any subsidiary of the Trust with or into any Principal
Shareholder; (ii) the issuance of any securities of the Trust to any
Principal Shareholder for cash (except pursuant to the Automatic Dividend
Reinvestment Plan); (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Trust to any Principal Shareholder
(except assets having an aggregate fair market value of less than
$1,000,000, aggregating for the purpose of such computation all assets
sold, leased or exchanged in any series of similar transactions within
twelve-month period); or (iv) the sale, lease or exchange to the Trust or
any subsidiary thereof, in exchange for securities of the Trust, of any
assets of any Principal Shareholder (except assets having an aggregate fair
market value of less than $1,000,000, aggregating for the purposes of such
computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board of Trustees has determined that provisions with respect to
the Board of Trustees and the 75% voting requirements described above (and
the requirements relating to conversion to an open-end Trust described
below), which voting requirements are greater than the minimum requirements
under Delaware law or the Investment Company Act, are in the best interest
of Shareholders generally. Reference should be made to the Trust Agreement
on file with the SEC for the full text of these provisions.
CLOSED-END TRUST STRUCTURE
The Trust has been organized as a closed-end management investment
company (commonly referred to as a closed-end fund). Closed-end funds
differ from open-end management investment companies (commonly referred to
as mutual funds) in that closed-end funds generally list their shares for
trading on a securities exchange and do not redeem their shares at the
option of the shareholder. By comparison, mutual funds issue securities
redeemable at net asset value at the option of the shareholder and
typically engage in a continuous offering of their shares. Mutual funds are
subject to continuous asset in-flows and out-flows that can complicate
portfolio management, whereas closed-end funds generally can stay more
fully invested in securities consistent with the closed-end fund's
investment objective and policies. In addition, in comparison to open-end
funds, closed-end funds have greater flexibility in the employment of
financial leverage and in the ability to make certain types of investments,
such as investments in illiquid securities. However, shares of closed-end
funds frequently trade at a discount from their net asset value.
In recognition of the possibility that the Shares might trade at a
discount to net asset value and that any such discount may not be in the
interests of Shareholders, the Trust's Board of Trustees might consider
open market repurchases or tender offers for Shares at net asset value.
There can be no assurance that the Board of Trustees will decide to
undertake any of these actions or that, if undertaken, such actions would
result in the Shares trading at a price equal or close to net asset value
per Share. The Board of Trustees might also consider the conversion of the
Trust to an open-end mutual fund. The Board of Trustees believes, however,
that the closed-end structure is desirable, given the Trust's investment
objective and policies. Investors should assume, therefore, that it is
unlikely that the Board of Trustees would vote to convert the Trust to an
open-end investment company.
CONVERSION TO OPEN-END TRUST
The Trust may be converted to an open-end investment company at any
time by an amendment to the Trust Agreement. The Trust Agreement provides
that such an amendment would require the approval of two-thirds of the
Trust's outstanding shares (including any preferred shares) entitled to
vote on the matter, voting as a single class (or a majority of such shares
if the amendment previously was approved, adopted or authorized by at least
two-thirds of the total number of Trustees) and, assuming the Trust has
issued preferred shares, by the affirmative vote of a majority of
outstanding shares, voting as a separate class. Such a vote also would
satisfy a separate requirement in the Investment Company Act that the
change be approved by the shareholders. If approved in the foregoing
manner, conversion of the Trust could not occur until 90 days after the
Shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all Shareholders. Conversion of
the Trust to an open- end investment company would require the redemption
of any outstanding preferred shares and any indebtedness not constituting
bank loans, which could eliminate or alter the leveraged capital structure
of the Trust with respect to the Shares. Following any such conversion, it
is also possible that certain of the Trust's investment policies and
strategies would have to be modified to assure sufficient portfolio
liquidity. In particular, the Trust would be required to maintain its
portfolio such that not more than 15% of its assets would be invested in
illiquid securities, or other illiquid assets, or securities which are
restricted as to resale. Such requirement could cause the Trust to dispose
of portfolio securities or other assets at a time when it is not
advantageous to do so, and could adversely affect the ability of the Trust
to meet its investment objectives. In the event of conversion, the Shares
would cease to be listed on the New York Stock Exchange or other national
securities exchange or market system. Shareholders of an open-end
investment company may require the company to redeem their shares at any
time (except in certain circumstances as authorized by or under the
Investment Company Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. The
Trust expects to pay all such redemption requests in cash, but intends to
reserve the right to pay redemption requests in a combination of cash or
securities. if such partial payment in securities were made, investors may
incur brokerage costs in converting such securities to cash. If the Trust
were converted to an open-end fund, it is likely that new Shares will be
sold at net asset value plus a sales load.
REPURCHASE OF SHARES
Shares of closed-end investment companies often trade at a discount
to their net asset values, and the Trust's Shares may likewise trade at a
discount to their net asset value, although it is possible that they may
trade at a premium above net asset value. The market price of the Trust's
Shares will be determined by such factors as relative demand for and supply
of such Shares in the market, the Trust's net asset value, general market
and economic conditions and other factors beyond the control of the Trust.
See "Determination of Net Asset Value." Although the Trust's Shareholders
will not have the right to redeem their Shares, the Trust may take action
to repurchase Shares in the open market or make tender offers for its
Shares at their net asset value. This may have the effect of reducing any
market discount from net asset value.
There is no assurance that, if action is undertaken to repurchase or
tender for Shares, such action will result in the Shares' trading at a
price which approximates their net asset value. Although Share repurchases
and tenders could have a favorable effect on the market price of the
Trust's Shares, it should be recognized that the acquisition of Shares by
the Trust will decrease the total assets of the Trust and, therefore, have
the effect of increasing the Trust's expense ratio. Any Share repurchases
or tender offers will be made in accordance with requirements of the
Securities Exchange Act of 1934, as amended, and the Investment Company
Act.
DISTRIBUTION
The Dealer Managers named below (the "Dealer Managers"), for whom
____________________ and _________________ are acting as representatives
(the "Representatives") have severally agreed, subject to the terms and
conditions contained in the Dealer Manager Agreement with the Trust and the
Investment Adviser (the "Dealer Manager Agreement"), to purchase from the
Trust the number of Shares set forth below opposite their respective names.
DEALER MANAGER NUMBER OF SHARES
-------------- ----------------
Total
================
The Trust is obligated to sell, and the Dealer Managers are obligated
to purchase, all of the Shares offered hereby, if any are purchased.
As set forth in the notes to the table on the cover page of this
Prospectus, BlackRock (or an affiliate) has agreed from its assets to pay
to the Underwriters out of its own assets additional compensation in the
gross amount of $___ per Share (___% of the Subscription Price per Share)
or an aggregate amount of $___________ ($_________ assuming full exercise
of the over-allotment option) for all Shares covered by this Prospectus.
Such payment will be the legal obligation of BlackRock (or an affiliate)
and made out of its own assets and will not in any way represent an
obligation of the Trust or its Shareholders. The Dealer Managers, through
the Representatives have advised the Trust that the Dealer Managers may pay
up to $___ per Share from such payment received from BlackRock to certain
dealers who sell the Shares and that the Dealer Managers and such dealers
may reallow a concession of up to $___ per Share to certain other dealers.
The Trust has granted to the Dealer Managers an option, exercisable
for [45] days from the date of this Prospectus to purchase up to an
additional Shares at the initial public offering price set forth on
the cover page of this Prospectus. Such option may be exercised at any time
or from time to time during such [45] day period, but no more than three
times. The Dealer Managers may exercise such option solely for the purpose
of covering over-allotments incurred in the sale of the Shares offered
hereby. To the extent such option to purchase is exercised, each Dealer
Manager will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional Shares as the number
set forth next to such Dealer Manager's name in the preceding table bears
to .
The Trust and the Investment Adviser have each agreed to indemnify
the several Dealer Managers or to contribute to the losses arising out of
certain liabilities, including liabilities under the Securities Act.
The Representatives have informed the Trust that the Dealer Managers
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
In order to meet the requirements for listing the Shares on the New
York Stock Exchange, the Dealer Managers have undertaken to sell lots of
100 or more Shares to a minimum of 2,000 beneficial holders. The minimum
investment requirement is 100 Shares ($1,500).
Prior to this offering there has been no public market for the Shares
or any other securities of the Trust. Consequently, the initial public
offering price has been determined by negotiation among the Trust, the
Investment Adviser and the Representatives. Prior to completion of this
offering, the Investment Adviser will control the Trust.
The Dealer Managers may take certain actions to discourage short-term
trading of Shares during a period of time following the initial offering
date. Included in these actions is the withholding of the concession and
other payments to dealers in connection with Shares which were sold by such
dealers and which are repurchased for the account of the Dealer Managers
during such period. In addition, physical delivery of certificates
representing Shares is required to transfer ownership of Shares for a
certain period.
Under the terms of and subject to the conditions of the Dealer
Manager Agreement, the Dealer Managers are committed to purchase and pay
for all Shares offered hereby if any are purchased. The Dealer Manager
Agreement provides that it may be terminated at or prior to the closing
date for the purchase of the Shares if, in the judgment of the
Representatives, payment for the delivery of the Shares is rendered
impracticable or inadvisable because (1) trading in the equity securities
of the Trust is suspended by the Securities and Exchange Commission, by an
exchange that lists the Shares, or by the National Association of
Securities Dealers Automated Quotation National Market System, (2)
additional material governmental restrictions, not in force on the date of
the Dealer Manager Agreement, have been imposed upon trading in securities
generally or trading in securities generally has been suspended on any U.S.
securities exchange, or a general banking moratorium has been established
by Federal or New York authorities, or (3) any outbreak or material
escalation of hostilities or other calamity or crisis occurs, the effect of
which is such as to make it impracticable to market any or all of the
Shares. The Dealer Manager Agreement also may be terminated if any of the
conditions specified in the Dealer Manager Agreement have not been
fulfilled when and as required by such agreement.
The Trust anticipates that certain of the Representatives and certain
other Dealer Managers may from time to time act as brokers or dealers in
connection with the execution of its portfolio transactions after they have
ceased to be Dealer Manager and, subject to certain restrictions, may act
as such brokers while they are Dealer Managers. See "Management of the
Trust."
Until the distribution of the Shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the Dealer
Managers and certain soliciting dealers to bid for and purchase the Shares
in the open market or otherwise. As an exception to these rules, the Dealer
Managers are permitted to engage in certain transactions that stabilize the
price of the Shares. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Shares. If the
Dealer Managers create a short position in the Shares, i.e., if they sell
more Shares than are set forth on the cover page of the Prospectus, then
the Dealer Managers may reduce that short position by purchasing Shares in
the open market. The Trust has granted to the Dealer Managers an option,
exercisable for [45] days from the Expiration Date, to purchase up to an
additional __________ Shares to cover over-allotments, if any, at the
Subscription Price. The Dealer Managers may exercise such option solely to
for the purpose of covering over-allotments incurred in the sale of the
Shares. The Dealer Managers may also elect to reduce their short position
by exercising all or a part of such over-allotment option. In general,
purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of the security to be higher than it
might be in the absence of such purchases. In addition, the
Representatives, on behalf of the Dealer Managers, may impose "penalty
bids" under contractual arrangements with the Dealer Managers whereby they
may reclaim from a Dealer Manager (or other dealer participating in this
offer) for the account of the other Dealer Managers, the selling concession
with respect to the Shares that are distributed by the Dealer Managers but
subsequently purchased for the account of the Dealer Managers in the open
market.
ADDITIONAL INFORMATION
Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Trust's Registration Statement. Each such
statement is qualified in all respects by such reference and the exhibits
and schedules thereto. The Trust's Registration Statement and such exhibits
and schedules may be obtained from the SEC at its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the SEC. The SEC maintains a website at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Trust, that file electronically with
the SEC. The Trust's Shares have been approved for listing on the NYSE
under the symbol "_____," subject to official notice of issuance and, as
such, similar information concerning the Trust will be available for
inspection and copy at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
The Trust intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by independent
certified public accountants.
