As filed with the Securities and Exchange Commission on February 19, 1999
Securities Act Registration No.
Investment Company Act File No.
===========================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
( ) Pre-Effective Amendment No.
( ) Post-Effective Amendment No.
and
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
( ) Amendment No. ____
THE BLACKROCK SENIOR INCOME 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 Senior Income Trust
345 Park Avenue
New York, New York 10154
(Name and address of Agent for Service)
with a copy to:
Thomas A. DeCapo
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108-3194
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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 is33-__________.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities Being Offering Price Aggregate Registration
Being Registered Registered(1) Per Share Offering Price Fee
<S> <C> <C> <C> <C>
Shares, no par value 500,000 $10.00 5,000,000 $1,390
</TABLE>
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 SENIOR INCOME 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.
PROSPECTUS
LOGO
Shares
The BlackRock Senior Income Trust
The BlackRock Senior Income Trust (the "Trust") is a newly-organized,
non-diversified, closed-end fund. Our objective is to generate high current
income, consistent with preservation of capital. We will invest our assets
primarily in senior secured floating rate loans ("Senior Loans"). Although
the Trust's net asset value will vary, the Trust's policy of acquiring
floating rate Senior Loans is expected to minimize changes in the Trust's
net asset value as a result of changes in interest rates. Nevertheless, the
Trust's net asset value and distribution rate will vary, and may be
affected by several factors, including changes in credit quality of
borrowers underlying the Senior Loans. We may also borrow money to purchase
additional securities to try to achieve our objective of high current
income. Such borrowings may magnify fluctuations in the Trust's net asset
value and may affect the Trust's ability to make distributions. There is,
of course, no guarantee that we will achieve our investment objective. An
investment in the Trust may not be appropriate for all investors.
Senior Loans are made to corporations, partnerships and other business
entities ("Borrowers") which operate in various industries and geographical
regions. Senior Loans pay interest at rates that periodically adjust on the
basis of a floating base lending rate plus a premium. We anticipate that
the proceeds of the Senior Loans in which the Trust will acquire interests
primarily will be used to finance leveraged buyouts, recapitalizations,
mergers, acquisitions, and stock repurchases and, to a lesser extent, to
finance internal growth and for other corporate purposes. Senior Loans hold
the most senior position in the capital structure of the Borrower, are
secured with specific collateral and will have a claim on the assets of the
Borrower that is senior to that of subordinated debt, preferred stock and
common stock of the Borrower. Nevertheless, Senior Loans are typically of
below investment grade quality and may have below investment grade ratings,
which ratings are associated with securities having speculative
characteristics.
BlackRock Advisors, Inc. will act as our investment adviser. BlackRock
Advisors, Inc. is a global asset management company that manages a broad
range of investment products, including a family of mutual funds and
closed-end funds, for clients worldwide. BlackRock Advisors, Inc. manages
client assets totaling approximately $132 billion. One of BlackRock
Advisors, Inc.'s affiliates, BlackRock Financial Management, Inc. (or
"BlackRock") will handle the day-to-day investment management of the
Trust.
By this Prospectus, we are offering common shares of the Trust. BlackRock
Advisors, Inc. or one of its affiliates (not the Trust or its investors)
will pay the sales load on the Shares you buy to the Underwriters or other
institutions participating in this offering equal to % of the public
offering price per Share.
Currently, there is no public market for Shares of the Trust. The Trust has
applied for listing on the New York Stock Exchange of its Shares under the
symbol " ." You should be aware that shares of closed-end funds often
have traded at a discount to their net asset values and the Shares of the
Trust may likewise trade at such a discount. This risk may be greater for
investors who sell their Shares in a relatively short period after
completion of the public offering.
This investment involves a high degree of risk. See "Risk Factors and
Special Considerations" beginning on page 35 of this Prospectus for factors
that you should consider in connection with an investment in the Shares of
the Trust.
Per Share Total
--------- -----
Price to Public............................... $ $
Sales Load.................................... None None
Proceeds, before expenses, to the Trust....... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
Delivery and payment for the Shares will be on or about .
(Continued from cover page)
We have granted the Underwriters a 45-day option to purchase up to
additional Shares, solely to cover over-allotments, which they may exercise
up to three times during the 45-day period at the public offering price on
the same terms and conditions described herein. Assuming all those
additional Shares are purchased by the Underwriters, the total proceeds to
the Trust from the offering would be $ . The Trust will pay offering
expenses of $ ($ if the over-allotment option is exercised in full),
which will be deducted from the total proceeds of the offering. BlackRock
Advisors, Inc. or an affiliate will pay all of the organizational expenses
of the Trust. BlackRock Advisors, Inc. or an affiliate will also pay all
offering expenses that exceed $0.02 per Share.
This Prospectus provides information about the Trust that you should know
before investing in the Trust. You should read this Prospectus carefully
and retain it for future reference. The Securities and Exchange Commission
maintains an Internet World Wide Web site (http://www.sec.gov) that
contains this Prospectus. You may call or write the Trust at 345 Park
Avenue, New York, New York 10154, telephone number 800-227-7236.
An investment in the Trust is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY.........................................................1
TRUST EXPENSES............................................................15
THE TRUST.................................................................17
USE OF PROCEEDS...........................................................17
INVESTMENT OBJECTIVES AND POLICIES........................................18
OTHER INVESTMENT PRACTICES................................................27
RISK FACTORS AND SPECIAL CONSIDERATIONS...................................35
INVESTMENT RESTRICTIONS...................................................44
MANAGEMENT OF THE TRUST...................................................46
TRUSTEES AND OFFICERS OF THE TRUST........................................52
PORTFOLIO TRANSACTIONS....................................................56
DETERMINATION OF NET ASSET VALUE..........................................58
DIVIDENDS AND DISTRIBUTIONS...............................................60
TAXES.....................................................................61
AUTOMATIC DIVIDEND REINVESTMENT PLAN......................................63
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT......................64
DESCRIPTION OF SHARES.....................................................65
UNDERWRITING..............................................................68
LEGAL PROCEEDINGS.........................................................71
ADDITIONAL INFORMATION....................................................71
LEGAL OPINIONS............................................................71
EXPERTS...................................................................71
REPORT OF INDEPENDENT ACCOUNTANTS.........................................72
STATEMENT OF ASSETS AND LIABILITIES.......................................73
STATEMENT OF OPERATIONS...................................................73
APPENDIX A RATINGS OF CORPORATE BONDS...................................A-1
APPENDIX B CERTAIN CHARACTERISTICS AND RISKS OF FUTURES AND OPTIONS.....B-1
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may not
contain all the information that is important to you. To understand this
offering fully, you should read the entire Prospectus carefully. In
particular, you should read carefully and consider the information provided
under the heading "Risk Factors and Special Considerations" beginning on
page 35.
THE TRUST The formal name of this trust is The BlackRock
Senior Income Trust. Throughout this Prospectus,
we will refer to The BlackRock Senior Income
Trust simply as the "Trust" or as "we," "us" or
"our." The Trust is a non-diversified,
closed-end fund. BlackRock Advisors, Inc., a
global asset management company with
approximately $132 billion of assets under
management, will act as our investment adviser
and its affiliate, BlackRock Financial
Management, Inc. (or "BlackRock") will handle
the day-to-day investment management of the
Trust.
THE OFFERING By this Prospectus, we are offering Shares
of the Trust through a group of underwriters
(the "Underwriters") led by . The
Underwriters have been granted an option to
purchase up to additional Shares solely to
cover over-allotments, if any. The initial
public offering price is $ per Share. The
minimum purchase in this offering is 100 Shares
($ ). See "Underwriting."
SALES CHARGE PAYABLE BY BlackRock Advisors, Inc. or one of its affiliates
BLACKROCK ADVISORS, INC (not the Trust or its investors) will pay out of
its own assets the sales load for sales of
Shares in this offering. See "Underwriting."
INVESTMENT OBJECTIVES INVESTMENT OBJECTIVES. Our objective is to
AND POLICIES generate high current income, consistent with
preservation of capital. We will invest our
assets primarily in senior secured floating rate
loans ("Senior Loans") made to corporations,
partnerships and other business entities
("Borrowers") which operate in various
industries and geographical regions. Senior
Loans pay interest at rates which adjust
periodically by reference to a base lending
rate, such as the London Interbank Offered Rate
("LIBOR"), plus a premium. The Trust is designed
for investors willing to assume additional risk
in return for the potential for high current
income. The Trust is not intended to be a
complete investment program. There is no
guarantee or assurance that the Trust will
achieve its objective.
INVESTMENT POLICIES. Under normal market
conditions, we expect to have at least 80% of
our total assets invested in Senior Loans. The
Trust may invest up to 20% of its total assets
in certain other securities that would provide
high current income ("High Yield Securities"):
loan interests which are not secured by any, or
that have lower than a senior claim on,
collateral; other income producing securities
such as investment and non-investment grade
corporate debt securities; U.S. government and
U.S. dollar-denominated foreign government or
supranational debt securities; and warrants and
equity securities acquired in connection with
Senior Loans. The Trust may also engage in
lending of its securities, repurchase
agreements, reverse repurchase agreements and,
for hedging and risk management purposes,
certain derivative transactions. See "Investment
Objective, Policies and Risks."
-- SENIOR LOANS. A Senior Loan is typically
originated, negotiated and structured by a U.S.
or foreign commercial bank, insurance company,
finance company or other financial institution
(the "Agent") for a lending syndicate of
financial institutions ("Lenders"). The Agent is
responsible for negotiating the loan agreement
or note purchase agreement between the Borrower
and the Lender or lending syndicate (the "Loan
Agreement") that establishes the terms and
conditions of the Senior Loan and the rights of
the Borrower and the Lenders. The Trust may act
as one of the group of original Lenders
originating a Senior Loan, may purchase
"Assignments" of portions of Senior Loans from
third parties and may invest in participations
in Senior Loans ("Participations"). The
purchaser of an Assignment typically succeeds to
all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a
Lender under the Loan Agreement with the same
rights and obligations as the assigning Lender.
Assignments may, however, be arranged through
private negotiations between potential assignees
and potential assignors, and the rights and
obligations acquired by the purchaser of an
Assignment may differ from, and be more limited
than, those held by the assigning Lender. Senior
Loans also may include senior debt that is in
the form of notes and not Loan Agreements.
The interest rates on Senior Loans adjust
periodically, and the Trust's portfolio of
Senior Loans will have a dollar-weighted average
time until the next interest rate adjustment of
approximately 90 days or less. Senior Loans have
the most senior position in a Borrower's capital
structure, although some Senior Loans may hold
an equal ranking with other senior securities of
the Borrower. Although Senior Loans have the
most senior position in a Borrower's capital
structure and are secured by specific
collateral, they are typically of below
investment grade quality and may have below
investment grade ratings, which ratings are
associated with securities having speculative
characteristics.
-- LOWER-GRADE SECURITIES. The Trust may invest
in Senior Loans and other income producing
securities that are high-risk, high yield
securities which, if rated at the time of
purchase, are rated lower than Baa by Moody's
Investors Service, Inc. (or "Moody's"), lower
than BBB by Standard & Poor's Ratings Group (or
"S&P") or similarly rated by other rating
agencies. Bond ratings are assigned by a rating
agency based on the agency's determination of
the ability of the issuer to pay interest and
repay principal when due. Bonds rated Baa/BBB
and higher are described as "investment grade,"
while lower grade securities (those with ratings
lower than Baa/BBB or unrated bonds of similar
quality) are classified as "non-investment
grade" or "junk bonds." We will invest in lower
grade securities, which may include securities
that are not rated by any rating agency but
which BlackRock believes to be comparable to
securities rated lower grade.