LEGAL OPINIONS
Certain legal matters in connection with the Shares offered hereby
will be passed upon for the Trust and its affiliated entities by Skadden,
Arps, Slate, Meagher & Flom LLP, and for the Dealer Managers by Cleary,
Gottlieb, Steen & Hamilton.
EXPERTS
The statement of assets, liabilities and capital of the Trust
included in this Prospectus has been so included in reliance upon the
report of Deloitte and Touche LLP, independent auditors, and on their
authority as experts in auditing and accounting.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholder of
The BlackRock High Yield Trust
We have audited the accompanying statement of assets and liabilities of The
BlackRock High Yield Trust (the "Trust") as of December __, 1998. This
financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the Trust as of
December __, 1998, in conformity with generally accepted accounting
principles.
December__, 1998
STATEMENT OF ASSETS AND LIABILITIES
ASSETS:
Cash............................................. $
Deferred Organizational Expenses (Note 3)........
-----------------
Total Assets..........................
LIABILITIES:
Organization Expenses Payable..................... ------------------
Commitments and contingencies (Notes 2 and 3)
Net Assets, equivalent to _______ shares of
beneficial interest issued and outstanding,
par value $.001, unlimited authorized
shares......................................... $
=================
Note 1. Organization
The BlackRock High Yield Trust (the "Trust") was organized as a
Delaware business trust on August __, 1998 and is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940. The Trust has had no operations other than the sale to
BlackRock, Inc. (the "Investment Adviser") of _____________ shares of
beneficial interest for $________ on December __, 1998.
Note 2. Agreements
The Trust has entered into an Investment Advisory Agreement with the
Investment Adviser. The Trust will pay the Investment Adviser a monthly fee
at an annual rate of 1.05% of the average weekly value of the Trust's
Managed Assets. The Trust has also entered into an Administration Agreement
with BlackRock Financial Management Inc. and ____________________, which
provides for payment of a monthly fee to each of the foregoing at an annual
rate of 0.05% of the average weekly value of the Trust's Managed Assets.
Note 3. Deferred Organization Costs
The Investment Adviser has advanced certain organization and start-up
costs of the Trust and is to be reimbursed by the Trust. On April 3, 1998,
Statement of Position 98-5 was issued. This Statement of Position requires
that unamortized organization costs on the Trust's statement of assets and
liabilities be written off, effective for fiscal years beginning after
December 15, 1998. In accordance with Statement of Position 98-5, these
organization and start-up costs will be immediately expensed.
APPENDIX A
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS SERVICES:
AAA--Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A--Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB--Bonds rated BB have less near-term vulnerability to default than
other speculative grade debt. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments.
B--Bonds rated B have a greater vulnerability to default but
presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
CCC--Bonds rated CCC have a current identifiable vulnerability to
default and are dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, they
are not likely to have the capacity to pay interest and repay principal.
CC--The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating.
D--Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
DESCRIPTION OF BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and generally are
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the Trustamentally strong position
of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, therefore, not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period
of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca present obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF HEDGING TRANSACTIONS
In order to hedge against changes in the value of its portfolio
securities, the Trust may from time to time engage in certain hedging
strategies. The Trust will engage in such activities from time to time in
the Investment Adviser's discretion, and may not necessarily be engaging in
such activities when movements in interest rates that could affect the
value of the assets of the Trust occur. The Trust's ability to pursue
certain of these strategies may be limited by the Commodity Exchange Act,
applicable regulations of the Commodity Futures Trading Commission ("CFTC")
and the federal income tax requirements applicable to regulated investment
companies.
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Trust may purchase and sell put and call options on securities
and financial indices. A put option gives the purchaser of the option the
right to sell and the seller the obligation to buy the underlying security
at the exercise price during the option period. Index options are similar
to options on securities except that, rather than taking or making delivery
of securities underlying the option at a specified price upon exercise, an
index option gives the holder the right to receive cash upon exercise of
the option if the level of the index upon which the option is based is
greater, in the case of a call, or less, in the case of a put, than the
exercise price of the option. The purchase of a put option on a debt
security would be designed to protect the Trust's holdings in a security
against a substantial decline in the market value. A call option gives the
purchaser of the option the right to buy and the seller the obligation to
sell the underlying security at the exercise price during the option
period. The purchase of a call option on a security would be intended to
protect the Trust against an increase in the price of a security that it
intended to purchase in the future. In the case of either put or call
options that it has purchased, if the option expires without being sold or
exercised, the Trust will experience a loss in the amount of the option
premium plus any related commissions. When the Trust sells put and call
options, it receives a premium as the seller of the option. The premium
that the Trust receives for selling the option will serve as a partial
hedge, in the amount of the option premium, against changes in the value of
the securities in its portfolio. During the term of the option, however, a
covered call seller has, in return for the premium on the option, given up
the opportunity for capital appreciation above the exercise price of the
option if the value of the underlying security increases, but has retained
the risk of loss should the price of the underlying security decline.
Conversely, a secured put seller retains the risk of loss should the market
value of the underlying security decline below the exercise price of the
option, less the premium received on the sale of the option. The Trust is
authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC Options") which are privately negotiated
with the counterparty to such contract. Listed options are issued by the
Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. All put and call options
written by the Trust will be covered.
The Trust's ability to close out its position as a purchaser or
seller of an exchange-listed put or call option is dependent upon the
existence of a liquid secondary market. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange
or OCC to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange
(or in that class or series of options) would cease to exist, although
outstanding options on that exchange that had been listed by the OCC as a
result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. OTC Options are purchased from
or sold to dealers, financial institutions or other counterparties which
have entered into direct agreements with the Trust. With OTC Options, such
variables as expiration date, exercise price and premium will be agreed
upon between the Trust and the counterparty, without the intermediation of
a third party such as the OCC. If the counterparty fails to make or take
delivery of the securities underlying an option it has written, or
otherwise settle the transaction in accordance with the terms of that
option as written, the Trust would lose the premium paid for the option as
well as any anticipated benefit of the transaction. As the Trust must rely
on the credit quality of the counterparty rather than the guarantee of the
OCC, it will only enter into OTC Options with counterparties with the
highest long-term credit ratings, and with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
The hours of trading for options on debt securities may not conform
to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FORWARD CURRENCY CONTRACTS
The Trust may enter into forward currency contracts to purchase or
sell foreign currencies for a fixed amount of U.S. dollars or another
foreign currency. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any
fixed number of days (term) from the date of the forward currency contract
agreed upon by the parties, at a price set at the time the forward currency
contract is entered into. Forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their
customers.
The Trust may purchase a forward currency contract to lock in the
U.S. dollar price of a security denominated in a foreign currency that the
Trust intends to acquire. The Trust may sell a forward currency contract to
lock in the U.S. dollar equivalent of the proceeds from the anticipated
sale of a security or a dividend or interest payment denominated in a
foreign currency. The Trust may also use forward currency contracts to
shift the Trust's exposure to foreign currency exchange rate changes from
one currency to another. For example, if the Trust owns securities
denominated in a foreign currency and BlackRock believes that currency will
decline relative to another currency, it might enter into a forward
currency contract to sell the appropriate amount of the first foreign
currency with payment to be made in the second currency. The Trust may also
purchase forward currency contracts to enhance income when BlackRock
anticipates that the foreign currency will appreciate in value but
securities denominated in that currency do not present attractive
investment opportunities.
The Trust may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign
currency. Such a hedge would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values
caused by other factors. The Trust could also hedge the position by
entering into a forward currency contract to sell another currency expected
to perform similarly to the currency in which the Trust's existing
investments are denominated. This type of hedge could offer advantages in
terms of cost, yield or efficiency, but may not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. This type of hedge may
result in losses if the currency used to hedge does not perform similarly
to the currency in which the hedged securities are denominated.
The Trust may also use forward currency contracts in one currency or
a basket of currencies to attempt to hedge against fluctuations in the
value of securities denominated in a different currency if BlackRock
anticipates that there will be a correlation between the two currencies.
The cost to the Trust of engaging in forward currency contracts
varies with factors such as the currency involved, the length of the
contract period and the market conditions then prevailing. Because forward
currency contracts are usually entered into on a principal basis, no fees
or commissions are involved. When the Trust enters into a forward currency
contract, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract. Failure by the
counterparty to do so would result in the loss of some or all of any
expected benefit of the transaction.
Secondary markets generally do not exist for forward currency
contracts, with the result that closing transactions generally can be made
for forward currency contracts only by negotiating directly with the
counterparty. Thus, there can be no assurance that the Trust will in fact
be able to close out a forward currency contract at a favorable price prior
to maturity. In addition, in the event of insolvency of the counterparty,
the Trust might be unable to close out a forward currency contract. In
either event, the Trust would continue to be subject to market risk with
respect to the position, and would continue to be required to maintain a
position in securities denominated in the foreign currency or to maintain
cash or liquid assets in a segregated account.
The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because the
value of such securities, measured in the foreign currency, will change
after the forward currency contract has been established. Thus, the Trust
might need to purchase or sell foreign currencies in the spot (cash) market
to the extent such foreign currencies are not covered by forward currency
contracts. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Characteristics. The Trust may purchase and sell futures contracts
and purchase put and call options on such futures contracts traded on
recognized domestic exchanges as a hedge against anticipated interest rate
changes or other market movements and future risk management. The sale of a
futures contract creates an obligation by the Trust, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specified future time for a specified price. Options on futures contracts
are similar to options on securities except that an option on a futures
contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or
sold, the Trust must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial margin that the Trust
will pay may range from approximately 1% to approximately 5% of the value
of the instruments underlying the contract. In certain circumstances,
however, such as periods of high volatility, the Trust may be required by
an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased in the future
pursuant to regulatory action. An outstanding futures contract is valued
daily and the payment in cash of "variation margin" may be required, a
process known as "marking to the market." Transactions in listed options
and futures are usually settled by entering into an offsetting transaction,
and are subject to the risk that the position may not be able to be closed
if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Trust's use of futures contracts and options on futures
contracts will in all cases be consistent with applicable regulatory
requirements and in particular, the rules and regulations of the CFTC and
will be entered into only for bona fide hedging purposes or other
appropriate risk management and duration management or other appropriate
portfolio strategies. In addition, the Trust may not sell futures contracts
if the value of such futures contracts exceeds the total market value of
the Trust's portfolio securities.
The Trust will not engage in transactions in futures contracts or
options thereon for speculative purposes but only as a hedge against
changes resulting from market conditions in the values of securities in its
portfolio. In addition, the Trust will not enter into a futures contract or
option thereon if, immediately thereafter, the sum of the amount of its
initial deposits and premiums on open contracts and options would exceed 5%
of the Trust's total assets (taken at current value); provided, however,
that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to
the market value of the contract. The Adviser reserves the right to comply
with such different standards as may be established from time to time by
CFTC rules and regulations with respect to the purchase and sale of futures
contracts and options thereon.
Segregation and Cover Requirements. Futures contracts, interest rate
swaps, caps, floors and collars, and options on securities, indices and
futures contracts sold by the Trust are generally subject to segregation
and coverage requirements established by either the CFTC or the Commission,
with the result that, if the Trust does not hold the instrument underlying
the futures contract or option, the Trust will be required to segregate on
an ongoing basis with its custodian, cash, U.S. Government securities, or
other liquid high grade debt obligations in an amount at least equal to the
Trust's obligations with respect to such instruments. Such amounts will
fluctuate as the market value of the obligations increases or decreases.
The segregation requirement can result in the Trust maintaining positions
it would otherwise liquidate and consequently segregating assets with
respect thereto at a time when it might be disadvantageous to do so.
------------------------
Hedging Transactions present certain risks. In particular, the
variable degree of correlation between price movements of hedging
instruments and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value
of the Trust's positions. In addition, certain hedging instruments and
markets may not be liquid in all circumstances. As a result, in volatile
markets, the Trust may not be able to close out a transaction in certain of
these instruments without incurring losses substantially greater than the
initial deposit. Although the contemplated use of these instruments should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The
ability of the Trust to hedge successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured.