-- FOREIGN SECURITIES. Although it does not
currently expect to do so, the Trust may invest
up to 15% of its total assets in Senior Loans
and other income producing securities of issuers
that are organized or located in countries other
than the United States, provided that such
investments are denominated in U.S. dollars and
provide for payment of interest and repayment of
principal in U.S. dollars ("Foreign
Securities"). Foreign Securities include income
securities issued by foreign governments and
other sovereign entities and debt securities
issued by foreign corporations. Typically, the
Trust will not hold any Foreign Securities of
issuers in so-called "emerging markets" (or
lesser developed countries), and in any case the
Trust will not invest more than 10% of its total
assets in such securities.
-- OTHER SECURITIEs. For a description of other
securities in which the Trust may invest, see
"Investment Objectives and Policies."
INVESTMENT STRATEGY. In selecting Senior Loans
and other income securities 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. BlackRock's analysis
may include:
o credit research on the issuers' financial
strength;
o assessment of the issuers' ability to meet
principal and interest payments;
o general industry trends;
o the issuers' managerial strength;
o changing financial conditions;
o borrowing requirements or debt maturity
schedules; and
o the issuers' responsiveness to changes in
business conditions and interest rates.
BlackRock may also consider relative values
among issuers based on anticipated cash flow,
interest or dividend coverage, asset coverage
and earnings prospects.
In certain market conditions, 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,
short-term income securities. In such
conditions, the Trust may decide to invest less
than 80% of its total assets in Senior Loans.
RISK MANAGEMENT. BlackRock's approach to
managing high yield investments is to apply its
risk management framework by using proprietary
technology and value-oriented security selection
to identify the securities that are expected to
deliver the highest yield for the amount of risk
assumed. The Trust's investment strategy
emphasizes risk management through the following
process:
o performing individual, company-by-company
credit research to seek to select securities
which BlackRock believes will be able to
meet its debt obligations;
o performing sector analysis to determine the
sectors which BlackRock expects to have
stable or improving credit quality in the
future; and
o utilizing the expertise and experience of
the management team to make investment
decisions.
BlackRock believes that Senior Loans tend to
have more favorable loss recovery rates as
compared to most other types of below investment
grade quality debt obligations. Investing in
Senior Loans does, however, involve investment
risk, and some Borrowers default on their Senior
Loan payments. As a result, the Trust is highly
dependent on BlackRock's credit analysis
abilities.
INVESTMENT PRACTICES. In seeking to achieve our
investment objectives, we may also use a number
of other investment practices and techniques,
including:
-- LEVERAGE. We expect to use financial leverage
through borrowing money to purchase additional
securities, the issuance of preferred shares or
through other transactions such as reverse
repurchase agreements, which have the effect of
financial leverage. We expect that as the Trust
becomes fully invested we will use financial
leverage in an amount up to 331/3 % of our total
assets (including the amount obtained through
leverage). Use of financial leverage creates the
opportunity for higher income for the
Shareholders but, at the same time, magnifies
the effect of any losses and involves other
risks described below.
-- OTHER INVESTMENT MANAGEMENT TECHNIQUES.
Although not intended to be a significant
element in the Trust's investment strategy, from
time to time the Trust may use various other
investment management techniques that also
involve certain risks and special
considerations, including:
o engaging in repurchase and reverse
repurchase agreements;
o engaging in certain derivative transactions
for hedging and risk management purposes;
o using options and financial futures;
o making forward commitments; and
o lending the Trust's portfolio securities.
MANAGEMENT OF THE TRUST BlackRock Advisors, Inc. will act as our
investment adviser. BlackRock Advisors, Inc. is
a global asset management company that manages a
broad range of investment products, including a
family of 36 open-end funds (i.e., mutual funds)
and 21closed-end funds, for clients worldwide.
BlackRock Advisors, Inc. manages client assets
totaling over $132 billion. BlackRock Advisors,
Inc. has appointed BlackRock Financial
Management, Inc. (or "BlackRock"), one of its
affiliates, to handle the day-to-day investment
management of the Trust. BlackRock was founded
in 1988 and manages stocks, bonds and money
market instruments on a global basis. BlackRock
has expertise in the government, mortgage,
corporate, asset-backed, non-dollar, high yield
and municipal sectors of the fixed-income
securities market. BlackRock currently manages
approximately $66 billion in fixed income assets
invested across the credit quality spectrum and
yield curve. BlackRock also manages
approximately $50 billion in cash or other short
term, highly liquid investments, $14 billion of
equity securities and $2 billion in various
alternative investments.
MANAGEMENT FEE The Trust will pay BlackRock Advisors, Inc. a
monthly fee at the annual rate of % of the
"Managed Assets." Managed Assets equals the
average weekly value of the total assets of the
Trust (including those assets purchased with
leverage) minus the sum of accrued liabilities
(other than the aggregate indebtedness
constituting financial leverage). The advisory
fee that we will pay to BlackRock Advisors, Inc.
will be higher if the Trust uses financial
leverage than if the Trust does not use such
leverage.
ADMINISTRATORS 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 annual rate of 0.15%.
LISTING Prior to this Offering, there has been no public
market for the Shares. The Trust has applied for
listing on the New York Stock Exchange of its
Shares under the symbol " ."
DIVIDENDS AND OTHER We intend to pay monthly distributions to
DISTRIBUTIONS Shareholders from our net investment income.
Distributions to Shareholders cannot be assured,
and the amount of each monthly distribution will
vary. The initial distribution is expected to be
paid approximately 60 days after the date of
this Prospectus. See "Taxes," "Automatic
Dividend Reinvestment Plan" and "Use of
Proceeds."
AUTOMATIC DIVIDEND We have established an Automatic Dividend
REINVESTMENT PLAN Reinvestment Plan (the "Plan"). Under the Plan,
all distributions from the Trust will
automatically be reinvested in additional Shares
of the Trust. These additional Shares will be
newly issued by the Trust. Shareholders who want
distributions to be paid in cash must elect to
do so. Shareholders who intend to hold their
Shares through a broker should contact their
broker to determine whether or how they may
participate in the Plan. See "Automatic Dividend
Reinvestment Plan."
CLOSED-END FUND STRUCTURE The Trust is a newly-organized closed-end fund.
Closed-end funds differ from open-end funds
(which are commonly referred to as mutual funds)
in that closed-end funds, unlike mutual funds,
generally list their shares for trading on a
stock exchange and do not redeem their shares at
the request of a shareholder. This means that if
you wish to sell your shares of a closed-end
fund you must trade them on the market like any
other stock at the price prevailing in the
market for the shares at that time. With a
mutual fund, shares may be redeemed or bought
back by the mutual fund at "net asset value" if
a shareholder wishes to sell the shares of the
fund. Also, mutual funds generally offer new
shares of the fund on a continuous basis to new
investors, whereas closed-end funds do not.
Closed-end funds also have greater flexibility
to make certain types of investments and to use
certain investment strategies, such as financial
leverage.
However, shares of closed-end funds frequently
trade at a discount to their net asset value.
Because of this possibility, which may not be in
the interest of Shareholders, the Trust's Board
of Trustees might consider engaging in open
market repurchases, tender offers for Shares at
net asset value or other programs intended to
reduce the discount. There is, of course, no
guarantee or assurance that the Board of
Trustees will decide to engage in any of these
actions. Nor is there any guarantee or assurance
that such actions, if undertaken, would result
in the Shares trading at a price equal or close
to net asset value per Share.
RISK FACTORS AND SPECIAL You should carefully consider your ability to
CONSIDERATIONS assume the following risks before investing in
the Shares of the Trust. You should not consider
an investment in the Shares as a complete
investment program. You should also read
carefully the section of this Prospectus titled
"Risk Factors and Special Considerations" which
begins on page 35.
GENERAL. As a newly-organized fund, the Trust
has no operating history. The Shares are
designed primarily for investors who plan to
invest and hold their investment for the long
term. Therefore, you should not consider the
Shares as a vehicle for trading purposes. The
net asset value of the Shares will fluctuate
with changes in interest rates, as well as with
changes in the prices of the securities owned by
the Trust. These fluctuations are likely to be
greater when the Trust is using financial
leverage.
SENIOR LOAN MARKET. Senior Loans in which the
Trust will invest may not be rated by a
nationally recognized statistical rating
organization, will not be registered with the
SEC or any state securities commission and
generally will not be listed on any national
securities exchange. Although the Trust will
have access to financial and other information
made available to the Lenders in connection with
Senior Loans, the amount of public information
available with respect to Senior Loans will
generally be less extensive than that available
for rated, registered or exchange listed
securities. Therefore, the performance of the
Trust is more dependent on the analytical
abilities of BlackRock than would be the case
for an investment company that invests primarily
in more widely rated, registered or
exchange-listed securities. In evaluating the
creditworthiness of Borrowers, BlackRock will
consider, and may rely in part, on analyses
performed by others. Moreover, Senior Loans may
be less liquid than many other types of income
securities, which may impair the Trust's ability
to realize the full value of its assets in the
event of a voluntary or involuntary liquidation
of such assets.
LOWER-GRADE SECURITIES. The Trust may invest in
high-risk, high yield Senior Loans and other
income producing securities of lower grade
quality. Lower grade securities expose the Trust
to greater risks than a fund that owns higher
grade securities. Because of the substantial
risks associated with lower grade securities,
you could lose money on your investment in
Shares of the Trust, both in the short-term and
the long-term. Here are some risks you should
consider with respect to investments in
interests in Senior Loans and lower grade
securities.
o CREDIT RISK. Credit risk refers to an
issuer's ability to make payments of
principal and interest when they are due.
Because the Trust will own securities with
low credit quality, it will be subject to a
high level of credit risk. Senior Loans and
other debt obligations, are subject to risk
of non-payment of scheduled interest or
principal. Such non-payment would result in a
reduction of income to the Trust, a reduction
in the value of the debt instrument
experiencing non-payment and a potential
decrease in the net asset value of the Trust.
Although Senior Loans in which the Trust will
invest will be secured by specific
collateral, there can be no assurance that
liquidation of such collateral would satisfy
the Borrower's obligation in the event of
default or that such collateral could be
readily liquidated. Senior Loans and the
other debt securities in which the Trust may
invest typically will be below investment
grade quality. Such investments generally
have speculative characteristics, and
companies obligated by such debt are
generally more vulnerable in an economic
downturn. In the event of bankruptcy of a
Borrower, the Trust could experience delays
or limitations in its ability to realize the
benefits of any collateral securing a Senior
Loan. In addition, the Trust may purchase
interests in Senior Loans from financial
intermediaries whereby the Trust depends on
the intermediary for payment of principal and
interest on the Senior Loan. A decline in the
financial soundness of such intermediaries
may, therefore, adversely affect the Trust.
Because the Trust will also own other income
securities and Senior Loans with low credit
quality, it will be subject to a high level
of credit risk. The credit quality of such
securities is considered speculative by
rating agencies with respect to the issuer's
ability to pay interest or principal. The
prices of lower grade securities are more
sensitive to negative corporate developments,
such as a decline in profits, or adverse
economic conditions, such as a recession,
than are the prices of higher grade
securities. Securities that have longer
maturities or that do not make regular
interest payments also fluctuate more in
price in response to negative corporate or
economic news. Therefore, lower grade
securities may experience higher default
rates, which would mean that the Trust may
lose some of its investment in such
securities, which would adversely affect the
Trust's net asset value and could adversely
affect its ability to make distributions. See
"Investment Objective, Policies and Risks."
o INCOME RISK. The income investors receive
from the Trust is based primarily on the
interest it earns from its investments, which
can vary widely over the short and long-term.