Finally, the daily variation margin deposit requirements in futures
contracts that the Trust has sold create an ongoing greater potential
financial risk than do options transactions, where the exposure is limited
to the cost of the initial premium and transaction costs paid by the Trust.
Losses due to Hedging Transactions will reduce net asset value.
The Trust's investments in Hedging Transactions may be limited or
affected by certain provisions of the Code.
================================== ====================================
No person has been authorized to
give any information or to make
any representations other than
those contained in this Prospectus
and in the Trust's official sales
literature in connection with the
offer of the Trust's shares, and,
if given or made, such other SHARES
information or representations
must not be relied upon as having
been authorized by the Trust.
This Prospectus does not constitute
an offer in any State in which, or THE BLACKROCK
to any person to whom, such HIGH YIELD TRUST
offering may not lawfully be made.
----------------------
TABLE OF CONTENTS
Page
Prospectus Summary............
Fee Table..................... ----------------------
The Trust.....................
Use of Proceeds...............
Investment Objectives PROSPECTUS
and Policies................
Other Investment Practices....
Risk Factors and Special ----------------------
Considerations..............
Investment Restrictions.......
Terms of the Offering.........
Management of the Trust.......
Trustees and Officers.........
Portfolio Transactions........
Determination of Net
Asset Value.................
Dividends and
Distributions...............
Taxes.........................
Automatic Dividend
Reinvestment Plan...........
Custodian and Transfer
Agent and Dividend
Disbursing Agent............
Distribution..................
Description of Shares.........
Additional Information........
Legal Opinions................
Experts.......................
Independent Auditors' DECEMBER __, 1998
Report......................
Statement of Assets...........
Appendix A: Bond Ratings......A-1
Appendix B: General
Characteristics and
Risks of Hedging
Transactions................B-1
Appendix C: Subscription
Form........................
UNTIL ___, ALL DEALERS EFFECTING
TRANSACTIONS IN THIS REGISTERED
SECURITY WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR DEALER MANAGERS
AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================== ===================================
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
*Part A - Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B - None.
(2) Exhibits:
(a) Agreement and Declaration of Trust
(b) By-Laws
(c) Inapplicable
(d)* Form of Specimen Certificate
(e)* Form of Dividend Reinvestment Plan
(f) Inapplicable
(g)* Form of Investment Management and Administration Agreement
(h)* Form of Underwriting Agreement
(i) Inapplicable
(j)* Form of Custodian Agreement
(k) Inapplicable
(l)(i)* Opinion and Consent of Counsel to the Trust
(l)(ii)* Tax Opinion of Counsel to the Trust (Consent contained in
Exhibit (l)(i))
(m) Inapplicable
(n)* Consent of Independent Public Accountants
(o) Inapplicable
(p)* Initial Subscription Agreement
(q) Inapplicable
(r)* Financial Data Schedule
- -----------
* To be Filed by Amendment.
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for
Registrant's shares of beneficial interest to be filed by amendment to this
Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement:
Registration fees........................................... $ *
New York Stock Exchange listing fee......................... *
Printing (other than certificates).......................... *
Engraving and printing certificates......................... *
Fees and expenses of qualification under
state securities laws (excluding fees
of counsel)............................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
NASD fee.................................................... *
Miscellaneous............................................... *
Total................................................. $ *
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
Prior to August 10, 1998 the Trust had no existence. As of the
effective date, the Trust will have entered into a Subscription Agreement
for [ ] shares with [ ] and an Underwriting Agreement with respect to [ ]
shares with the Underwriters.
Item 28. Number of Holders of Shares
Number of
Title of class Record Holders
Shares of Beneficial Interest 0
Item 29. Indemnification
Article V of the Registrant's Agreement and Declaration of Trust provides
as follows:
Section 5.1. No Shareholder of the Trust shall be subject in such
capacity to any personal liability whatsoever to any Person in connection
with Trust Property or the acts, obligations or affairs of the Trust.
Shareholders shall have the same limitation of personal liability as is
extended to stockholders of a private corporation for profit incorporated
under the general corporation law of the State of Delaware. No Trustee or
officer of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the
Trust, save only liability to the Trust or its Shareholders arising from
bad faith, willful misfeasance, gross negligence (negligence in the case of
those Trustees or officers who are directors, officers or employees of the
Trust's investment advisor ("Affiliated Indemnitees")) or reckless
disregard for his duty to such Person; and, subject to the foregoing
exception, all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs
of the Trust. If any Shareholder, Trustee or officer, as such, of the
Trust, is made a party to any suit or proceeding to enforce any such
liability, subject to the foregoing exception, he shall not, on account
thereof, be held to any personal liability.
Section 5.2. a. The Trust hereby agrees to indemnify the Trustees and
officers of the Trust (each such person being an "indemnitee") against any
liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable counsel
fees reasonably incurred by such indemnitee in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while acting in any capacity set
forth above in this Section 5.2 by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall not have
acted in good faith in the reasonable belief that his action was in the
best interest of the Trust or, in the case of any criminal proceeding, as
to which he shall have had reasonable cause to believe that the conduct was
unlawful, provided, however, that no indemnitee shall be indemnified
hereunder against any liability to any person or any expense of such
indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith,
(iii) gross negligence (negligence in the case of Affiliated Indemnitees),
or (iv) reckless disregard of the duties involved in the conduct of his
position (the conduct referred to in such clauses (i) through (iv) being
sometimes referred to herein as "disabling conduct"). Notwithstanding the
foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding
by such indemnitee was authorized by a majority of the Trustees.
b. Notwithstanding the foregoing, no indemnification shall be made
hereunder unless there has been a determination (1) by a final decision on
the merits by a court or other body of competent jurisdiction before whom
the issue of entitlement to indemnification hereunder was brought that such
indemnitee is entitled to indemnification hereunder or, (2) in the absence
of such a decision, by (i) a majority vote of a quorum of those Trustees
who are neither "interested persons" of the Trust (as defined in Section
2(a)(19) of the 1940 Act) nor parties to the proceeding ("Disinterested
Non-Party Trustees"), that the indemnitee is entitled to indemnification
hereunder, or (ii) if such quorum is not obtainable or even if obtainable,
if such majority so directs, independent legal counsel in a written opinion
conclude that the indemnitee should be entitled to indemnification
hereunder. All determinations to make advance payments in connection with
the expense of defending any proceeding shall be authorized and made in
accordance with the immediately succeeding paragraph (c) below.
c. The Trust shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification
might be sought hereunder if the Trust receives a written affirmation by
the indemnitee of the indemnitee's good faith belief that the standards of
conduct necessary for indemnification have been met and a written
undertaking to reimburse the Trust unless it is subsequently determined
that he is entitled to such indemnification and if a majority of the
Trustees determine that the applicable standards of conduct necessary for
indemnification appear to have been met. In addition, at least one of the
following conditions must be met: (1) the indemnitee shall provide adequate
security for his undertaking, (2) the Trust shall be insured against losses
arising by reason of any lawful advances, or (3) a majority of a quorum of
the Disinterested Non-Party Trustees, or if a majority vote of such quorum
so direct, independent legal counsel in a written opinion, shall conclude,
based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is substantial reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
d. The rights accruing to any indemnitee under these provisions shall
not exclude any other right to which he may be lawfully entitled.
e. Subject to any limitations provided by the 1940 Act and this
Declaration, the Trust shall have the power and authority to indemnify
other Persons providing services to the Trust to the full extent provided
by law as if the Trust were a corporation organized under the Delaware
General Corporation Law provided that such indemnification has been
approved by a majority of the Trustees.
Insofar as indemnification for liabilities arising under the Act, may
be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Not Applicable
Item 31. Location of Accounts and Records
The Trust's accounts, books and other documents are currently located
at the offices of the Registrant, c/o BlackRock Inc., 345 Park Avenue, New
York, New York 10154 and at the offices of __________, the Registrant's
Custodian and _________, the Registrant's Transfer Agent and Dividend
Disbursing Agent.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend offering of its units
until it amends its prospectus if (1) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Act, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective; (ii)
for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York,
on the 9th day of September, 1998.
/s/Ralph L. Schlosstein
-----------------------
Ralph L. Schlosstein
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the 9th day of September, 1998.
Name Title
/s/Andrew F. Brimmer Trustee
- -----------------------------
Andrew F. Brimmer
/s/Richard E. Cavanagh Trustee
- -----------------------------
Richard E. Cavanagh
/s/Kent Dixon Trustee
- -----------------------------
Kent Dixon
/s/Frank J. Fabozzi Trustee
- -----------------------------
Frank J. Fabozzi
/s/Laurence D. Fink Trustee
- -----------------------------
Laurence D. Fink
/s/James Grosfeld Trustee
- -----------------------------
James Grosfeld
/s/James Clayburn LaForce, Jr. Trustee
- -----------------------------
James Clayburn LaForce, Jr.
/s/Walter F. Mondale Trustee
- -----------------------------
Walter F. Mondale
/s/Ralph L. Schlosstein Trustee and President
- ----------------------------- (Chief Executive Officer)
Ralph L. Schlosstein
/s/Henry Gabbay Treasurer (Principal
- ----------------------------- Financial and Accounting
Henry Gabbay Officer)
EXHIBIT INDEX
(a) Agreement and Declaration of Trust
(b) By-Laws
THE BLACKROCK HIGH YIELD TRUST
____________________________________________
AGREEMENT AND DECLARATION OF TRUST
____________________________________________
AUGUST 10, 1998
TABLE OF CONTENTS
ARTICLE I
The Trust
1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
Trustees
2.1 Number and Qualification . . . . . . . . . . . . . . . . . . . . . 4
2.2 Term and Election . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Resignation and Removal . . . . . . . . . . . . . . . . . . . . . 5
2.4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
Powers and Duties of Trustees
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Legal Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Issuance and Repurchase of Shares . . . . . . . . . . . . . . . . 9
3.5 Borrow Money or Utilize Leverage . . . . . . . . . . . . . . . . . 9
3.6 Delegation; Committees . . . . . . . . . . . . . . . . . . . . . . 9
3.7 Collection and Payment . . . . . . . . . . . . . . . . . . . . . 10
3.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Miscellaneous Powers . . . . . . . . . . . . . . . . . . . . . . 11
3.11 Further Powers . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 Trustee Action by Written Consent . . . . . . . . . . . . . . . 12
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1 Advisory and Management Arrangements . . . . . . . . . . . . . . 12
4.2 Distribution Arrangements . . . . . . . . . . . . . . . . . . . 12
4.3 Parties to Contract . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
Limitations of Liability
and Indemnification
5.1 No Personal Liability of Shareholders,
Trustees, etc . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Mandatory Indemnification . . . . . . . . . . . . . . . . . . . 14
5.3 No Bond Required of Trustees . . . . . . . . . . . . . . . . . . 16
5.4 No Duty of Investigation; Notice in
Trust Instruments, etc. . . . . . . . . . . . . . . . . . . . 16
5.5 Reliance on Experts, etc . . . . . . . . . . . . . . . . . . . . 17
5.6 Indemnification of Shareholders . . . . . . . . . . . . . . . . 17
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Other Securities . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Rights of Shareholders . . . . . . . . . . . . . . . . . . . . . 18
6.4 Trust Only . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Register of Shares . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . 20
6.8 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VII
Custodians
7.1 Appointment and Duties . . . . . . . . . . . . . . . . . . . . . 21
7.2 Central Certificate System . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII
Redemption
8.1 Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.2 Disclosure of Holding . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
Determination of Net Asset Value
Net Income and Distributions
9.1 Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2 Distributions to Shareholders. . . . . . . . . . . . . . . . . . 23
9.3 Power to Modify Foregoing Procedures . . . . . . . . . . . . . . 24
ARTICLE X
Shareholders
10.1 Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . 25
10.2 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.3 Notice of Meeting and Record Date . . . . . . . . . . . . . . . 26
10.4 Quorum and Required Vote . . . . . . . . . . . . . . . . . . . . 26
10.5 Proxies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.7 Inspection of Records . . . . . . . . . . . . . . . . . . . . . 28
10.8 Shareholder Action by Written Consent . . . . . . . . . . . . . 28
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Amendment Procedure. . . . . . . . . . . . . . . . . . . . . . . 29
11.4 Merger, Consolidation and Sale of Assets . . . . . . . . . . . . 31
11.5 Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.6 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.7 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII
Miscellaneous
12.1 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.2 Resident Agent . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.5 Reliance by Third Parties . . . . . . . . . . . . . . . . . . . 35
12.6 Provisions in Conflict with Law or
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 36
THE BLACKROCK HIGH YIELD TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made as of the 10th day of
August, 1998, by the Trustees hereunder, and by the holders of shares of
beneficial interest issued hereunder as hereinafter provided.
WHEREAS, this Trust has been formed to carry on business as set
forth more particularly hereinafter;
WHEREAS, this Trust is authorized to issue an unlimited number of
its shares of beneficial interest all in accordance with the provisions
hereinafter set forth;
WHEREAS, the Trustees have agreed to manage all property coming
into their hands as Trustees of a Delaware business trust in accordance
with the provisions hereinafter set forth; and
WHEREAS, the parties hereto intend that the Trust created by this
Declaration and the Certificate of Trust filed with the Secretary of State
of the State of Delaware on August __, 1998 shall constitute a business
trust under the Delaware Business Trust Act and that this Declaration shall
constitute the governing instrument of such business trust.
NOW, THEREFORE, the Trustees hereby declare that they will hold
all cash, securities, and other assets which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose
of the same upon the following terms and conditions for the benefit of the
holders from time to time of shares of beneficial interest in this Trust as
hereinafter set forth.
ARTICLE I
The Trust
1.1 Name. This Trust shall be known as the "THE BLACKROCK HIGH
YIELD TRUST" and the Trustees shall conduct the business of the Trust under
that name or any other name or names as they may from time to time
determine.
1.2 Definitions. As used in this Declaration, the following
terms shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act.
"By-Laws" shall mean the By-Laws of the Trust as amended from
time to time by the Trustees.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"Commission" shall mean the Securities and Exchange Commission.
"Declaration" shall mean this Agreement and Declaration of Trust,
as amended or amended and restated from time to time.
"Delaware Business Trust Statute" shall mean the provisions of
the Delaware Business Trust Act, 12 Del. C. section3801, et. seq., as such
Act may be amended from time to time.
"Fundamental Policies" shall mean the investment policies and
restrictions as set forth from time to time in any Prospectus or contained
in any current Registration Statement of the Trust filed with the
Commission or as otherwise adopted by the Trustees and the Shareholders in
accordance with the requirements of the 1940 Act and designated as
fundamental policies therein as they may be amended in accordance with the
requirements of the 1940 Act.
"Majority Shareholder Vote" shall mean a vote of a majority of
the outstanding voting securities (as such term is defined in the 1940 Act)
of the Trust.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, limited liability companies, associations, joint
ventures and other entities, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of the
Trust, if any, under the Securities Act of 1933, as amended.
"Shareholders" shall mean as of any particular time the holders
of record of outstanding Shares of the Trust, at such time.
"Shares" shall mean the transferable units of beneficial interest
into which the beneficial interest in the Trust shall be divided from time
to time and includes fractions of Shares as well as whole Shares. In
addition, Shares also means any preferred shares or preferred units of
beneficial interest which may be issued from time to time, as described
herein. All references to Shares shall be deemed to be Shares of any or
all Series or classes as the context may require.
"Trust" shall mean the trust established by this Declaration, as
amended from time to time, inclusive of each such amendment.
"Trustees" shall mean the signatories to this Declaration, so
long as they shall continue in office in accordance with the terms hereof,
and all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the provisions
hereof and are then in office.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees in such
capacity.
The "1940 Act" refers to the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder and exemptions granted
therefrom, as amended from time to time.
ARTICLE II
Trustees
2.1 Number and Qualification. Prior to a public offering of
Shares there may be a sole Trustee. Thereafter, the number of Trustees
shall be no less than three or more than fifteen, provided, however, that
the number of Trustees may be increased or decreased by a written
instrument signed by a majority of the Trustees then in office. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. An individual
nominated as a Trustee shall be at least 21 years of age and not older than
80 years of age at the time of nomination and not under legal disability.
Trustees need not own Shares and may succeed themselves in office.
2.2 Term and Election. The Board of Trustees shall be divided
into three classes, designated Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the total
number of trustees constituting the entire Board of Trustees. Within the
limits above specified, the number of the Trustees in each class shall be
determined by resolution of the Board of Trustees. The term of office of
all of the Trustees shall expire on the date of the first annual or special
meeting of Shareholders following the effective date of the Registration
Statement relating to the Shares under the Securities Act of 1933, as
amended. The term of office of the first class shall expire on the date of
the second annual meeting of Shareholders or special meeting in lieu
thereof. The term of office of the second class shall expire on the date
of the third annual meeting of Shareholders or special meeting in lieu
thereof. The term of office of the third class shall expire on the date of
the fourth annual meeting of Shareholders or special meeting in lieu
thereof. Upon expiration of the term of office of each class as set forth
above, the number of Trustees in such class, as determined by the Board of
Trustees, shall be elected for a term expiring on the date of the third
annual meeting of Shareholders or special meeting in lieu thereof following
such expiration to succeed the Trustees whose terms of office expire. The
Trustees shall be elected at an annual meeting of the Shareholders or
special meeting in lieu thereof called for that purpose, except as provided
in Section 2.3 of this Article and each Trustee elected shall hold office
until his or her successor shall have been elected and shall have
qualified.
2.3 Resignation and Removal. Any of the Trustees may resign
their trust (without need for prior or subsequent accounting) by an
instrument in writing signed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary and such resignation shall
be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the
aggregate number of Trustees after such removal shall not be less than the
minimum number required by Section 2.1 hereof) by the action of two-thirds
of the remaining Trustees or the holders of two thirds of the Shares. Upon
the resignation or removal of a Trustee, each such resigning or removed
Trustee shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of such resigning or removed
Trustee. Upon the incapacity or death of any Trustee, such Trustee's legal
representative shall execute and deliver on such Trustee's behalf such
documents as the remaining Trustees shall require as provided in the
preceding sentence.
2.4 Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation,
bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office, or removal, of a Trustee. Whenever a vacancy in the
Board of Trustees shall occur, the remaining Trustees may fill such vacancy
by appointing an individual having the qualifications described in this
Article by a written instrument signed by a majority of the Trustees then
in office or by election by the Shareholders, or may leave such vacancy
unfilled or may reduce the number of Trustees (provided the aggregate
number of Trustees after such reduction shall not be less than the minimum
number required by Section 2.1 hereof). Any vacancy created by an increase
in Trustees may be filled by the appointment of an individual having the
qualifications described in this Article made by a written instrument
signed by a majority of the Trustees then in office or by election by the
Shareholders. No vacancy shall operate to annul this Declaration or to
revoke any existing agency created pursuant to the terms of this
Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided herein, the Trustees in office,
regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by
this Declaration.
2.5 Meetings. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman, if any, the President, the Secretary
or any two Trustees. Regular meetings of the Trustees may be held without
call or notice at a time and place fixed by the By-Laws or by resolution of
the Trustees. Notice of any other meeting shall be mailed not less than 48
hours before the meeting or otherwise actually delivered orally or in
writing not less than 24 hours before the meeting, but may be waived in
writing by any Trustee either before or after such meeting. The attendance
of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting
has not been properly called or convened. The Trustees may act with or
without a meeting. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in this Declaration of
Trust, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a
meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive committee,
if any, may act with or without a meeting. A quorum for all meetings of
any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee
may be taken at a meeting by vote of a majority of the members present (a
quorum being present) or without a meeting by written consent of a majority
of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons in any action to be taken may
be counted for quorum purposes under this Section and shall be entitled to
vote to the extent not prohibited by the 1940 Act.
All or any one or more Trustees may participate in a meeting of
the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other; participation in a
meeting pursuant to any such communications system shall constitute
presence in person at such meeting.
2.6 Officers. The Trustees shall elect a President, a Secretary
and a Treasurer and may elect a Chairman who shall serve at the pleasure of
the Trustees or until their successors are elected. The Trustees may elect
or appoint or may authorize the Chairman, if any, or President to appoint
such other officers or agents with such powers as the Trustees may deem to
be advisable. A Chairman shall, and the President, Secretary and Treasurer
may, but need not, be a Trustee.
ARTICLE III
Powers and Duties of Trustees
3.1 General. The Trustees shall owe to the Trust and its
Shareholders the same fiduciary duties as owed by directors of corporations
to such corporations and their stockholders under the general corporation
law of the State of Delaware. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust
Property and business in their own right, but with such powers of
delegation as may be permitted by this Declaration. The Trustees may
perform such acts as in their sole discretion are proper for conducting the
business of the Trust. The enumeration of any specific power herein shall
not be construed as limiting the aforesaid power. Such powers of the
Trustees may be exercised without order of or resort to any court.
3.2 Investments. The Trustees shall have power, subject to the
Fundamental Policies in effect from time to time with respect to the Trust
to:
(a) manage, conduct, operate and carry on the business of
an investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of any and all sorts of
property, tangible or intangible, including but not limited to securities
of any type whatsoever, whether equity or non-equity, of any issuer,
evidences of indebtedness of any person and any other rights, interests,
instruments or property of any sort and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of said rights,
powers and privileges in respect of any of said investments. The Trustees
shall not be limited by any law limiting the investments which may be made
by fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees, or in the name of the Trust, or in the
name of any other Person as nominee, custodian or pledgee, on such terms as
the Trustees may determine, provided that the interest of the Trust therein
is appropriately protected.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his due election and qualification. Upon the ceasing of any
person to be a Trustee for any reason, such person shall automatically
cease to have any right, title or interest in any of the Trust Property,
and the right, title and interest of such Trustee in the Trust Property
shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
3.4 Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in, Shares,
including Shares in fractional denominations, and, subject to the more
detailed provisions set forth in Articles VIII and IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares
any funds or property whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the State of Delaware
governing business corporations.
3.5 Borrow Money or Utilize Leverage. Subject to the
Fundamental Policies in effect from time to time with respect to the Trust,
the Trustees shall have the power to borrow money or otherwise obtain
credit or utilize leverage to the maximum extent permitted by law or
regulation as such may be needed from time to time and to secure the same
by mortgaging, pledging or otherwise subjecting as security the assets of
the Trust, including the lending of portfolio securities, and to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other person, firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of
the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Trustees or otherwise as the Trustees may deem
expedient, to at least the same extent as such delegation is permitted to
directors of a Delaware business corporation and is permitted by the 1940
Act, as well as any further delegations the Trustees may determine to be
desirable, expedient or necessary in order to effect the purpose hereof.
The Trustees may designate an executive committee which shall have all
authority of the entire Board of Trustees except such committee cannot
declare dividends and cannot authorize removal of a trustee or any merger,
consolidation or sale of substantially all of the assets of the Trust.
3.7 Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property or the Trust, the Trustees or any officer,
employee or agent of the Trust; to prosecute, defend, compromise or abandon
any claims relating to the Trust Property or the Trust, or the Trustees or
any officer, employee or agent of the Trust; to foreclose any security
interest securing any obligations, by virtue of which any property is owed
to the Trust; and to enter into releases, agreements and other instruments.
Except to the extent required for a Delaware business corporation, the
Shareholders shall have no power to vote as to whether or not a court
action, legal proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders.