If interest rates drop, investors' income
from the Trust can be expected to drop as the
interest rates on Senior Loans adjust.
o LIQUIDITY RISK. Senior Loans, at present, are
generally not readily marketable and may be
subject to restrictions on resale. Interests
in Senior Loans generally are not listed on
any national securities exchange or automated
quotation system and no active trading market
may exist for many of the Senior Loans in
which the Trust will invest. Where a
secondary market exists, such market may be
subject to irregular trading activity, wide
bid/ask spreads and extended trade settlement
periods. Senior Loans are thus relatively
illiquid, which illiquidity may impair the
Trust's ability to realize the full value of
its assets in the event of a voluntary or
involuntary liquidation of such assets. The
Trust has no limitation on the amount of its
assets which may be invested in securities
which are not readily marketable or are
subject to restrictions on resale. The
substantial portion of the Trust's assets
invested in Senior Loan interests may
restrict the ability of the Trust to dispose
of its investments in a timely fashion and at
a fair price, and could result in capital
losses to the Trust and holders of Shares.
The Trust may invest in other securities for
which there is no readily available trading
market or which are otherwise illiquid. The
Trust may not be able to readily dispose of
Senior Loans and other income 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. In addition, the
limited liquidity could affect the market
price of the securities, thereby adversely
affecting the Trust's net asset value and
ability to make dividend distributions.
Additional risks you should consider with
respect to Senior Loans.
o MARKET RISK. When interest rates decline, the
value of a portfolio invested in fixed-rate
obligations can be expected to rise.
Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate
obligations can be expected to decline.
Although the Trust's net asset value will
vary, the Trust's management expects the
Trust's policy of acquiring primarily
interests in floating rate Senior Loans to
minimize fluctuations in net asset value
resulting from changes in market interest
rates. However, because floating or variable
rates on Senior Loans only reset
periodically, changes in prevailing interest
rates can be expected to cause some
fluctuation in the Trust's net asset value.
Similarly, a sudden and significant increase
in market interest rates may cause a decline
in the Trust's net asset value.
o RISKS ASSOCIATED WITH INVESTMENT IN
PARTICIPATIONS. The Trust will purchase
Participations in Senior Loans. The Trust may
invest up to 100% of its assets in
Participations. The selling lenders and other
persons interpositioned between such Lenders
and the Trust with respect to such
Participations will likely conduct their
principal business activities in the banking,
finance and financial services industries.
Although, as discussed below, the Trust has
taken measures which it believes reduce its
exposure to any risks incident to such
policy, the Trust may be more susceptible
than an investment company without such a
policy to any single economic, political or
regulatory occurrence affecting such
industries. Persons engaged in such
industries may be more susceptible than are
persons engaged in some other industry to,
among other things, fluctuations in interest
rates, changes in the Federal Open Market
Committee's monetary policy, governmental
regulations concerning such industries and
concerning capital raising activities
generally and fluctuations in the financial
markets generally.
With respect to any given Senior Loan, the
terms of Participations may result in the
Trust having rights which differ from, and
are more limited than, the rights of Lenders
or of persons who acquire such interests by
Assignment. Participations typically will
result in the Trust having a contractual
relationship with the Lender selling the
Participation, but not with the Borrower. As
a result, the Trust may have the right to
receive payments of principal, interest and
any fees to which it is entitled only from
the Lender selling the Participation and only
upon receipt by such Lender of such payments
from the Borrower. In connection with
purchasing Participations, the Trust
generally will have no right to enforce
compliance by the Borrower with the terms of
the Loan Agreement, nor any rights with
respect to any funds acquired by other
Lenders through set-off against the Borrower
and the Trust may not directly benefit from
the collateral supporting the Senior Loan in
which it has purchased the Participation. As
a result, the Trust may assume the credit
risk of both the Borrower and the Lender
selling the Participation. In the event of
the insolvency of the Lender selling a
Participation, the Trust may be treated as a
general creditor of such Lender.
In the event of the insolvency of the Lender
selling the Participation, the Trust may be
treated as a general creditor of such Lender,
and may not have any exclusive or senior
claim with respect to such Lender's interest
in, or the collateral with respect to, the
Senior Loan. As such, the Trust may incur the
credit risk of the Lender selling the
Participation in addition to the credit risk
of the Borrower with respect to the Senior
Loan when purchasing Participations and may
not benefit directly from the security
provided by any collateral supporting the
Senior Loan with respect to which such
Participation was sold. The Trust has
implemented measures designed to reduce such
risk but no assurances can be given as to
their effectiveness. The Trust may pay a fee
or forgo a portion of interest payments when
acquiring Participations or Assignments. See
"Investment Objective and Policies and Risk
Factors and Special Considerations."
Additional risks you should consider with
respect to lower-grade securities.
o MARKET RISK. The prices of income securities
tend to fall as interest rates rise.
Securities that have longer maturities tend
to fluctuate more in price in response to
changes in market interest rates. A decline
in the prices of the income securities owned
by the Trust would cause a decline in the net
asset value of the Trust, which could
adversely affect the trading price of the
Trust's Shares. This "market risk" is usually
greater among income securities with longer
maturities or durations. Market risk is often
greater among certain types of income
securities, such as zero-coupon bonds, which
do not make regular interest payments. As
interest rates change, these bonds often
fluctuate in price more than higher quality
bonds that make regular interest payments.
Because the Trust may invest in these types
of income securities, it may be subject to
greater market risk than a fund that invests
only in current interest paying securities.
o CALL RISK. If interest rates fall, it is
possible that issuers of callable bonds with
high interest coupons will "call" (or prepay)
their bonds before their maturity date. 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. If
that were to happen, it would decrease the
Trust's net investment income.
FOREIGN SECURITIES. The Trust may invest up to
15% of its total assets in Senior Loans and
other income producing securities of issuers
that are organized or located in countries other
than the United States, provided that such
investments are denominated in U.S. dollars and
provide for the payment of interest and
repayment of principal in U.S. dollars. Such
investments involve certain risks not involved
in domestic investments. Securities markets in
foreign countries are not as developed,
efficient or liquid as the United States
markets. Therefore, the prices of foreign
securities often are volatile. Certain foreign
countries may impose restrictions on the ability
of issuers of foreign securities to make
payments of principal and interest to investors
located outside the country, due to blockage of
foreign currency exchanges or otherwise. In
addition, the Trust will be subject to risks
associated with adverse political and economic
developments in foreign countries, which could
cause the Trust to lose money on its investments
in foreign securities. Typically, the Trust will
not hold any foreign securities of issuers in
so-called "emerging markets" (or lesser
developed countries), and in any case the Trust
will not invest more than 10% of its total
assets in such securities. Investments in such
securities are particularly speculative.
LEVERAGE. Although the use of leverage by the
Trust may create an opportunity for increased
net income and capital appreciation for the
Shares, it also results in additional risks and
can magnify the effect of any losses. If the
income and gains earned on securities purchased
with leverage proceeds are greater than the cost
of leverage, the Trust's return will be greater
than if leverage had not been used. Conversely,
if the income or gains from the securities
purchased with such proceeds does not cover the
cost of leverage, the return to the Trust will
be less than if leverage had not been used.
Because leverage achieved through borrowings is
expected to be based on a floating rate of
interest that fluctuates similarly to the
floating rate on Senior Loans in the Trust's
portfolio, BlackRock believes that market
interest rate fluctuations should not adversely
affect returns on Senior Loans obtained with the
proceeds of such borrowings. There is no
assurance that a leveraging strategy will be
successful. Leverage involves risks and special
considerations for Shareholders including:
o the likelihood of greater volatility of net
asset value and market price of the Shares
than a comparable portfolio without leverage;
o the risk that fluctuations in interest rates
on borrowings and short term debt or in the
dividend rates on any preferred stock that
the Trust must pay will reduce the return to
the Shareholders;
o the effect of leverage in a declining market,
which is likely to cause a greater decline in
the net asset value of the Shares than if the
Trust were not leveraged, which may result in
a greater decline in the market price of the
Shares; and
o when the Trust uses financial leverage, the
investment advisory fees payable to BlackRock
Advisors, Inc. will be higher than if the
Trust did not use leverage.
Any requirement that the Trust sell assets at
prices below that at which the Trust is
currently valuing such assets in order to reduce
any leverage or for other reasons would reduce
the Trust's net asset value and also make it
difficult for the net asset value to recover.
BlackRock in its best judgment nevertheless may
determine to continue to use leverage if it
expects that the long term benefits to the
Trust's Shareholders of maintaining the
leveraged position will outweigh the current
reduced return.
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, if any, 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"). BlackRock does not believe that
these covenants or guidelines will impede
BlackRock from managing the Trust's portfolio in
accordance with the Trust's investment
objectives and policies.
OTHER INVESTMENT MANAGEMENT TECHNIQUES. The
Trust may use various other investment
management techniques that also involve certain
risks and special considerations, including
engaging in hedging and risk management
transactions (which we refer to as "Strategic
Transactions") including interest rate and
foreign currency transactions, options, futures,
swaps and other derivatives transactions.
Strategic Transactions will be entered into to
seek to manage the risks of the Trust's
portfolio of securities, but may have the effect
of limiting the gains from favorable market
movements. Strategic Transactions involve risks,
including (i) that the loss on the Strategic
Transaction position may be larger than the gain
in the portfolio position being hedged and (ii)
that the derivative instruments used in
Strategic Transactions may not be liquid and may
require the Trust to pay additional amounts of
money. Successful use of Strategic Transactions
depends on BlackRock's ability to correctly
predict market movements which, of course,
cannot be assured. Losses on Strategic
Transactions may reduce the Trust's net asset
value and its ability to pay dividends if they
are not offset by gains on the portfolio
positions being hedged. The Trust may also lend
the securities it owns to others, which allows
the Trust the opportunity to earn additional
income. Although the Trust will require the
borrower of the securities to post collateral
for the loan and the terms of the loan will
require that the Trust be able to reacquire the
loaned securities if certain events occur, the
Trust is still subject to the risk that the
borrower of the securities may default, which
could result in the Trust losing money, which
would result in a decline in the Trust's net
asset value. The Trust may also purchase
securities for delayed settlement. This means
that the Trust is generally obligated to
purchase the securities at a future date for a
set purchase price, regardless of whether the
value of the securities is more or less than the
purchase price at the time of settlement.
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 affected by such factors as
the 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 public
offering price. Shares of closed-end funds often
trade at a discount to their net asset values
and the Trust's Shares may trade at such a
discount. This risk may be greater for investors
expecting to sell their Shares of the Trust soon
after completion of the public offering. 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."
NON-DIVERSIFICATION. The Trust has registered as
a "non-diversified" investment company under the
1940 Act. Under federal income tax rules
applicable to the Trust, with respect to 50% of
its assets, it will be able to invest more than
5% of the value of its assets in the obligations
of any single issuer, although it has no current
intention to do so. The Trust will not invest
more than 10% of its assets in securities
(including interests in Senior Loans) of any
single Borrower. To the extent the Trust invests
a relatively high percentage of its assets in
obligations of a limited number of issuers, the
Trust may be more susceptible than a more widely
diversified investment company to any single
corporate, economic, political or regulatory
occurrence.