3.8 Expenses. The Trustees shall have power to incur and pay
out of the assets or income of the Trust any expenses which in the opinion
of the Trustees are necessary or incidental to carry out any of the
purposes of this Declaration, and the business of the Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal, underwriting, syndicating and
brokerage services, as they in good faith may deem reasonable and
reimbursement for expenses reasonably incurred by themselves on behalf of
the Trust. The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or
arrears, for charges of distribution, of the custodian or transfer,
Shareholder servicing or similar agent, a pro rata amount as defined from
time to time by the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends or distributions owed such
Shareholder and/or by reducing the number of shares in the account of such
Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such
Shareholder.
3.9 By-Laws. The Trustees may adopt and from time to time amend
or repeal the By-Laws for the conduct of the business of the Trust.
3.10 Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into
joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisors, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding
any such position or by reason of any action taken or omitted by any such
Person in such capacity, whether or not constituting negligence, or whether
or not the Trust would have the power to indemnify such Person against such
liability; (d) establish pension, profit-sharing, share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers,
employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific,
civic or similar purposes; (f) to the extent permitted by law, indemnify
any Person with whom the Trust has dealings, including without limitation
any advisor, administrator, manager, transfer agent, custodian, distributor
or selected dealer, or any other person as the Trustees may see fit to such
extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year
of the Trust and the method in which its accounts shall be kept; and (i)
adopt a seal for the Trust but the absence of such seal shall not impair
the validity of any instrument executed on behalf of the Trust.
3.11 Further Powers. The Trustees shall have the power to
conduct the business of the Trust and carry on its operations in any and
all of its branches and maintain offices both within and without the State
of Delaware, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary,
proper or desirable in order to promote the interests of the Trust although
such things are not herein specifically mentioned. Any determination as to
what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The
Trustees will not be required to obtain any court order to deal with the
Trust Property.
3.12 Trustee Action by Written Consent. Any action which may be
taken by Trustees by vote may be taken without a meeting if the number of
Trustees required for approval of such action at a meeting of Trustees
consent to the action in writing and the written consents are filed with
the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Trustees.
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1 Advisory and Management Arrangements. Subject to the
requirements of applicable law as in effect from time to time, the Trustees
may in their discretion from time to time enter into advisory,
administration or management contracts whereby the other party to any such
contract shall undertake to furnish the Trustees such advisory,
administrative and management services, with respect to the Trust as the
Trustees shall from time to time consider desirable and all upon such terms
and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration, the Trustees may
authorize any advisor, administrator or manager (subject to such general or
specific instructions as the Trustees may from time to time adopt) to
effect investment transactions with respect to the assets on behalf of the
Trustees to the full extent of the power of the Trustees to effect such
transactions or may authorize any officer, employee or Trustee to effect
such transactions pursuant to recommendations of any such advisor,
administrator or manager (and all without further action by the Trustees).
Any such investment transaction shall be deemed to have been authorized by
all of the Trustees.
4.2 Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may retain underwriters and/or placement agents to
sell Trust Shares. The Trustees may in their discretion from time to time
enter into one or more contracts, providing for the sale of the Shares of
the Trust, whereby the Trust may either agree to sell such Shares to the
other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and
conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article IV or the By-Laws; and
such contract may also provide for the repurchase or sale of Shares of the
Trust by such other party as principal or as agent of the Trust and may
provide that such other party may enter into selected dealer agreements
with registered securities dealers and brokers and servicing and similar
agreements with persons who are not registered securities dealers to
further the purposes of the distribution or repurchase of the Shares of the
Trust.
4.3 Parties to Contract. Any contract of the character
described in Sections 4.1 and 4.2 of this Article IV or in Article VII
hereof may be entered into with any Person, although one or more of the
Trustees, officers or employees of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable
for any profit realized directly or indirectly therefrom, provided that the
contract when entered into was reasonable and fair and not inconsistent
with the provisions of this Article IV or the By-Laws. The same Person may
be the other party to contracts entered into pursuant to Sections 4.1 and
4.2 above or Article VII, and any individual may be financially interested
or otherwise affiliated with Persons who are parties to any or all of the
contracts mentioned in this Section 4.3.
ARTICLE V
Limitations of Liability
and Indemnification
5.1 No Personal Liability of Shareholders, Trustees, etc. No
Shareholder of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person in connection with Trust Property or the
acts, obligations or affairs of the Trust. Shareholders shall have the
same limitation of personal liability as is extended to stockholders of a
private corporation for profit incorporated under the general corporation
law of the State of Delaware. No Trustee or officer of the Trust shall be
subject in such capacity to any personal liability whatsoever to any
Person, other than the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only liability to the Trust or
its Shareholders arising from bad faith, willful misfeasance, gross
negligence (negligence in the case of those Trustees or officers who are
directors, officers or employees of the Trust's investment advisor
("Affiliated Indemnitees")) or reckless disregard for his duty to such
Person; and, subject to the foregoing exception, all such Persons shall
look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee or officer, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, subject to the foregoing
exception, he shall not, on account thereof, be held to any personal
liability.
5.2 Mandatory Indemnification. a. The Trust hereby agrees to
indemnify the Trustees and officers of the Trust (each such person being an
"indemnitee") against any liabilities and expenses, including amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and
reasonable counsel fees reasonably incurred by such indemnitee in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative
or investigative body in which he may be or may have been involved as a
party or otherwise or with which he may be or may have been threatened,
while acting in any capacity set forth above in this Section 5.2 by reason
of his having acted in any such capacity, except with respect to any matter
as to which he shall not have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust or, in the case of
any criminal proceeding, as to which he shall have had reasonable cause to
believe that the conduct was unlawful, provided, however, that no
indemnitee shall be indemnified hereunder against any liability to any
person or any expense of such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence (negligence in the case
of Affiliated Indemnitees), or (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct referred to in such
clauses (i) through (iv) being sometimes referred to herein as "disabling
conduct"). Notwithstanding the foregoing, with respect to any action, suit
or other proceeding voluntarily prosecuted by any indemnitee as plaintiff,
indemnification shall be mandatory only if the prosecution of such action,
suit or other proceeding by such indemnitee was authorized by a majority of
the Trustees.
b. Notwithstanding the foregoing, no indemnification shall
be made hereunder unless there has been a determination (1) by a final
decision on the merits by a court or other body of competent jurisdiction
before whom the issue of entitlement to indemnification hereunder was
brought that such indemnitee is entitled to indemnification hereunder or,
(2) in the absence of such a decision, by (i) a majority vote of a quorum
of those Trustees who are neither "interested persons" of the Trust (as
defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding
("Disinterested Non-Party Trustees"), that the indemnitee is entitled to
indemnification hereunder, or (ii) if such quorum is not obtainable or even
if obtainable, if such majority so directs, independent legal counsel in a
written opinion conclude that the indemnitee should be entitled to
indemnification hereunder. All determinations to make advance payments in
connection with the expense of defending any proceeding shall be authorized
and made in accordance with the immediately succeeding paragraph (c) below.
c. The Trust shall make advance payments in connection with
the expenses of defending any action with respect to which indemnification
might be sought hereunder if the Trust receives a written affirmation by
the indemnitee of the indemnitee's good faith belief that the standards of
conduct necessary for indemnification have been met and a written
undertaking to reimburse the Trust unless it is subsequently determined
that he is entitled to such indemnification and if a majority of the
Trustees determine that the applicable standards of conduct necessary for
indemnification appear to have been met. In addition, at least one of the
following conditions must be met: (1) the indemnitee shall provide
adequate security for his undertaking, (2) the Trust shall be insured
against losses arising by reason of any lawful advances, or (3) a majority
of a quorum of the Disinterested Non-Party Trustees, or if a majority vote
of such quorum so direct, independent legal counsel in a written opinion,
shall conclude, based on a review of readily available facts (as opposed to
a full trial-type inquiry), that there is substantial reason to believe
that the indemnitee ultimately will be found entitled to indemnification.
d. The rights accruing to any indemnitee under these
provisions shall not exclude any other right to which he may be lawfully
entitled.
e. Subject to any limitations provided by the 1940 Act and
this Declaration, the Trust shall have the power and authority to indemnify
other Persons providing services to the Trust to the full extent provided
by law as if the Trust were a corporation organized under the Delaware
General Corporation Law provided that such indemnification has been
approved by a majority of the Trustees.
5.3 No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or other security for the performance of any of
his duties hereunder.
5.4 No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, transfer agent or other person dealing with the
Trustees or with any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting
to be made by the Trustees or by said officer, employee or agent or be
liable for the application of money or property paid, loaned, or delivered
to or on the order of the Trustees or of said officer, employee or agent.
Every obligation, contract, undertaking, instrument, certificate, Share,
other security of the Trust, and every other act or thing whatsoever
executed in connection with the Trust shall be conclusively taken to have
been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officers, employees
or agents of the Trust. Every written obligation, contract, undertaking,
instrument, certificate, Share, other security of the Trust made or issued
by the Trustees or by any officers, employees or agents of the Trust in
their capacity as such, shall contain an appropriate recital to the effect
that the Shareholders, Trustees, officers, employees or agents of the Trust
shall not personally be bound by or liable thereunder, nor shall resort be
had to their private property for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to this
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, Shareholders, officers,
employees or agents of the Trust. The Trustees may maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to
cover possible tort liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable or is required by the 1940 Act.
5.5 Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of its duties, be fully and
completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or
other records of the Trust, upon an opinion of counsel, or upon reports
made to the Trust by any of the Trust's officers or employees or by any
advisor, administrator, manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable care by
the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
5.6 Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be held personally liable solely by reason of its
being or having been a Shareholder and not because of its acts or omissions
or for some other reason, the Shareholder or former Shareholder (or its
heirs, executors, administrators or other legal representatives or in the
case of any entity, its general successor) shall be entitled out of the
assets belonging to the Trust to be held harmless from and indemnified to
the maximum extent permitted by law against all loss and expense arising
from such liability. The Trust shall, upon request by such Shareholder,
assume the defense of any claim made against such Shareholder for any act
or obligation of the Trust and satisfy any judgment thereon from the assets
of the Trust.
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into an unlimited number of transferable shares
of beneficial interest, par value $.001 per share. All Shares issued in
accordance with the terms hereof, including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall
be fully paid and, except as provided in the last sentence of Section 3.8,
nonassessable when the consideration determined by the Trustees (if any)
therefor shall have been received by the Trust.
6.2 Other Securities. The Trustees may authorize and issue such
other securities as they determine to be necessary, desirable or
appropriate including preferred interests, debt securities or other senior
securities subject to the Fundamental Policies and the requirements of the
1940 Act. To the extent that the Trustees authorize and issue preferred
shares they are hereby authorized and empowered to amend or supplement this
Declaration as is necessary or appropriate to comply with the requirements
of the 1940 Act relating to such securities or as required to issue such
securities by rating agencies or other persons, all without the approval of
Shareholders. Any such supplement or amendment shall be filed as is
necessary. The Trustees are also authorized to take such actions and
retain such persons as they see fit to offer and sell such securities.
6.3 Rights of Shareholders. The Shares shall be personal
property giving only the rights in this Declaration specifically set forth.
The ownership of the Trust Property of every description and the right to
conduct any business herein before described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they shall have no
right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or
assume any losses of the Trust or, subject to the right of the Trustees to
charge certain expenses directly to Shareholders, as provided in the last
sentence of Section 3.8, suffer an assessment of any kind by virtue of
their ownership of Shares. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights (except as
specified in this Section 6.3, in Section 11.4 or as specified by the
Trustees when creating the Shares, as in preferred shares).
6.4 Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in this Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or
members of a joint stock association.
6.5 Issuance of Shares. The Trustees, in their discretion, may
from time to time without vote of the Shareholders issue Shares including
preferred shares that may have been established pursuant to Section 6.2, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times, and on
such terms as the Trustees may determine, and may in such manner acquire
other assets (including the acquisition of assets subject to, and in
connection with the assumption of, liabilities) and businesses. The
Trustees may from time to time divide or combine the Shares into a greater
or lesser number without thereby changing the proportionate beneficial
interest in such Shares. Issuances and redemptions of Shares may be made
in whole Shares and/or l/l,000ths of a Share or multiples thereof as the
Trustees may determine in such fractions thereof.
6.6 Register of Shares. A register shall be kept at the offices
of the Trust or any transfer agent duly appointed by the Trustees under the
direction of the Trustees which shall contain the names and addresses of
the Shareholders and the number of Shares held by them respectively and a
record of all transfers thereof. Separate registers shall be established
and maintained for each class. Each such register shall be conclusive as
to who are the holders of the Shares of the applicable class and who shall
be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to
receive payment of any dividend or distribution, nor to have notice given
to him as herein provided, until he has given his address to a transfer
agent or such other officer or agent of the Trustees as shall keep the
register for entry thereon. It is not contemplated that certificates will
be issued for the Shares; however, the Trustees, in their discretion, may
authorize the issuance of share certificates and promulgate appropriate
fees therefore and rules and regulations as to their use.
6.7 Transfer Agent and Registrar. The Trustees shall have power
to employ a transfer agent or transfer agents, and a registrar or
registrars, with respect to the Shares. The transfer agent or transfer
agents may keep the applicable register and record therein, the original
issues and transfers, if any, of the said Shares. Any such transfer agents
and/or registrars shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation, as
modified by the Trustees.
6.8 Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by its agent
thereto duly authorized in writing, upon delivery to the Trustees or a
transfer agent of the Trust of a duly executed instrument of transfer,
together with such evidence of the genuineness of each such execution and
authorization and of other matters as may reasonably be required. Upon
such delivery the transfer shall be recorded on the applicable register of
the Trust. Until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereof and neither
the Trustees nor any transfer agent or registrar nor any officer, employee
or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the applicable register of Shares as
the holder of such Shares upon production of the proper evidence thereof to
the Trustees or a transfer agent of the Trust, but until such record is
made, the Shareholder of record shall be deemed to be the holder of such
for all purposes hereof, and neither the Trustees nor any transfer agent or
registrar nor any officer or agent of the Trust shall be affected by any
notice of such death, bankruptcy or incompetence, or other operation of
law.
6.9 Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed
duly served or given if mailed, postage prepaid, addressed to any
Shareholder of record at his last known address as recorded on the
applicable register of the Trust.
ARTICLE VII
Custodians
7.1 Appointment and Duties. The Trustees shall at all times
employ a custodian or custodians, meeting the qualifications for custodians
for portfolio securities of investment companies contained in the 1940 Act,
as custodian with respect to the assets of the Trust. Any custodian shall
have authority as agent of the Trust with respect to which it is acting as
determined by the custodian agreement or agreements, but subject to such
restrictions, limitations and other requirements, if any, as may be
contained in the By-Laws of the Trust and the 1940 Act:
(1) to hold the securities owned by the Trust and deliver the
same upon written order;
(2) to receive any receipt for any moneys due to the Trust and
deposit the same in its own banking department (if a bank) or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services;
and
(5) if authorized to do so by the Trustees, to compute the net
income or net asset value of the Trust;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by
it as specified in such vote.
The Trustees may also authorize each custodian to employ one or
more sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions, as may be
agreed upon between the custodian and such sub-custodian and approved by
the Trustees, provided that in every case such sub-custodian shall meet the
qualifications for custodians contained in the 1940 Act.
7.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the
Trust in a system for the central handling of securities established by a
national securities exchange or a national securities association
registered with the Commission under the Securities Exchange Act of 1934,
or such other Person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all securities of
any particular class of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall
be subject to withdrawal only upon the order of the Trust.
ARTICLE VIII
Redemption
8.1 Redemptions. The Shares of the Trust are not redeemable by
the holders.
8.2 Disclosure of Holding. The holders of Shares or other
securities of the Trust shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of
Shares or other securities of the Trust as the Trustees deem necessary to
comply with the provisions of the Code, or to comply with the requirements
of any other taxing or regulatory authority.
ARTICLE IX
Determination of Net Asset Value
Net Income and Distributions
9.1 Net Asset Value. The net asset value of each outstanding
Share of the Trust shall be determined at such time or times on such days
as the Trustees may determine, in accordance with the 1940 Act. The method
of determination of net asset value shall be determined by the Trustees and
shall be as set forth in the Prospectus or as may otherwise be determined
by the Trustees. The power and duty to make the net asset value
calculations may be delegated by the Trustees and shall be as generally set
forth in the Prospectus or as may otherwise be determined by the Trustees.
9.2 Distributions to Shareholders.
(a) The Trustees shall from time to time distribute ratably
among the Shareholders such proportion of the net profits, surplus
(including paid-in surplus), capital, or assets held by the Trustees as
they may deem proper. Such distribution may be made in cash or property
(including without limitation any type of obligations of the Trust or any
assets thereof) or any combination thereof, and the Trustees may distribute
ratably among the Shareholders additional Shares in such manner, at such
times, and on such terms as the Trustees may deem proper.
(b) In the event the Trust has outstanding more than one
class of Shares, the Trustees shall from time to time distribute ratably
among each class of Shareholders of the Trust such proportion of the net
profits, surplus (including paid-in surplus), capital or assets
attributable to such class held by the Trustees as they may deem proper or
as may otherwise be determined in the instrument creating such class of
Shares, and the Trustees may distribute ratably among the Shareholders of
each class of the Trust additional Shares of such class in such manner, at
such times, and on such terms as the Trustees may deem proper. Such
distributions to one class need not be ratable with respect to
distributions to Shares of any other class of the Trust.
(c) Distributions pursuant to this Section 9.2 may be among
the Shareholders of record at the time of declaring a distribution or among
the Shareholders of record at such later date as the Trustees shall
determine and specify at the time of declaration.
(d) The Trustees may always retain from the net profits
such amount as they may deem necessary to pay the debts or expenses of the
Trust or to meet obligations of the Trust, or as they otherwise may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business.
(e) Inasmuch as the computation of net income and gains for
Federal income tax purposes may vary from the computation thereof on the
books, the above provisions shall be interpreted to give the Trustees the
power in their discretion to distribute for any fiscal year as ordinary
dividends and as capital gains distributions, respectively, additional
amounts sufficient to enable the Trust to avoid or reduce liability for
taxes.
9.3 Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article IX, the Trustees may prescribe,
in their absolute discretion except as may be required by the 1940 Act,
such other bases and times for determining the per share asset value of the
Trust's Shares or net income, or the declaration and payment of dividends
and distributions as they may deem necessary or desirable for any reason,
including to enable the Trust to comply with any provision of the 1940 Act,
or any securities association registered under the Securities Exchange Act
of 1934, or any order of exemption issued by the Commission, all as in
effect now or hereafter amended or modified.
ARTICLE X
Shareholders
10.1 Meetings of Shareholders. The Trust shall hold annual
meetings of the Shareholders. A special meeting of Shareholders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee for any proper purpose upon written request of Shareholders of the
Trust holding in the aggregate not less than 51% of the outstanding Shares
of the Trust or class having voting rights, such request specifying the
purpose or purposes for which such meeting is to be called. Any
shareholder meeting, including a Special Meeting, shall be held within or
without the State of Delaware on such day and at such time as the Trustees
shall designate.
10.2 Voting. Shareholders shall have no power to vote on any
matter except matters on which a vote of Shareholders is required by
applicable law, this Declaration or resolution of the Trustees. Any matter
required to be submitted to Shareholders and affecting one or more classes
shall require separate approval by the required vote of Shareholders of
each affected class; provided, however, that to the extent required by the
1940 Act, there shall be no separate class votes on the election or removal
of Trustees, the selection of auditors for the Trust, approval of any
agreement or contract entered into by the Trust or any action to liquidate
or dissolve the Trust. Shareholders of a particular class shall not be
entitled to vote on any matter that affects only one or more other classes.
There shall be no cumulative voting in the election or removal of Trustees.
The Trustees shall cause each matter required or permitted to be voted upon
at a meeting or by written consent of Shareholders to be submitted to a
vote of all classes of outstanding Shares entitled to vote thereon, unless
the 1940 Act or other applicable law or regulations require that the
actions of the Shareholders be taken by a separate vote of one or more
classes, or the Trustees determine that any matter to be submitted to a
vote of Shareholders affects only the rights or interests of one or more
(but not all) classes of outstanding Shares, in which case only the
Shareholders of the class or classes so affected shall be entitled to vote
thereon.
10.3 Notice of Meeting and Record Date. Notice of all meetings
of Shareholders, stating the time, place and purposes of the meeting, shall
be given by the Trustees by mail to each Shareholder of record entitled to
vote thereat at its registered address, mailed at least 10 days before the
meeting or otherwise in compliance with applicable law. Only the business
stated in the notice of the meeting shall be considered at such meeting.
Any adjourned meeting may be held as adjourned one or more times without
further notice not later than 130 days after the record date. For the
purposes of determining the Shareholders who are entitled to notice of and
to vote at any meeting the Trustees may, without closing the transfer
books, fix a date not more than 100 days prior to the date of such meeting
of Shareholders as a record date for the determination of the Persons to be
treated as Shareholders of record for such purposes.
10.4 Quorum and Required Vote.
(a) The holders of a majority of outstanding Shares of the
Trust present in person or by proxy shall constitute a quorum at any
meeting of the Shareholders for purposes of conducting business on which a
vote of Shareholders of the Trust is being taken. The holders of a
majority of outstanding Shares of a class present in person or by proxy
shall constitute a quorum at any meeting of the Shareholders of such class
for purposes of conducting business on which a vote of Shareholders of such
class is being taken.
(b) Subject to any provision of applicable law requiring
greater or lesser votes, this Declaration or resolution of the Trustees
specifying a greater or lesser vote requirement for the transaction of any
item of business at any meeting of Shareholders, (i) the affirmative vote
of a majority of the Shares present in person or represented by proxy and
entitled to vote on the subject matter shall be the act of the Shareholders
with respect to such matter, and (ii) where a separate vote of any class is
required on any matter, the affirmative vote of a majority of the Shares of
such class present in person or represented by proxy at the meeting shall
be the act of the Shareholders of such class with respect to such matter.
10.5 Proxies, etc. At any meeting of Shareholders, any holder
of Shares entitled to vote thereat may vote by properly executed proxy,
provided that no proxy shall be voted at any meeting unless it shall have
been placed on file with the Secretary, or with such other officer or agent
of the Trust as the Secretary may direct, for verification prior to the
time at which such vote shall be taken. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or
more Trustees or one or more of the officers or employees of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share
shall be entitled to one vote and fractional Shares shall be entitled to a
vote of such fraction. When any Share is held jointly by several persons,
any one of them may vote at any meeting in person or by proxy in respect of
such Share, but if more than one of them shall be present at such meeting
in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of
unsound mind, and subject to guardianship or to the legal control of any
other person as regards the charge or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and
such vote may be given in person or by proxy.
10.6 Reports. The Trustees shall cause to be prepared at least
annually and more frequently to the extent and in the form required by law,
regulation or any exchange on which Trust Shares are listed a report of
operations containing a balance sheet and statement of income and
undistributed income of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent public
accountant on such financial statements. Copies of such reports shall be
mailed to all Shareholders of record within the time required by the 1940
Act, and in any event within a reasonable period preceding the meeting of
Shareholders. The Trustees shall, in addition, furnish to the Shareholders
at least semi-annually to the extent required by law, interim reports
containing an unaudited balance sheet of the Trust as of the end of such
period and an unaudited statement of income and surplus for the period from
the beginning of the current fiscal year to the end of such period.
10.7 Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Delaware business corporation.