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."
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 Issue." BlackRock is
taking steps to address the Year 2000 Issue 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, we cannot give
any assurance that these steps will be
sufficient to avoid any adverse impact on the
Trust.
TRUST EXPENSES
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.
ASSUMING
331/3%
LEVERAGE (1)
------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load and Underwriting Commissions (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)
Management Fee................................................... %
Administration Fees.............................................. %
Interest Payments on Borrowed Funds.............................. %
Other Expenses (2)............................................... %
----------
Total Annual Trust Expense................................. %
==========
- ------------
(1) The Trust intends to use leverage only if BlackRock believes that it
would result in higher income to Shareholders over time. See "Other
Investment Practices--Leverage" and "Risk Factors and Special
Considerations--Leverage." The table above assumes borrowings of 331/3%
of total assets (including the amount borrowed) at an annualized
interest rate of 5.60%, which is based upon the Trust's estimation of
current market conditions. The actual rate could be higher or lower. At
times when the Trust does not use leverage, the estimated annual
operating expenses would be:
ASSUMING
NO
LEVERAGE
----------
Management Fee................................ 1.05%
Administration Fees........................... 0.15%
Interest Payments on Borrowed Funds........... None
Other Expenses (2)............................ 0.10%
----------
Total Annual Trust Expenses............... 1.30%
==========
(2) Reflects estimated amounts for the Trust's first year of operations.
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
aforementioned table. An investor would directly or indirectly pay the
following expenses on a $1,000 investment in the Trust, assuming (i) total
annual expenses of 1.30% (assuming no leverage) and 4.76% (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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
Assuming No Leverage....... $ 13 $ 41 $ 71 $157
Assuming 331/3% Leverage... $ 48 $143 $239 $482
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 Senior Income Trust (the "Trust") is registered under the
Investment Company Act as a non-diversified, closed-end management
investment company. The Trust was organized as a business trust under the
laws of Delaware on February , 1999 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 1-800-227-7236. BlackRock Advisors, Inc.
is the Trust's investment adviser. BlackRock Advisors, Inc. has entered
into a sub-advisory agreement with its wholly-owned subsidiary, BlackRock
Financial Management, Inc. (or "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 is offering its shares of beneficial interest, par value $.001
per share (the "Shares") in its initial public offering (the "Offering") as
described in this Prospectus. By this Prospectus, we are offering Shares of
the Trust at a public offering price of $ per Share. BlackRock Advisors,
Inc. or one of its affiliates (not the Trust or its investors) will pay the
sales load or underwriting commission on the Shares you buy from its own
assets to the Underwriters in this offering equal to % of the public
offering price per Share. See "Underwriters." The minimum number of Shares
you can buy in the Offering is 100 Shares.
USE OF PROCEEDS
The net proceeds of the Trust from this Offering, before deducting offering
expenses, are approximately $ ($ if the Underwriters' over-allotment
option is exercised in full). 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. BlackRock Advisors, Inc. or one of its
affiliates will pay all of the organizational expenses of the Trust.
BlackRock Advisors, Inc. or one of its affiliates will also pay all
offering expenses of the Trust that exceed $0.02 per Share.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Trust's primary investment objective is to seek high current income,
consistent with the preservation of capital. The Trust is designed for
investors willing to assume additional risk in return for the potential for
high current income. The Trust is not intended to be a complete investment
program and there is no guarantee or assurance that the Trust will achieve
its objective. 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
In line with our investment objective, we will invest our assets primarily
in senior secured floating rate loans ("Senior Loans") made to
corporations, partnerships and other business entities ("Borrowers") which
operate in various industries and geographical regions. Senior Loans pay
interest at rates which are redetermined periodically by reference to a
base lending rate, such as the London Interbank Offered Rate ("LIBOR"),
plus a premium. Under normal market conditions, we expect to have at least
80% of our total assets invested in Senior Loans. The Trust may invest up
to 20% of its total assets in: loan interests which are not secured by any,
or that have lower than a senior claim on, collateral; other income
producing securities such as investment and non-investment grade corporate
debt securities and U.S. government and U.S. dollar-denominated foreign
government or supranational debt securities; and warrants and equity
securities acquired in connection with Senior Loans. The Trust may also
engage in lending of its securities, repurchase agreements, reverse
repurchase agreements and, for hedging and risk management purposes,
certain derivative transactions.
- -SENIOR LOANS. A Senior Loan is typically originated, negotiated and
structured by a U.S. or foreign commercial bank, insurance company, finance
company or other financial institution (the "Agent") for a lending
syndicate of financial institutions ("Lenders"). The Agent is responsible
for negotiating the loan agreement or note purchase agreement between the
Borrower and the Lender or lending syndicate (the "Loan Agreement") that
establishes the terms and conditions of the Senior Loan and the rights of
the Borrower and the Lenders. The Trust may act as one of the group of
original Lenders originating a Senior Loan, may purchase "Assignments" of
portions of Senior Loans from third parties and may invest in
Participations in Senior Loans. The purchaser of an Assignment typically
succeeds to all the rights and obligations under the Loan Agreement of the
assigning Lender and becomes a Lender under the Loan Agreement with the
same rights and obligations as the assigning Lender. Assignments may,
however, be arranged through private negotiations between potential
assignees and potential assignors, and the rights and obligations acquired
by the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender. Senior Loans also may include
senior debt that is in the form of notes and not Loan Agreements.
The interest rates on Senior Loans adjust periodically, and the Trust's
portfolio of Senior Loans will have a dollar-weighted average time until
the next interest rate adjustment of approximately 90 days or less. Senior
Loans have the most senior position in a borrower's capital structure,
although some Senior Loans may have an equal ranking with other senior
securities of the Borrower. Although Senior Loans have the most senior
position in a Borrower's capital structure and are secured by specific
collateral, they are typically of below investment grade quality and may
have below investment grade ratings, which ratings are associated with
securities having speculative characteristics.
BlackRock believes that Senior Loans tend to have more favorable loss
recovery rates as compared to most other types of below investment grade
quality debt obligations. Investing in Senior Loans does, however, involve
investment risk, and some Borrowers default on their Senior Loan payments.
The Trust attempts to manage these risks through portfolio diversification
and ongoing analysis and monitoring of Borrowers. As a result, the Trust is
highly dependent on BlackRock's credit analysis abilities.
The Trust also may invest up to 5% of its total assets in structured notes
with rates of return determined by reference to the total rate of return on
one or more Senior Loans referenced in such notes. The rate of return on
the structured note may be determined by applying a multiplier to the rate
of total return on the referenced Senior Loan or Loans. Application of a
multiplier is comparable to the use of financial leverage, a speculative
technique. Leverage magnifies the potential for gain and the risk of loss;
as a result, a relatively small decline in the value of a referenced Loan
could result in a relatively large loss in the value of a structured note.
See "Use of Leverage and Related Risks" below. Structured notes will be
treated as Senior Loans for purposes of the Trust's policy of normally
investing at least 80% of its assets in Senior Loans.
- -LOWER-GRADE SECURITIES. The Trust may invest in Senior Loans and other
income producing securities that are high-risk, high yield securities
which, if rated at the time of purchase, are rated lower than Baa by
Moody's Investors Service, Inc. (or "Moody's"), lower than BBB by Standard
& Poor's Ratings Group (or "S&P") or similarly rated by other rating
agencies. Bond ratings are assigned by a rating agency based on the
agency's determination of the ability of the issuer to pay interest and
repay principal when due. Bonds rated Baa/BBB and higher are described as
"investment grade," while lower grade securities (those with ratings lower
than Baa/BBB or unrated bonds of similar quality) are classified as
"non-investment grade" or "junk bonds." We will invest primarily in lower
grade securities, which may include securities that are not rated by any
rating agency but which BlackRock believes to be comparable to securities
rated lower grade.
- -FOREIGN SECURITIES
Although it does not currently expect to do so, the Trust may invest up to
15% of its total assets in Senior Loans and other income producing
securities or issuers that are organized or located in countries other than
the United States, provided that such investments and denominated in U.S.
dollars and provide that such investments are denominated in U.S. dollars
and provide for payment of interest and repayment of principal in U.S.
dollars. ("Foreign Securities") Foreign Securities include income
securities issued by foreign governments and other sovereign entities and
debt securities issued by foreign corporations. Typically, the Trust will
not hold any Foreign Securities of issuers in so-called "emerging markets"
(or lesser developed countries), and in any case the Trust will not invest
more than 10% of its total assets in such securities.
- -OTHER INCOME PRODUCING SECURITIES
The Trust, with respect to 20% of its total assets, may purchase a variety
of U.S. and foreign corporate and government debt obligations that are U.S.
dollar-denominated. The Adviser may consider capital appreciation potential
when investing in such income producing debt securities, which may have
fixed, variable or floating rates of interest. These securities may include
(i) interests in loans that are not secured by any, or that have lower than
senior claim on, collateral, (ii) other income producing securities such as
investment and non-investment grade corporate debt securities and U.S.
government and U.S. dollar-denominated foreign government or supranational
debt securities, and (iii) warrants and equity securities issued by a
Borrower acquired in connection with the Trust's investment in Senior
Loans.
INVESTMENT STRATEGY
In selecting Senior Loans and other income securities 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. BlackRock's analysis may include:
o credit research on the issuers' financial strength;
o assessment of the issuers' ability to meet principal and interest
payments;
o general industry trends;
o the issuers' managerial strength;
o changing financial conditions;
o borrowing requirements or debt maturity schedules; and
o the issuers' responsiveness to changes in business conditions and
interest rates.
BlackRock may also consider relative values among issuers based on
anticipated cash flow, interest or dividend coverage, asset coverage and
earnings prospects.
In certain market conditions, 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, short-term income securities. In such conditions, the Trust
may decide to invest less than 80% of its total assets in Senior Loans.
RISK MANAGEMENT
BlackRock's approach to managing high yield investments is to apply its
risk management framework by using proprietary technology and
value-oriented security selection to identify the securities that are
expected to deliver the highest yield for the amount of risk assumed. The
Trust's investment strategy emphasizes risk management through the
following process:
o performing individual, company-by-company credit research to seek to
select securities which BlackRock believes will be able to meet its
debt obligations;
o performing sector analysis to determine the sectors which BlackRock
expects to have stable or improving credit quality in the future; and
o utilizing the expertise and experience of the management team to make
investment decisions.
BlackRock believes that Senior Loans tend to have more favorable loss
recovery rates as compared to most other types of below investment grade
quality debt obligations. Investing in Senior Loans does, however, involve
investment risk, and some Borrowers default on their Senior Loan payments.
As a result, the Trust is highly dependent on BlackRock's credit analysis
abilities.