10.8 Shareholder Action by Written Consent. Any action which
may be taken by Shareholders by vote may be taken without a meeting if the
holders entitled to vote thereon of the proportion of Shares required for
approval of such action at a meeting of Shareholders pursuant to Section
10.4 consent to the action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration. Subject to possible termination in accordance
with the provisions of Section 11.2 hereof, the Trust created hereby shall
have perpetual existence.
11.2 Termination.
(a) The Trust may be dissolved, after two thirds of the
Trustees have approved a resolution therefor, upon approval by a majority
of all the Shareholders voting as one class. Upon the dissolution of the
Trust:
(i) The Trust shall carry on no business except
for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under
this Declaration shall continue until the affairs of the Trust
shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, merger where the Trust is not the
survivor, transfer or otherwise dispose of all or any part of the
remaining Trust Property to one or more Persons at public or
private sale for consideration which may consist in whole or in
part in cash, securities or other property of any kind, discharge
or pay its liabilities, and do all other acts appropriate to
liquidate its business; provided that any sale, conveyance,
assignment, exchange, merger in which the Trust is not the
survivor, transfer or other disposition of all or substantially
all the Trust Property of the Trust shall require approval of the
principal terms of the transaction and the nature and amount of
the consideration by Shareholders with the same vote as required
to open-end the Trust.
(iii) After paying or adequately providing for
the payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements, as they deem
necessary for their protection, the Trustees may distribute the
remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After the winding up and termination of the Trust and
distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination and shall
execute and file a certificate of cancellation with the Secretary of State
of the State of Delaware. Upon termination of the Trust, the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall thereupon
cease.
11.3 Amendment Procedure.
(a) Except as provided in subsection (b) of this Section
11.3, this Declaration may be amended, after a majority of the Trustees
have approved a resolution therefor, by the affirmative vote of the holders
of not less than a majority of the affected Shares. The Trustees also may
amend this Declaration without any vote of Shareholders to divide the
Shares of the Trust into one or more classes or additional classes, to
change the name of the Trust or any class, to make any change that does not
adversely affect the relative rights or preferences of any Shareholder, as
they may deem necessary, to conform this Declaration to the requirements of
the 1940 Act or any other applicable federal laws or regulations including
pursuant to Section 6.2 or the requirements of the regulated investment
company provisions of the Code, but the Trustees shall not be liable for
failing to do so.
(b) No amendment may be made to this Section 11.3 or which
would change any rights with respect to any Shares of the Trust by reducing
the amount payable thereon upon liquidation of the Trust or by diminishing
or eliminating any voting rights pertaining thereto, except with the vote
of the holders of two-thirds of the Shares of the Trust. Nothing contained
in this Declaration shall permit the amendment of this Declaration to
impair the exemption from personal liability of the Shareholders, Trustees,
officers, employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) An amendment duly adopted by the requisite vote of the
Board of Trustees and, if required, the Shareholders as aforesaid, shall
become effective at the time of such adoption or at such other time as may
be designated by the Board of Trustees or Shareholders, as the case may be.
A certification in recordable form signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly adopted by the
Trustees and, if required, the Shareholders as aforesaid, or a copy of the
Declaration, as amended, in recordable form, and executed by a majority of
the Trustees, shall be conclusive evidence of such amendment when lodged
among the records of the Trust or at such other time designated by the
Board.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of Shares of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by
the affirmative vote of a majority of the Trustees or by an instrument
signed by a majority of the Trustees.
11.4 Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all
of the Trust Property or the property, including its good will, upon such
terms and conditions and for such consideration when and as authorized by
two-thirds of the Trustees and approved by a majority vote of the affected
Shareholders and any such merger, consolidation, sale, lease or exchange
shall be determined for all purposes to have been accomplished under and
pursuant to the statutes of the State of Delaware.
11.5 Incorporation. Upon approval by Shareholders, the Trustees
may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust,
partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer
the Trust Property to any such corporation, trust, limited liability
company, association or organization in exchange for the shares or
securities thereof, or otherwise, and to lend money to, subscribe for the
shares or securities of, and enter into any contracts with any such
corporation, trust, limited liability company, partnership, association or
organization, or any corporation, partnership, trust, limited liability
company, association or organization in which the Trust holds or is about
to acquire shares or any other interests. The Trustees may also cause a
merger or consolidation between the Trust or any successor thereto and any
such corporation, trust, limited liability company, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to
organize or assist in organizing one or more corporations, trusts, limited
liability companies, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organizations or entities.
11.6 Conversion. The Trust may be converted at any time from a
"closed-end company" to an "open-end company" as those terms are defined by
the 1940 Act, upon the approval of such a proposal, together with the
necessary amendments to this Declaration to permit such a conversion, by a
majority of the Trustees then in office and by the holders of not less than
two-thirds (66-2/3%) of the Trust's outstanding Shares entitled to vote,
except that if such proposal is recommended by two-thirds of the total
number of Trustees then in office, such proposal may be adopted by a
Majority Shareholder Vote. From time to time, the Trustees may consider
recommending to the Shareholders a proposal to convert the Trust from a
"closed-end company" to an "open-end company." Upon the recommendation and
subsequent adoption of such a proposal and the necessary amendments to this
Declaration to permit such a conversion of the Trust's outstanding Shares
entitled to vote, the Trust shall, upon complying with any requirements of
the 1940 Act and state law, become an "open-end" investment company. Such
affirmative vote or consent shall be in addition to the vote or consent of
the holders of the Shares otherwise required by law, or any agreement
between the Trust and any national securities exchange.
11.7 Certain Transactions. (a) Notwithstanding any other
provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in
paragraph (c) of this Section shall require the affirmative vote or consent
of the holders of eighty percent (80%) of the Shares of each class
outstanding and entitled to vote, voting as a class, when a Principal
Shareholder (as defined in paragraph (b) of this Section) is a party to the
transaction. Such affirmative vote or consent shall be in addition to the
vote or consent of the holders of Shares otherwise required by law or by
the terms of any class or series of preferred stock, whether now or
hereafter authorized, or any agreement between the Trust and any national
securities exchange.
(b) The term "Principal Shareholder" shall mean any corporation,
Person or other entity which is the beneficial owner, directly or
indirectly, of five percent (5%) or more of the outstanding Shares and
shall include any affiliate or associate, as such terms are defined in
clause (ii) below, of a Principal Shareholder. For the purposes of this
Section, in addition to the Shares which a corporation, Person or other
entity beneficially owns directly, (a) any corporation, Person or other
entity shall be deemed to be the beneficial owner of any Shares (i) which
it has the right to acquire pursuant to any agreement or upon exercise of
conversion rights or warrants, or otherwise (but excluding share options
granted by the Trust) or (ii) which are beneficially owned, directly or
indirectly (including Shares deemed owned through application of clause (i)
above), by any other corporation, Person or entity with which its
"affiliate" or "associate" (as defined below) has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of Shares, or which is its "affiliate" or "associate" as those
terms are defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, and (b) the outstanding Shares shall
include Shares deemed owned through application of clauses (i) and (ii)
above but shall not include any other Shares which may be issuable pursuant
to any agreement, or upon exercise of conversion rights or warrants, or
otherwise.
(c) This Section shall apply to the following transactions:
(i) The merger or consolidation of the Trust or any subsidiary
of the Trust with or into any Principal Shareholder.
(ii) The issuance of any securities of the Trust to any
Principal Shareholder for cash(other than pursuant to any automatic
dividend reinvestment plan).
(iii) The sale, lease or exchange of all or any substantial part
of the assets of the Trust to any Principal Shareholder (except assets
having an aggregate fair market value of less than $1,000,000, aggregating
for the purpose of such computation all assets sold, leased or exchanged in
any series of similar transactions within a twelve-month period.)
(iv) The sale, lease or exchange to the Trust or any subsidiary
thereof, in exchange for securities of the Trust of any assets of any
Principal Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purposes of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).
(d) The provisions of this Section shall not be applicable to (i) any
of the transactions described in paragraph (c) of this Section if two-
thirds of the Board of Trustees of the Trust shall by resolution have
approved a memorandum of understanding with such Principal Shareholder with
respect to and substantially consistent with such transaction, or (ii) any
such transaction with any corporation of which a majority of the
outstanding shares of all classes of a stock normally entitled to vote in
elections of directors is owned of record or beneficially by the Trust and
its subsidiaries.
(e) The Board of Trustees shall have the power and duty to determine
for the purposes of this Section on the basis of information known to the
Trust whether (i) a corporation, person or entity beneficially owns five
percent (5%) or more of the outstanding Shares, (ii) a corporation, person
or entity is an "affiliate" or "associate" (as defined above) of another,
(iii) the assets being acquired or leased to or by the Trust or any
subsidiary thereof constitute a substantial part of the assets of the Trust
and have an aggregate fair market value of less than $1,000,000, and (iv)
the memorandum of understanding referred to in paragraph (d) hereof is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this
Section.
ARTICLE XII
Miscellaneous
12.1 Filing. (a) This Declaration and any amendment hereto
shall be filed in such places as may be required or as the Trustees deem
appropriate. Each amendment shall be accompanied by a certificate signed
and acknowledged by a Trustee stating that such action was duly taken in a
manner provided herein, and shall, upon insertion in the Trust's minute
book, be conclusive evidence of all amendments contained therein. A
restated Declaration, containing the original Declaration and all
amendments theretofore made, may be executed from time to time by a
majority of the Trustees and shall, upon insertion in the Trust's minute
book, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
(b) The Trustees hereby authorize and direct a Certificate of Trust,
in the form attached hereto as Exhibit A, to be executed and filed with the
Office of the Secretary of State of the State of Delaware in accordance
with the Delaware Business Trust Act.
12.2 Resident Agent. The Trust shall maintain a resident agent
in the State of Delaware, which agent shall initially be The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 The Trustees
may designate a successor resident agent, provided, however, that such
appointment shall not become effective until written notice thereof is
delivered to the office of the Secretary of the State.
12.3 Governing Law. This Declaration is executed by the
Trustees and delivered in the State of Delaware and with reference to the
laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to laws of said State and reference shall be specifically made to
the business corporation law of the State of Delaware as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists, although such law shall not be viewed as limiting the
powers otherwise granted to the Trustees hereunder and any ambiguity shall
be viewed in favor of such powers.
12.4 Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
12.5 Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the name of the Trust, (c) the due authorization of the
execution of any instrument or writing, (d) the form of any vote passed at
a meeting of Trustees or Shareholders, (e) the fact that the number of
Trustees or Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration, (f) the form of
any By Laws adopted by or the identity of any officers elected by the
Trustees, or (g) the existence of any fact or facts which in any manner
relate to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any person dealing with the Trustees and
their successors.
12.6 Provisions in Conflict with Law or Regulation.
(a) The provisions of this Declaration are severable, and
if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other applicable
laws and regulations, the conflicting provision shall be deemed never to
have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior
to such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other jurisdiction
or any other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused these presents to
be executed as of the day and year first above written.
_________________________
Laurence D. Fink
Sole Trustee
Exhibit A
CERTIFICATE OF TRUST
OF
THE BLACKROCK HIGH YIELD TRUST
This Certificate of Trust of THE BLACKROCK HIGH YIELD TRUST (the
"Trust"), dated August 10, 1998, is being duly executed and filed by
Laurence D. Fink, as sole trustee (the "Sole Trustee"), to form a business
trust under the Delaware Business Trust Act (12 Del. C. sections 3801, et
seq.).
1. Name. The name of the business trust formed hereby is THE
BLACKROCK HIGH YIELD TRUST.
2. Registered Office; Registered Agent. The business address
of the registered office of the Trust in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street in the City of Wilmington,
19801. The name of the Trust's registered agent at such address is The
Corporation Trust Company.
3. Address of Sole Trustee. The business address of the Sole
Trustee is 345 Park Avenue, New York, New York, 10154.
4. Effective Date. This Certificate of Trust shall be
effective upon the date and time of filing.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
of Trust as of the date first above-written.