DESCRIPTION OF SENIOR LOANS
- -GENERAL. Based upon available market data, BlackRock believes that the
overall market for U.S. debt securities, including U.S. government
securities, investment and non-investment grade corporate bonds,
mortgage-related securities and commercial paper, totaled an outstanding
principal amount of approximately $8.4 trillion at the end of 1997, and
that Senior Loans represented approximately $375 billion (or 4.5%) of that
total amount. Senior Loans in which the Trust will invest generally pay
interest at rates that adjust periodically by reference to a base lending
rate, plus a premium. These base lending rates generally are the prime rate
offered by one or more major United States banks (the "Prime Rate"), the
London Interbank Offered Rate ("LIBOR"), the certificate of deposit ("CD")
rate or other base lending rates used by commercial lenders. The following
table is intended to provide investors with a comparison of short-term
money market rates, a representative base commercial lending rate, and a
representative indicator of the premium over such base lending rate for
Senior Loans. The representative indicator shown below is derived from the
DLJ Leveraged Loan Index, which was designed in January 1992. The DLJ
Leveraged Loan Index includes approximately $58 billion of Senior Loans and
new Senior Loan issues are added when they meet certain criteria. The DLJ
Leveraged Loan Index is an unmanaged index and, although BlackRock believes
that the spreads over LIBOR reported in connection with the determination
of the Index (which are an average of the contractual spreads set forth in
the loan agreements relating to the Senior Loans included in the Index) are
representative of the historical average spreads in the overall market for
Senior Loans, the Trust will have no direct investment in, nor will its
performance be indicative of, this Index. [Senior Loans are removed from
the Index if they are in default.] The following comparison should not be
considered a representation of future money market rates, spreads of Senior
Loans over base reference rates nor what an investment in the Trust may
earn or what an investor's yield or total return may be in the future.
<TABLE>
<CAPTION>
COMPARISON OF MONEY MARKET RATE,
LIBOR AND SENIOR LOANS
JAN. JULY JAN. JULY JAN. JULY JAN. JULY JAN. JULY JAN. JULY JAN. JULY JAN.
1992 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 Month Treasury Bill(1)... 3.91% 3.28% 3.07% 3.11% 3.04% 4.46% 5.90% 5.59% 5.15% 5.30% 5.18% 5.19% 5.18% 5.09% %
3 Month LIBOR(2)........... 4.19 3.44 3.25 3.31 3.25 4.88 6.31 5.88 5.38 5.69 5.56 5.75 5.65 5.69
Average Senior Loan Spreads
Plus 3 Month LIBOR(3).... 6.34 5.68 5.72 5.77 5.69 7.19 8.65 8.15 7.69 8.07 8.03 8.10 8.02 8.04
</TABLE>
- --------------------
(1) U.S. Treasury bills offer a government guarantee as to the timely
payment of interest and repayment of principal at maturity. Source:
Bloomberg.
(2) The London Inter-bank Offered Rate, which is used worldwide as a base
for loans to large commercial and industrial companies and may not
generally be invested in directly. Source: Bloomberg.
(3) Derived from reported average Senior Loan spreads in the DLJ Leveraged
Loan Index. The data do not reflect fluctuations in the principal
value of Senior Loans included in the Index. Source: Donaldson, Lufkin
& Jenrette.
It is anticipated that the proceeds of the Senior Loans in which the Trust
will acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a
lesser extent, to finance internal growth and for other corporate purposes
of Borrowers. The capital structure of a Borrower may include Senior Loans,
senior and junior subordinated debt, preferred stock and common stock
issued by the Borrower, typically in descending order of seniority with
respect to claims on the Borrower's assets.
In order to borrow money pursuant to a Senior Loan, a Borrower will
frequently, for the term of the Senior Loan, pledge collateral, including
but not limited to, (i) working capital assets, such as accounts receivable
and inventory; (ii) tangible fixed assets, such as real property, buildings
and equipment; (iii) intangible assets, such as trademarks and patent
rights (but excluding goodwill); and (iv) security interests in shares of
stock of subsidiaries or affiliates. In the case of Senior Loans made to
non-public companies, the company's shareholders or owners may provide
collateral in the form of secured guarantees and/or security interests in
assets that they own. In certain instances, a Senior Loan may be secured
only by stock in the Borrower or its subsidiaries. Collateral may consist
of assets that may not be readily liquidated, and there is no assurance
that the liquidation of such assets would satisfy fully a Borrower's
obligations under a Senior Loan. The Trust will not invest in a Senior Loan
unless, at the time of investment, BlackRock determines that the value of
the collateral equals or exceeds the aggregate outstanding principal amount
of the Senior Loan.
The Trust is not subject to any restrictions with respect to the maturity
of Senior Loans held in its portfolio. Senior Loans typically have a stated
term of between five and nine years, and have rates of interest which
typically are redetermined either daily, monthly, quarterly or
semi-annually. Longer interest rate reset periods generally increase
fluctuations in the Trust's net asset value as a result of changes in
market interest rates. The Senior Loans in the Trust's portfolio will have
a dollar-weighted average period until the next interest rate adjustment of
approximately 90 days or less. As a result, as short-term interest rates
increase, interest payable to the Trust from its investments in Senior
Loans should increase, and as short-term interest rates decrease, interest
payable to the Trust from its investments in Senior Loans should decrease.
The Trust may utilize certain investment practices to, among other things,
shorten the effective interest rate redetermination period of Senior Loans
in its portfolio. Because of prepayments, BlackRock expects the average
life of Senior Loans to be two to three years.
A lender may have certain obligations pursuant to a loan agreement relating
to Senior Loans, which may include the obligation to make additional loans
in certain circumstances. The Trust generally will reserve against such
contingent obligations by segregating a sufficient amount of cash, liquid
securities and liquid Senior Loans, subject to the Trust's borrowing
limitations. The Trust will not purchase interests in Senior Loans that
would require the Trust to make any such additional loans if such
additional loan commitments in the aggregate would exceed 20% of the
Trust's total assets or would cause the Trust to fail to meet its tax
diversification requirements.
The Trust may purchase and retain in its portfolio a Senior Loan where the
Borrower has experienced, or may be perceived to be likely to experience,
credit problems, including involvement in or recent emergence from
bankruptcy reorganization proceedings or other forms of debt restructuring.
Such investments may provide opportunities for enhanced income as well as
capital appreciation. At times, in connection with the restructuring of a
Senior Loan either outside of bankruptcy court or in the context of
bankruptcy court proceedings, the Trust may determine or be required to
accept equity securities or junior debt securities in exchange for all or a
portion of a Senior Loan.
CERTAIN CHARACTERISTICS OF SENIOR LOANS. A Senior Loan is typically
originated, negotiated and structured by a U.S. or foreign commercial bank,
insurance company, finance company or other financial institution (the
"Agent") for a lending syndicate of financial institutions ("Lenders"). The
Agent typically administers and enforces the Senior Loan on behalf of the
other Lenders in the syndicate. In addition, an institution, typically but
not always the Agent, holds any collateral on behalf of the Lenders.
Senior Loans include senior secured floating rate loans and
institutionally traded senior secured floating rate debt obligations issued
by an asset-backed pool, and interests therein. Loan interests generally
take the form of direct interests acquired during a primary distribution
and may also take the form of participation interests in, assignments of,
or novations of a Senior Loan acquired in secondary markets. Such loan
interests may be acquired from U.S. or foreign commercial banks, insurance
companies, finance companies or other financial institutions who have made
loans or are members of a lending syndicate or from other holders of loan
interests.
The Trust may purchase "Assignments" from Lenders. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the
Loan Agreement of the assigning Lender and becomes a Lender under the Loan
Agreement with the same rights and obligations as the assigning Lender.
Assignments may, however, be arranged through private negotiations between
potential assignees and potential assignors, and the rights and obligations
acquired by the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
The Trust also may invest without limit in "Participations."
Participations by the Trust in a Lender's portion of a Senior Loan
typically will result in the Trust having a contractual relationship only
with such Lender, not with the Borrower. As a result, the Trust may have
the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by such Lender of such payments from the Borrower. In connection
with purchasing Participations, the Trust generally will have no right to
enforce compliance by the Borrower with the terms of the loan agreement,
nor any rights with respect to any funds acquired by other Lenders through
set-off against the Borrower and the Trust may not directly benefit from
the collateral supporting the Senior Loan in which it has purchased the
Participation. As a result, the Trust may assume the credit risk of both
the Borrower and the Lender selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Trust may be treated
as a general creditor of such Lender. The selling Lenders and other persons
interpositioned between such Lenders and the Trust with respect to such
Participations will likely conduct their principal business activities in
the banking, finance and financial services industries. Persons engaged in
such industries may be more susceptible to, among other things,
fluctuations in interest rates, changes in the Federal Open Market
Committee's monetary policy, governmental regulations concerning such
industries and concerning capital raising activities generally and
fluctuations in the financial markets generally.
The Trust will only acquire Participations if the Lender selling the
Participation, and any other persons interpositioned between the Trust and
the Lender, at the time of investment has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by Standard &
Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors
Service, Inc. ("Moody's") or comparably rated by another nationally
recognized rating agency (each a "Rating Agency")) or determined by
BlackRock to be of comparable quality. Similarly, the Trust will purchase
an Assignment or Participation or act as a Lender with respect to a
syndicated Senior Loan only where the Agent with respect to such Senior
Loan at the time of investment has outstanding debt or deposit obligations
rated investment grade or determined by BlackRock to be of comparable
quality. Long-term debt rated BBB by S&P is regarded by S&P as having
adequate capacity to pay interest and repay principal and debt rated Baa by
Moody's is regarded by Moody's as a medium grade obligation, i.e., it is
neither highly protected nor poorly secured. Commercial paper rated A-3 by
S&P indicates that S&P believes such obligations exhibit adequate
protection parameters but that adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor
to meet its financial commitment on the obligation and issues of commercial
paper rated P-3 by Moody's are considered by Moody's to have an acceptable
ability for repayment of short-term debt obligations but the effect of
industry characteristics and market conditions may be more pronounced. A
description of the corporate bond ratings of Moody's and S&P is included as
Appendix A.
LENDING FEES. In the process of buying, selling and holding Senior Loans
the Trust may receive and/or pay certain fees. These fees are in addition
to interest payments received and may include facility fees, commitment
fees, commissions and prepayment penalty fees. When the Trust buys a Senior
Loan it may receive a facility fee and when it sells a Senior Loan it may
pay a facility fee. On an ongoing basis, the Trust may receive a commitment
fee based on the undrawn portion of the underlying line of credit portion
of a Senior Loan. In certain circumstances, the Trust may receive a
prepayment penalty fee upon the prepayment of a Senior Loan by a Borrower.
Other fees received by the Trust may include covenant waiver fees and
covenant modification fees.
BORROWER COVENANTS. A Borrower must comply with various restrictive
covenants contained in a loan agreement or note purchase agreement between
the Borrower and the Lender or lending syndicate (the "Loan Agreement").
Such covenants, in addition to requiring the scheduled payment of interest
and principal, may include restrictions on dividend payments and other
distributions to stockholders, provisions requiring the Borrower to
maintain specific minimum financial ratios, and limits on total debt. In
addition, the Loan Agreement may contain a covenant requiring the Borrower
to prepay the Senior Loan with any free cash flow. Free cash flow is
generally defined as net cash flow after scheduled debt service payments
and permitted capital expenditures, and includes the proceeds from asset
dispositions or sales of securities. A breach of a covenant which is not
waived by the Agent, or by the lenders directly, as the case may be, is
normally an event of acceleration; i.e., the Agent, or the lenders
directly, as the case may be, has the right to call the outstanding Senior
Loan. The typical practice of an Agent or a Lender in relying exclusively
or primarily on reports from the Borrower may involve a risk of fraud by
the Borrower. In the case of a Senior Loan in the form of a Participation,
the agreement between the buyer and seller may limit the rights of the
holder of a Senior Loan to vote on certain changes which may be made to the
Loan Agreement, such as waiving a breach of a covenant. However, the holder
of the Participation will, in almost all cases, have the right to vote on
certain fundamental issues such as changes in principal amount, payment
dates and interest rate.
ADMINISTRATION OF LOANS. In a typical Senior Loan, the Agent administers
the terms of the Loan Agreement. In such cases, the Agent is normally
responsible for the collection of principal and interest payments from the
Borrower and the apportionment of these payments to the credit of all
institutions which are parties to the Loan Agreement. The Trust will
generally rely upon the Agent or an intermediate participant to receive and
forward to the Trust its portion of the principal and interest payments on
the Senior Loan. Furthermore, unless under the terms of a Participation
Agreement the Trust has direct recourse against the Borrower, the Trust
will rely on the Agent and the other members of the lending syndicate to
use appropriate credit remedies against the Borrower. The Agent is
typically responsible for monitoring compliance with covenants contained in
the Loan Agreement based upon reports prepared by the Borrower. The seller
of the Senior Loan usually does, but is often not obligated to, notify
holders of Senior Loans of any failures of compliance. The Agent may
monitor the value of the collateral and, if the value of the collateral
declines, may accelerate the Senior Loan, may give the Borrower an
opportunity to provide additional collateral or may seek other protection
for the benefit of the participants in the Senior Loan. The Agent is
compensated by the Borrower for providing these services under a Loan
Agreement, and such compensation may include special fees paid upon
structuring and funding the Senior Loan and other fees paid on a continuing
basis. With respect to Senior Loans for which the Agent does not perform
such administrative and enforcement functions, the Trust will perform such
tasks on its own behalf, although a collateral bank will typically hold any
collateral on behalf of the Trust and the other lenders pursuant to the
applicable Loan Agreement.
A financial institution's appointment as Agent may usually be terminated in
the event that it fails to observe the requisite standard of care or
becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings.
A successor Agent would generally be appointed to replace the terminated
Agent, and assets held by the Agent under the Loan Agreement should remain
available to holders of Senior Loans. However, if assets held by the Agent
for the benefit of the Trust were determined to be subject to the claims of
the Agent's general creditors, the Trust might incur certain costs and
delays in realizing payment on a Senior Loan, or suffer a loss of principal
and/or interest. In situations involving other intermediate participants
similar risks may arise.
PREPAYMENTS. Senior Loans usually require, in addition to scheduled
payments of interest and principal, the prepayment of the Senior Loan from
free cash flow, as defined above. The degree to which Borrowers prepay
Senior Loans, whether as a contractual requirement or at their election,
may be affected by general business conditions, the financial condition of
the Borrower and competitive conditions among lenders, among others. As
such, prepayments cannot be predicted with accuracy. Upon a prepayment,
either in part or in full, the actual outstanding debt on which the Trust
derives interest income will be reduced. However, the Trust may receive
both a prepayment penalty fee from the prepaying Borrower and a facility
fee upon the purchase of a new Senior Loan with the proceeds from the
prepayment of the former. Prepayments generally will not materially affect
the Trust's performance because the Trust should be able to reinvest
prepayments in other Senior Loans that have similar or identical yields and
because receipt of such fees may mitigate any adverse impact on the Trust's
yield.
OTHER INFORMATION REGARDING SENIOR LOANS. From time to time, BlackRock and
its affiliates may borrow money from various banks in connection with their
business activities. Such banks may also sell Senior Loans to or acquire
them from the Trust or may be intermediate participants with respect to
Senior Loans in which the Trust owns interests. Such banks may also act as
Agents for Senior Loans held by the Trust.
The Trust may acquire interests in Senior Loans which are designed to
provide temporary or "bridge" financing to a Borrower pending the sale of
identified assets or the arrangement of longer-term loans or the issuance
and sale of debt obligations. The Trust may also invest in Senior Loans of
Borrowers who have obtained bridge loans from other parties. A Borrower's
use of bridge loans involves a risk that the Borrower may be unable to
locate permanent financing to replace the bridge loan, which may impair the
Borrower's perceived creditworthiness.
To the extent that collateral consists of the stock of the Borrower's
subsidiaries or other affiliates, the Trust will be subject to the risk
that this stock will decline in value. Such a decline, whether as a result
of bankruptcy proceedings or otherwise, could cause the Senior Loan to be
undercollateralized or unsecured. In most credit agreements there is no
formal requirement to pledge additional collateral. In addition, the Trust
may invest in Senior Loans guaranteed by, or fully secured by assets of,
shareholders or owners, even if the Senior Loans are not otherwise
collateralized by assets of the Borrower; provided, however, that such
guarantees are fully secured. There may be temporary periods when the
principal asset held by a Borrower is the stock of a related company, which
may not legally be pledged to secure a Senior Loan. On occasions when such
stock cannot be pledged, the Senior Loan will be temporarily unsecured
until the stock can be pledged or is exchanged for or replaced by other
assets, which will be pledged as security for the Senior Loan. However, the
Borrower's ability to dispose of such securities, other than in connection
with such pledge or replacement, will be strictly limited for the
protection of the holders of Senior Loans. During any such period in which
the Senior Loan is temporarily unsecured, such Senior Loans will not be
treated as secured Senior Loans for purposes of the Trust's policy of
investing in normal market conditions at least 80% of its total assets in
such secured Senior Loans.
If a Borrower becomes involved in bankruptcy proceedings, a court may
invalidate the Trust's security interest in the loan collateral or
subordinate the Trust's rights under the Senior Loan to the interests of
the Borrower's unsecured creditors. Such action by a court could be based,
for example, on a "fraudulent conveyance" claim to the effect that the
Borrower did not receive fair consideration for granting the security
interest in the loan collateral to the Trust. For Senior Loans made in
connection with a highly leveraged transaction, consideration for granting
a security interest may be deemed inadequate if the proceeds of the Loan
were not received or retained by the Borrower, but were instead paid to
other persons (such as shareholders of the Borrower) in an amount which
left the Borrower insolvent or without sufficient working capital. There
are also other events, such as the failure to perfect a security interest
due to faulty documentation or faulty official filings, which could lead to
the invalidation of the Trust's security interest in loan collateral. If
the Trust's security interest in loan collateral is invalidated or the
Senior Loan is subordinated to other debt of a Borrower in bankruptcy or
other proceedings, it is unlikely that the Trust would be able to recover
the full amount of the principal and interest due on the Loan.
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 or through other transactions, such as
reverse repurchase agreements, which have the effect of financial leverage.
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 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 portfolio 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, 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. BlackRock believes that this should be mitigated
when the Trust uses leverage with floating rate costs because the Trust's
costs of leverage and its portfolio of Senior Loans will ordinarily have
similar floating rates of interest. 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 BlackRock will be higher than if the Trust did not utilize a leveraged
capital structure. The use of leverage creates risks and involves special
considerations. See "Risk Factors and Special Considerations--Leverage."
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 [5.60]% 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 [1.87]%. The Trust's actual
cost of leverage will be based on market rates at the time the Trust
undertakes a leveraging strategy, and such actual cost of leverage may be
higher or lower than that assumed.
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.... (17.8)% (10.3)% (2.8)% 4.7% 12.2%
The Trust currently expects that it may enter into definitive agreements
with respect to a credit facility shortly after the closing of the
Offering of the Shares made by this Prospectus. The Trust is currently in
negotiations with a limited number of large commercial banks to arrange a
credit facility pursuant to which the Trust expects to be entitled to
borrow an amount equal to approximately [331/3]% of the Trust's total
assets (inclusive of the amount borrowed) as of the closing of the offer
and sale of the Shares. Any such borrowings would constitute financial
leverage. The terms of any agreements relating to such a credit facility
have not been determined and are subject to definitive agreement and other
conditions, but the Trust anticipates that such a credit facility would
have terms substantially similar to the following: [(i) a final maturity
not expected to exceed three years, subject to possible extension by the
Trust; (ii) with respect to each draw under the facility, an interest rate
equal to the lesser of LIBOR plus a stated premium or an alternate rate on
the outstanding amount of each such draw, reset over periods ranging from
one to six months; (iii) payment by the Trust of certain fees and expenses
including an underwriting fee, a commitment fee on the average undrawn
amount of the facility, an ongoing administration fee and the expenses of
the lenders under the facility incurred in connection therewith]. The
facility is not expected to be convertible into any other securities of the
Trust, outstanding amounts are expected to be pre-payable by the Trust
prior to final maturity without significant penalty and there are not
expected to be any sinking fund or mandatory retirement provisions.
Outstanding amounts would be payable at maturity or such earlier times as
required by the agreement. The Trust may be required to prepay outstanding
amounts under the facility or incur a penalty rate of interest in the event
of the occurrence of certain events of default. The Trust expects to
indemnify the lenders under the facility against liabilities they may incur
in connection with the facility. In addition the Trust expects that such a
credit facility would contain certain covenants which, among other things,
likely will limit the Trust's ability to pay dividends in certain
circumstances, incur additional debt, change its fundamental investment
policies and engage in certain transactions including mergers and
consolidations, and may require asset coverage ratios in addition to those
required by the Investment Company Act. The Trust may be required to pledge
its assets and to maintain a portion of its assets in cash or high grade
securities as a reserve against interest or principal payments and
expenses. The Trust expects that any credit facility would have customary
covenant, negative covenant and default provisions. There can be no
assurance that the Trust will enter into an agreement for a credit facility
on terms and conditions representative of the foregoing, or that additional
material terms will not apply. In addition, if entered into, any credit
facility may in the future be replaced or refinanced by one or more credit
facilities having substantially different terms or by the issuance of
preferred shares or debt securities.
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.
STRATEGIC TRANSACTIONS
Consistent with its investment objectives and policies as set forth herein,
the Trust may also enter into certain hedging and risk management
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, "Strategic Transactions"). Strategic 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 Strategic Transaction is a function of market
conditions. The Strategic 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 Strategic 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 for hedging and risk management purposes 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. For example, if the Trust holds a Senior
Loan with an interest rate that is reset only once each year, it may swap
the right to receive interest at this fixed rate for the right to receive
interest at a rate that is reset daily. Such a swap position would offset
changes in the value of the Senior Loan because of subsequent changes in
interest rates. This would protect the Trust from a decline in the value of
the Senior Loan due to rising interest rates, but would also limit its
ability to benefit from falling interest rates. In as much 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.
Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments
that the Trust is contractually obligated to make or receive. Since
interest rate swaps are individually negotiated, the Trust expects to
achieve an acceptable degree of correlation between its rights to receive
interest on Senior Loans and its rights and obligations to receive and pay
interest pursuant to interest rate 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 the Trust will
engage in such transactions, 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. / Credit derivative transaction exposure will be limited to 10% of
the total assets of 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
on 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 Strategic 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 Strategic 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 Strategic Transactions. See "Taxes."
REPURCHASE AGREEMENTS
The Trust may enter into repurchase agreements with member banks of the
Federal Reserve System or primary dealers in U.S. Government securities.
Under a repurchase agreement, the Trust buys securities at one price and
simultaneously promises to sell back those securities at a higher price.
The Trust's repurchase agreements will provide that the value of the
collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement, and will be marked to market daily. The repurchase
date is usually within seven days of the original purchase date. In all
cases, BlackRock must be satisfied with the creditworthiness of the other
party to the agreement before entering into a repurchase agreement. In the
event of the bankruptcy of the other party to a repurchase agreement, the
Trust might experience delays in recovering its cash. To the extent that,
in the meantime, the value of the securities the Trust purchased may have
declined, the Trust could experience a loss.
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--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 banks or dealers which meet
the creditworthiness standards established by the Board of Trustees of the
Trust ("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
Investment Company 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 securities, subject to review by the Trust's Board
of Trustees.