_____________________________
Laurence D. Fink
Sole Trustee
BY-LAWS
OF
THE BLACKROCK HIGH YIELD TRUST
TABLE OF CONTENTS
Page
ARTICLE I - Shareholder Meetings . . . . . . . . . . . . . . . . . . . 1
1.1 Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Proxies; Voting . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Fixing Record Dates . . . . . . . . . . . . . . . . . . . . . 1
1.4 Inspectors of Election . . . . . . . . . . . . . . . . . . . 1
1.5 Records at Shareholder Meetings . . . . . . . . . . . . . . . 2
ARTICLE II - Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Annual and Regular Meetings . . . . . . . . . . . . . . . . . 3
2.2 Chairman; Records . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III - Officers . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Officers of the Trust . . . . . . . . . . . . . . . . . . . . 3
3.2 Election and Tenure . . . . . . . . . . . . . . . . . . . . . 3
3.3 Removal of Officers . . . . . . . . . . . . . . . . . . . . . 4
3.4 Bonds and Surety . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Chairman, President, and Vice Presidents . . . . . . . . . . 4
3.6 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Other Officers and Duties . . . . . . . . . . . . . . . . . . 6
ARTICLE IV - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Depositories . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V - Stock Transfers . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Transfer Agents, Registrars and the Like . . . . . . . . . . 7
5.2 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . 7
5.3 Registered Shareholders . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI - Amendment of By-Laws . . . . . . . . . . . . . . . . . . . 8
6.1 Amendment and Repeal of By-Laws . . . . . . . . . . . . . . . 8
THE BLACKROCK HIGH YIELD TRUST
BY-LAWS
These By-Laws are made and adopted pursuant to Section 3.9 of the
Agreement and Declaration of Trust establishing The BlackRock High Yield
Trust dated as of August __, 1998, as from time to time amended
(hereinafter called the "Declaration"). All words and terms capitalized in
these By-Laws shall have the meaning or meanings set forth for such words
or terms in the Declaration.
ARTICLE I
Shareholder Meetings
1.1 Chairman. The Chairman, if any, shall act as chairman at
all meetings of the Shareholders; in the Chairman's absence, the Trustee or
Trustees present at each meeting may elect a temporary chairman for the
meeting, who may be one of themselves.
1.2 Proxies; Voting. Shareholders may vote either in person or
by duly executed proxy and each full share represented at the meeting shall
have one vote, all as provided in Article 10 of the Declaration.
1.3 Fixing Record Dates. For the purpose of determining the
Shareholders who are entitled to notice of or to vote or act at any
meeting, including any adjournment thereof, or who are entitled to
participate in any dividends, or for any other proper purpose, the Trustees
may from time to time, without closing the transfer books, fix a record
date in the manner provided in Section 10.3 of the Declaration. If the
Trustees do not prior to any meeting of Shareholders so fix a record date
or close the transfer books, then the date of mailing notice of the meeting
or the date upon which the dividend resolution is adopted, as the case may
be, shall be the record date.
1.4 Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on
the request of any Shareholder or Shareholder proxy shall, appoint
Inspectors of Election of the meeting. The number of Inspectors of
Election shall be either one or three. If appointed at the meeting on the
request of one or more Shareholders or proxies, a majority of Shares
present shall determine whether one or three Inspectors of Election are to
be appointed, but failure to allow such determination by the Shareholders
shall not affect the validity of the appointment of Inspectors of Election.
In case any person appointed as Inspector of Election fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by
the Trustees in advance of the convening of the meeting or at the meeting
by the person acting as chairman. The Inspectors of Election shall
determine the number of Shares outstanding, the Shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect
of proxies, shall receive votes, ballots or consents, shall hear and
determine all challenges and questions in any way arising in connection
with the right to vote, shall count and tabulate all votes or consents,
determine the results, and do such other acts as may be proper to conduct
the election or vote with fairness to all Shareholders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On
request of the Chairman, if any, of the meeting, or of any Shareholder or
Shareholder proxy, the Inspectors of Election shall make a report in
writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
1.5 Records at Shareholder Meetings. At each meeting of the
Shareholders, there shall be made available for inspection at a convenient
time and place during normal business hours, if requested by Shareholders,
the minutes of the last previous Annual or Special Meeting of Shareholders
of the Trust and a list of the Shareholders of the Trust, as of the record
date of the meeting or the date of closing of transfer books, as the case
may be. Such list of Shareholders shall contain the name and the address
of each Shareholder in alphabetical order and the number of Shares owned by
such Shareholder. Shareholders shall have such other rights and procedures
of inspection of the books and records of the Trust as are granted to
shareholders of a Delaware business corporation.
ARTICLE II
Trustees
2.1 Annual and Regular Meetings. Meetings of the Trustees shall
be held from time to time upon the call of the Chairman, if any, the
President, the Secretary or any two Trustees. Regular meetings of the
Trustees may be held without call or notice and shall generally be held
quarterly. Neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Trustees need be stated in the notice or waiver
of notice of such meeting, and no notice need be given of action proposed
to be taken by unanimous written consent.
2.2 Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in absence of a chairman, the
Trustees present shall elect one of their number to act as temporary
chairman. The results of all actions taken at a meeting of the Trustees,
or by unanimous written consent of the Trustees, shall be recorded by the
person appointed by the Board of Trustees as the meeting secretary.
ARTICLE III
Officers
3.1 Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and
such other officers or assistant officers as may be elected or authorized
by the Trustees. Any two or more of the offices may be held by the same
Person, except that the same person may not be both President and
Secretary. The Chairman, if any, shall be a Trustee, but no other officer
of the Trust need be a Trustee.
3.2 Election and Tenure. At the initial organization meeting,
the Trustees shall elect the Chairman, if any, President, Secretary,
Treasurer and such other officers as the Trustees shall deem necessary or
appropriate in order to carry out the business of the Trust. Such officers
shall serve at the pleasure of the Trustees or until their successors have
been duly elected and qualified. The Trustees may fill any vacancy in
office or add any additional officers at any time.
3.3 Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of
action which any officer may have as a result of removal in breach of a
contract of employment. Any officer may resign at any time by notice in
writing signed by such officer and delivered or mailed to the Chairman, if
any, President, or Secretary, and such resignation shall take effect
immediately upon receipt by the Chairman, if any, President, or Secretary,
or at a later date according to the terms of such notice in writing.
3.4 Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of such officer's duties
in such amount and with such sureties as the Trustees may determine.
3.5 Chairman, President, and Vice Presidents. The Chairman, if
any, shall, if present, preside at all meetings of the Shareholders and of
the Trustees and shall exercise and perform such other powers and duties as
may be from time to time assigned to such person by the Trustees. Subject
to such supervisory powers, if any, as may be given by the Trustees to the
Chairman, if any, the President shall be the chief executive officer of the
Trust and, subject to the control of the Trustees, shall have general
supervision, direction and control of the business of the Trust and of its
employees and shall exercise such general powers of management as are
usually vested in the office of President of a corporation. Subject to
direction of the Trustees, the Chairman, if any, and the President shall
each have power in the name and on behalf of the Trust to execute any and
all loans, documents, contracts, agreements, deeds, mortgages, registration
statements, applications, requests, filings and other instruments in
writing, and to employ and discharge employees and agents of the Trust.
Unless otherwise directed by the Trustees, the Chairman, if any, and the
President shall each have full authority and power, on behalf of all of the
Trustees, to attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds an interest, or
to confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The Chairman, if any, and the President shall
have such further authorities and duties as the Trustees shall from time to
time determine. In the absence or disability of the President, the
Vice-Presidents in order of their rank as fixed by the Trustees or, if more
than one and not ranked, the Vice-President designated by the Trustees,
shall perform all of the duties of the President, and when so acting shall
have all the powers of and be subject to all of the restrictions upon the
President. Subject to the direction of the Trustees, and of the President,
each Vice-President shall have the power in the name and on behalf of the
Trust to execute any and all instruments in writing, and, in addition,
shall have such other duties and powers as shall be designated from time to
time by the Trustees or by the President.
3.6 Secretary. The Secretary shall maintain the minutes of all
meetings of, and record all votes of, Shareholders, Trustees and the
Executive Committee, if any. The Secretary shall be custodian of the seal
of the Trust, if any, and the Secretary (and any other person so authorized
by the Trustees) shall affix the seal, or if permitted, facsimile thereof,
to any instrument executed by the Trust which would be sealed by a Delaware
business corporation executing the same or a similar instrument and shall
attest the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall also
perform any other duties commonly incident to such office in a Delaware
business corporation, and shall have such other authorities and duties as
the Trustees shall from time to time determine.
3.7 Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees
and of the President all powers and duties normally incident to the office.
The Treasurer may endorse for deposit or collection all notes, checks and
other instruments payable to the Trust or to its order. The Treasurer
shall deposit all funds of the Trust in such depositories as the Trustees
shall designate. The Treasurer shall be responsible for such disbursement
of the funds of the Trust as may be ordered by the Trustees or the
President. The Treasurer shall keep accurate account of the books of the
Trust's transactions which shall be the property of the Trust, and which
together with all other property of the Trust in the Treasurer's
possession, shall be subject at all times to the inspection and control of
the Trustees. Unless the Trustees shall otherwise determine, the Treasurer
shall be the principal accounting officer of the Trust and shall also be
the principal financial officer of the Trust. The Treasurer shall have
such other duties and authorities as the Trustees shall from time to time
determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer
agent to maintain bank accounts and deposit and disburse funds of any
Series of the Trust on behalf of such Series.
3.8 Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of
the Trust. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of the
office. Each officer, employee and agent of the Trust shall have such
other duties and authority as may be conferred upon such person by the
Trustees or delegated to such person by the President.
ARTICLE IV
Miscellaneous
4.1 Depositories. In accordance with Section 7.1 of the
Declaration, the funds of the Trust shall be deposited in such custodians
as the Trustees shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or agents (including
the adviser, administrator or manager), as the Trustees may from time to
time authorize.
4.2 Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by its properly authorized officers, agent
or agents, as provided in the Declaration or By-laws or as the Trustees may
from time to time by resolution provide.
4.3 Seal. The Trust is not required to have any seal, and the
adoption or use of a seal shall be purely ornamental and be of no legal
effect. The seal, if any, of the Trust may be affixed to any instrument,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and affixed manually in the same manner and with the same force
and effect as if done by a Delaware business corporation. The presence or
absence of a seal shall have no effect on the validity, enforceability or
binding nature of any document or instrument that is otherwise duly
authorized, executed and delivered.
ARTICLE V
Stock Transfers
5.1 Transfer Agents, Registrars and the Like. As provided in
Section 6.7 of the Declaration, the Trustees shall have authority to employ
and compensate such transfer agents and registrars with respect to the
Shares of the Trust as the Trustees shall deem necessary or desirable. In
addition, the Trustees shall have power to employ and compensate such
dividend disbursing agents, warrant agents and agents for the reinvestment
of dividends as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
5.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees
or a transfer agent of the Trust of proper documentation as provided in
Section 6.8 of the Declaration. The Trust, or its transfer agents, shall
be authorized to refuse any transfer unless and until presentation of such
evidence as may be reasonably required to show that the requested transfer
is proper.
5.3 Registered Shareholders. The Trust may deem and treat the
holder of record of any Shares as the absolute owner thereof for all
purposes and shall not be required to take any notice of any right or claim
of right of any other person.
ARTICLE VI
Amendment of By-Laws
6.1 Amendment and Repeal of By-Laws. In accordance with Section
3.9 of the Declaration, the Trustees shall have the power to amend or
repeal the By-Laws or adopt new By-Laws at any time; provided, however,
that By-Laws adopted by the Shareholders may, if such By-Laws so state, be
altered, amended or repealed only by the Shareholders by an affirmative
vote of a majority of the outstanding voting securities of the Trust, and
not by the Trustees. Action by the Trustees with respect to the By-Laws
shall be taken by an affirmative vote of a majority of the Trustees. The
Trustees shall in no event adopt By-Laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in favor of
the related provisions in the Declaration.