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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
You should carefully consider your ability to assume the following risks
before investing in the Shares of the Trust. You should not consider an
investment in the Shares as a complete investment program.
GENERAL. As a newly-organized fund, the Trust has no operating history. The
Shares are designed primarily for investors who plan to invest and hold
their investment for the long term. Therefore, you should not consider the
Shares as a vehicle for trading purposes. The net asset value of the Shares
will fluctuate with changes in interest rates, as well as with changes in
the prices of the securities owned by the Trust. These fluctuations are
likely to be greater when the Trust is using financial leverage.
SENIOR LOAN MARKET. Senior Loans in which the Trust will invest may not be
rated by a nationally recognized statistical rating organization, will not
be registered with the SEC or any state securities commission and generally
will not be listed on any national securities exchange. Although the Trust
will have access to financial and other information made available to the
Lenders in connection with Senior Loans, the amount of public information
available with respect to Senior Loans will generally be less extensive
than that available for rated, registered or exchange listed securities.
Therefore, the performance of the Trust is more dependent on the analytical
abilities of BlackRock than would be the case for an investment company
that invests primarily in more widely rated, registered or exchange-listed
securities. In evaluating the creditworthiness of Borrowers, BlackRock will
consider, and may rely in part, on analyses performed by others. Moreover,
Senior Loans may be less liquid than many other types of income securities,
which may impair the Trust's ability to realize the full value of its
assets in the event of a voluntary or involuntary liquidation of such
assets.
LOWER-GRADE SECURITIES. Trust may invest in high-risk, high yield Senior
Loan and other income producing securities of lower grade quality. Lower
grade securities, exposes the Trust to greater risks than a fund that owns
higher grade securities. Because of the substantial risks associated with
lower grade securities, you could lose money on your investment in Shares
of the Trust, both in the short-term and the long-term. Here are some risks
you should consider with respect to investments in interests in Senior
Loans and lower-grade securities.
o CREDIT RISK. Credit risk refers to an issuer's ability to make
payments of principal and interest when they are due. Because the
Trust will own securities with low credit quality, it will be subject
to a high level of credit risk. Senior Loans and other debt
obligations, are subject to risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income
to the Trust, a reduction in the value of the debt obligation
experiencing non-payment and a potential decrease in the net asset
value of the Trust. Although Senior Loans in which the Trust will
invest will be secured by specific collateral the value of which
equals or exceeds the principal amount of the Senior Loan at the time
of initial investment, there can be no assurance that liquidation of
such collateral would satisfy the Borrower's obligation in the event
of default or that such collateral could be readily liquidated. In
the event of bankruptcy of a Borrower, the Trust could experience
delays or limitations in its ability to realize the benefits of any
collateral securing a Senior Loan. To the extent that a Senior Loan
is collateralized by stock in the Borrower or its subsidiaries, such
stock may lose all or substantially all of its value in the event of
bankruptcy of the Borrower. The Agent generally is responsible for
determining that the Lenders have obtained a perfected security
interest in the collateral securing the Senior Loan. Some Senior
Loans in which the Trust may invest are subject to the risk that a
court, pursuant to fraudulent conveyance or other similar laws, could
subordinate such Senior Loans to presently existing or future
indebtedness of the Borrower or take other action detrimental to the
holders of Senior Loans, such as the Trust, including, in certain
circumstances, invalidating such Senior Loans. In addition, the Trust
may purchase interests in Senior Loans from financial intermediaries
whereby the Trust depends on the intermediary for payment of
principal and interest on the Senior Loan. A decline in the financial
soundness of such intermediaries may, therefore, adversely affect the
Trust.
Debt securities which are rated below investment grade are viewed by
the Rating Agencies as having speculative characteristics and are
commonly known as "junk bonds." A description of the ratings of
corporate bonds by Moody's and S&P is included as Appendix A. Because
of the protective features of Senior Loans (being senior and secured
by specific collateral), BlackRock believes, based on its experience,
that Senior Loans tend to have more favorable loss recovery rates as
compared to most other types of below investment grade debt
obligations. Investing in Senior Loans does, however, involve
investment risk, and some Borrowers default on their Senior Loan
payments. As a result, the Trust is more dependent on BlackRock's
credit analysis abilities than a fund that invests in other types of
debt securities. The Trust may also invest in below investment grade
debt obligations that are subordinated and unsecured. These
instruments involve a greater risk of loss.
A substantial portion of the Trust's portfolio of Senior Loans and
other debt securities may be lower quality securities issued in
connection with mergers, acquisitions, leveraged buy-outs,
recapitalizations and other highly leveraged transactions, which pose
a higher risk of default or bankruptcy of the issuer than other
higher quality securities, particularly during periods of
deteriorating economic conditions and contraction in the credit
markets. Because the Trust will own other income securities and
Senior Loans with low credit quality, it will be subject to a high
level of credit risk. The prices of lower grade securities are more
sensitive to negative corporate developments, such as a decline in
profits, or adverse economic conditions, such as a recession, than
are the prices of higher grade securities. Securities that have
longer maturities or that do not make regular interest payments also
fluctuate more in price in response to negative corporate or economic
news. Therefore, lower grade securities may experience high default
rates, which would mean that the Trust may lose some of its
investment in such securities, which would adversely affect the
Trust's net asset value and could adversely affect the Trust's
ability to make distributions. The effects of this default risk are
greater for lower grade securities that are unsecured and
subordinated to the payment rights of other creditors of the issuer.
o INCOME RISK. The income investors receive from the Trust is based
primarily on the interest it earns from its investments, which can
vary widely over the short and long-term. If interest rates drop,
investors' income from the Trust can be expected to drop as the
interest rates on Senior Loans adjust.
o LIQUIDITY RISK. Senior Loans, at present, are generally not readily
marketable and may be subject to restrictions on resale. Interests in
Senior Loans generally are not listed on any national securities
exchange or automated quotation system and no active trading market
may exist for many of the Senior Loans in which the Trust will
invest. Where a secondary market exists, such market may be subject
to irregular trading activity, wide bid/ask spreads and extended
trade settlement periods. Senior Loans are thus relatively illiquid,
which illiquidity may impair the Trust's ability to realize the full
value of its assets in the event of a voluntary or involuntary
liquidation of such assets. The Trust has no limitation on the amount
of its assets which may be invested in securities which are not
readily marketable or are subject to restrictions on resale. The
substantial portion of the Trust's assets invested in Senior Loan
interests may restrict the ability of the Trust to dispose of its
investments in a timely fashion and at a fair price, and could result
in capital losses to the Trust and holders of Shares. The Trust may
invest in other income securities for which there is no readily
available trading market or which are otherwise illiquid. The Trust
may not be able to readily dispose of Senior Loans and other income
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. In addition, the limited liquidity could affect the
market price of the securities, thereby adversely affecting the
Trust's net asset value and ability to make dividend distributions.
Additional risks you should consider with respect to Senior Loans.
o MARKET RISK. When interest rates decline, the value of a portfolio
invested in fixed-rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio
invested in fixed-rate obligations can be expected to decline.
Although the Trust's net asset value will vary, the Trust's
management expects the Trust's policy of acquiring primarily
interests in floating rate Senior Loans to minimize fluctuations in
net asset value resulting from changes in market interest rates.
However, because floating or variable rates on Senior Loans only
reset periodically, changes in prevailing interest rates can be
expected to cause some fluctuation in the Trust's net asset value.
Similarly, a sudden and significant increase in market interest
rates, may cause a decline in the Trust's net asset value.
o CREDIT RISKS ASSOCIATED WITH INVESTMENT IN PARTICIPATIONS. The Trust
will purchase Participations in Senior Loans. The Trust may invest up
to 100% of its assets in Participations. The selling lenders and
other persons interpositioned between such Lenders and the Trust with
respect to such Participations will likely conduct their principal
business activities in the banking, finance and financial services
industries. Although, as discussed below, the Trust has taken
measures which it believes reduce its exposure to any risks incident
to such policy, the Trust may be more susceptible than an investment
company without such a policy to any single economic, political or
regulatory occurrence affecting such industries. Persons engaged in
such industries may be more susceptible than are persons engaged in
some other industry to, among other things, fluctuations in interest
rates, changes in the Federal Open Market Committee's monetary
policy, governmental regulations concerning such industries and
concerning capital raising activities generally and fluctuations in
the financial markets generally.
With respect to any given Senior Loan, the terms of Participations
may result in the Trust having rights which differ from, and are more
limited than, the rights of Lenders or of persons who acquire such
interests by Assignment. Participations typically will result in the
Trust having a contractual relationship with the Lender selling the
Participation, but not with the Borrower. In the event of the
insolvency of the Lender selling the Participation, the Trust may be
treated as a general creditor of such Lender, and may not have any
exclusive or senior claim with respect to such Lender's interest in,
or the collateral with respect to, the Senior Loan. As such, the
Trust may incur the credit risk of the Lender selling the
Participation in addition to the credit risk of the Borrower with
respect to the Senior Loan when purchasing Participations and may not
benefit directly from the security provided by any collateral
supporting the Senior Loan with respect to which such Participation
was sold. The Trust has implemented measures designed to reduce such
risk but no assurances can be given as to their effectiveness. The
fund may pay a fee or forgo a portion of interest payments when
acquiring Participations or Assignments.
Additional risks you should consider with respect to lower-grade securities.
o MARKET RISK. The prices of income securities tend to fall as interest
rates rise. Securities that have longer maturities tend to fluctuate
more in price in response to changes in market interest rates. A
decline in the prices of the income securities owned by the Trust
would cause a decline in the net asset value of the Trust, which
could adversely affect the trading price of the Trust's Shares. This
"market risk" is usually greater among income securities with longer
maturities or durations. Market risk is often greater among certain
types of income securities, such as zero-coupon bonds, which do not
make regular interest payments. As interest rates change, these bonds
often fluctuate in price more than higher quality bonds that make
regular interest payments. Because the Trust may invest in these
types of income securities, it may be subject to greater market risk
than a fund that invests only in current interest paying securities.
o CALL RISK. If interest rates fall, it is possible that issuers of
callable bonds with high interest coupons will "call" (or prepay)
their bonds before their maturity date. 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. If that were to happen, it would decrease the Trust's net
investment income.
FOREIGN SECURITIES. The Trust may invest in Senior Loans and other income
producing securities of issuers that are organized or located in countries
other than the United States, provided that such investments are
denominated in U.S. dollars and provided for the payment of interest and
repayment of principal in U.S. dollars in debt securities ("Foreign
Securities"). The Trust's investment in Foreign Securities may include debt
securities issued by foreign governments and other sovereign entities and
debt securities issued by foreign corporations. Typically, the Trust will
not hold any Foreign Securities of issuers in so-called "emerging markets"
(or lesser developed countries), and in any case the Trust will not invest
more than 10% of its total assets in such securities. Investments in such
securities are particularly speculative.
Investing in Foreign Securities involves certain risks not involved in
domestic investments, including, but not limited to:
o fluctuations in foreign exchange rates
o future foreign economic, financial, political and social
developments
o different legal systems
o the possible imposition of exchange controls or other foreign
governmental laws or restrictions
o lower trading volume
o much greater price volatility and illiquidity of certain
foreign securities markets
o different trading and settlement practices
o less governmental supervision
o regulation changes in currency exchange rates
o high and volatile rates of inflation
o fluctuating interest rates
o less publicly available information
o different accounting, auditing and financial record-keeping
standards and requirements.
[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. In addition, with respect
to certain foreign countries, there is a risk of:
o the possibility of expropriation of assets
o confiscatory taxation
o difficulty in obtaining or enforcing a court judgment
o economic, political or social instability
o diplomatic developments that could affect investments in those
countries.]
[Because 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, which means that the Trust's net asset
value could decline as a result of changes in the exchange rates between
foreign currencies and the U.S. dollar. These risks often are heightened
for investments in smaller, emerging capital markets. In addition,
individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as:
o growth of gross domestic product
o rates of inflation
o capital reinvestment
o resources
o self-sufficiency
o balance of payments position
o certain investments in Foreign Securities also may be subject
to foreign withholding taxes.]
[On January 1, 1999, eleven countries in the European Monetary Union
adopted the euro as their official currency. However, their current
currencies (for example, the franc, the mark, and the lire) will also
continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those eleven countries. A common currency is
expected to confer some benefits in those markets, by consolidating the
government debt market for those countries and reducing some currency risks
and costs. But the conversion to the new currency may affect the Trust
operationally and also has potential risks, some of which are listed below.
Among other things, the conversion may affect:
o issuers in which the Trust invests, because of changes in the
competitive environment from a consolidated currency market and
greater operational costs from converting to the new currency;
o vendors the Trust depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Trust
buys), BlackRock (which must price the Trust's investments to
deal with the conversion to the euro) and brokers, foreign
markets and securities depositories. If they are not prepared,
there could be delays in settlements and additional costs to the
Trust; and
o exchange contracts and derivatives that are outstanding during
the transition to the euro. The lack of currency rate
calculations between the affected currencies and the need to
update the Trust's contracts could pose extra costs to the
Trust.
BlackRock will monitor the effects of the conversion on the issuers in
which the Trust invests. The possible effect of these factors on the
Trust's investments cannot be determined with certainty at this time, but
they may reduce or increase the value of some of the Trust's holdings and
its operational costs.]
[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 capital 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 on the economies and securities markets of 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 total 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. Although the use of leverage by the Trust may create an
opportunity for increased net income and capital appreciation for the
Shares, it also results in additional risks and can magnify the effect of
any losses. If the income and gains earned on securities purchased with
leverage proceeds are greater than the cost of leverage, the Trust's return
will be greater than if leverage had not been used. Conversely, if the
income or gains from the securities purchased with such proceeds does not
cover the cost of leverage, the return to the Trust will be less than if
leverage had not been used. Because leverage achieved through borrowings is
expected to be based on a floating rate of interest that fluctuates
similarly to the floating rate on Senior Loans in the Trust's portfolio,
BlackRock believes that market interest rate fluctuations should not
adversely affect returns on Senior Loans obtained with the proceeds of such
borrowings. There is no assurance that a leveraging strategy will be
successful. Leverage involves risks and special considerations for
Shareholders including:
o the likelihood of greater volatility of net asset value and
market price of the Shares than a comparable portfolio without
leverage;
o the risk that fluctuations in interest rates on borrowings and
short term debt or in the dividend rates on any preferred stock
that the Trust must pay will reduce the return to the
Shareholders;
o the effect of leverage in a declining market, which is likely to
cause greater decline in the net asset value of the Shares than
if the Trust were not leveraged, which may result in a greater
decline in the market price of the Shares; and
o when the Trust uses financial leverage, the investment advisory
fees payable to BlackRock Advisors, Inc. will be higher than if
the Trust did not use leverage. See "Management of the Trust."
Any requirement that the Trust sell assets at prices below that at which
the Trust is currently valuing such assets in order to reduce any leverage
or for other reasons would reduce the Trust's net asset value and also make
it difficult for the net asset value to recover. BlackRock in its best
judgment nevertheless may determine to continue to use leverage if it
expects that the long-term benefits to the Trust's Shareholders of
maintaining the leveraged position will outweigh the current reduced
return.
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, if any, 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.
BlackRock does not believe 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 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.
OTHER INVESTMENT MANAGEMENT TECHNIQUES. The Trust may use various other
investment management techniques that also involve certain risks and
special considerations, including engaging in hedging and risk management
transactions (which we refer to as "Strategic Transactions") including
interest rate and foreign currency transactions, options, futures, swaps
and other derivatives transactions. Strategic Transactions will be entered
into to seek to manage the risks of the Trust's portfolio of securities,
but may have the effect of limiting the gains from favorable market
movements. Strategic Transactions involve risks, including (i) that the
loss on the Strategic Transaction position may be larger than the gain in
the portfolio position being hedged and (ii) that the derivative
instruments used in Strategic Transactions may not be liquid and may
require the Trust to pay additional amounts of money. Successful use of
Strategic Transactions depends on BlackRock's ability to predict correctly
market movements which, of course, cannot be assured. Losses on Strategic
Transactions may reduce the Trust's net asset value and its ability to pay
dividends if they are not offset by gains on the portfolio positions being
hedged. The Trust may also lend the securities it owns to others, which
allows the Trust the opportunity to earn additional income. Although the
Trust will require the borrower of the securities to post collateral for
the loan and the terms of the loan will require that the Trust be able to
reacquire the loaned securities if certain events occur, the Trust is still
subject to the risk that the borrower of the securities may default, which
could result in the Trust losing money, which would result in a decline in
the Trust's net asset value. The Trust may also purchase securities for
delayed settlement. This means that the Trust is generally obligated to
purchase the securities at a future date for a set purchase price,
regardless of whether the value of the securities is more or less than the
purchase price at the time of settlement.
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 affected by such factors as the 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 public offering price. Shares of closed-end funds often
trade at a discount to their net asset values and the Trust's Shares may
trade at such a discount. This risk may be greater for investors expecting
to sell their Shares of the Trust soon after completion of the public
offering. 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 "Description of Shares."
REGULATORY CHANGES. To the extent that legislation or state or federal
regulators that regulate certain financial institutions impose additional
requirements or restrictions with respect to the ability of such
institutions to make loans, particularly in connection with highly
leveraged transactions, the availability of Senior Loans for investment by
the Trust may be adversely affected. Further, such legislation or
regulation could depress the market value of Senior Loans held by the
Trust.
NON-DIVERSIFICATION. The Trust has registered as a "non-diversified"
investment company under the 1940 Act. Under federal income tax rules
applicable to the Trust, with respect to 50% of its assets, it will be able
to invest more than 5% of the value of its assets in the obligations of any
single issuer, although it has no current intention to do so. The Trust
will not invest more than 10% of its assets in securities (including
interests in Senior Loans) of any single Borrower. To the extent the Trust
invests a relatively high percentage of its assets in obligations of a
limited number of issuers, the Trust may be more susceptible than a more
widely diversified investment company to any single corporate, economic,
political or regulatory occurrence.
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" and "Description of Shares."
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 Issue." BlackRock is taking steps to
address the Year 2000 Issue 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, we cannot
give any 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:
o 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;
o 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;
o 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. The Trust
reserves the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities;
o Issue senior securities or borrow money, except as permitted by
the Investment Company Act;
o Make loans to others, except through the purchase of loan
interests, debt securities and other obligations and the entry
into reverse repurchase agreements. However, the Trust may lend
its portfolio securities in an amount not to exceed 331/3% 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;
o 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;
o 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;
o 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;
and
o Purchase securities of other investment companies, except to the
extent permitted under the Investment Company Act.
The Trust will consider all relevant factors in determining whether to
treat the Lender selling a Participation and any persons interpositioned
between such Lender and the Trust as an issuer, including: the terms of the
Loan Agreement and other relevant agreements (including inter-creditor
agreements and any agreements between such person and the Trust's
custodian); the credit quality of such lender or interpositioned person;
general economic conditions applicable to such lender or interpositioned
person; and other factors relating to the degree of credit risk, if any, of
such lender or interpositioned person incurred by the Trust.
Notwithstanding the investment policies and restrictions of the Trust, upon
approval of the Board of Trustees, the Trust may invest all or part of its
investable assets in a management investment company with substantially the
same investment objective, policies and restrictions as the Trust.
FUND STRUCTURES. The Trust's fundamental investment policies and
restrictions give the Trust the flexibility to pursue its investment
objective through a fund structure commonly known as a "master-feeder"
structure. If the Trust converts to a master-feeder structure, the existing
shareholders of the Trust would continue to hold their shares of the Trust
and the Trust would become a feeder-fund of the master-fund. The value of a
shareholder's shares would be the same immediately after any conversion as
the value immediately before such conversion. Use of this master-feeder
structure potentially would result in the increased assets invested among
the collective investment vehicle of which the Trust would be a part, thus
allowing operating expenses to be spread over a larger asset base,
potentially achieving economies of scale. Use of this structure could also
result in the Trust sharing in certain expenses that it might not otherwise
include and in the Trust having less of its assets investing in long-term
investments than if the Trust did not invest through a master-feeder
structure. The Trust's Board of Trustees presently does not intend to
affect any conversion of the Trust to a master-feeder structure without
first obtaining approval of shareholders holding at least a majority of the
Trust's shares present at a meeting of shareholders at which a quorum is
present.
MANAGEMENT OF THE TRUST
BlackRock Advisors, Inc., a global asset management company with
approximately $132 billion of assets under management, will act as the
Trust's investment adviser. BlackRock Advisors, Inc. is a wholly-owned
subsidiary of PNC Bank, N.A. with over 500 employees. BlackRock currently
manages the assets of 56 investment companies, including 21 closed-end
funds. BlackRock Advisors, Inc. 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
approximately $66 billion in discretionary fixed income assets under
management invested in a broad array of fixed income products across the
yield curve. BlackRock currently manages approximately $1.2 billion in
lower grade securities, including approximately $735 million in lower grade
corporate securities, including bonds issued by financial, industrial and
utility companies, Yankee bonds, preferred stocks and other income
securities. BlackRock also manages approximately $50 billion in cash or
other short-term, highly liquid investments, $14 billion of equity
securities and $2 billion in various alternative investments.
INVESTMENT ADVISORY AGREEMENT
Pursuant to the Investment Advisory Agreement (the "Advisory Agreement"),
the Trust has retained BlackRock Advisors, Inc. 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 BlackRock
Advisors, Inc. 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 officers who are affiliated
persons (as such term is defined in the Investment Company Act) of
BlackRock Advisors, Inc. except that the Board of Trustees may approve
reimbursement for the time spent on Trust operations of BlackRock Advisors,
Inc.'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 BlackRock Advisors, Inc. The Advisory Agreement
provides that the Trust shall pay to BlackRock Advisors, Inc. a monthly fee
(the "Investment Advisory 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"). From such
Investment Advisory Fee, BlackRock Advisors, Inc. will pay BlackRock, for
serving as sub-adviser, a fee equal to an annual rate of 0.35% of the
average weekly value of the Trust's Managed Assets.
Although BlackRock Advisors, Inc. 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 BlackRock Advisors, Inc. are not exclusive
and BlackRock Advisors, Inc. 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, BlackRock Advisors, Inc. is not liable to the Trust
or any of the Trust's Shareholders for any act or omission by BlackRock
Advisors, Inc. 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 BlackRock
Advisors, Inc., its directors, 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 the Trust's Board of Trustees, on
1999, 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). 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 BlackRock
Advisors, Inc., 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).
SUB-INVESTMENT ADVISORY AGREEMENT
Pursuant to the Sub-Investment Advisory Agreement, BlackRock Advisors, Inc.
has appointed BlackRock, one of its affiliates, to handle the day-to-day
investment management of the Trust. BlackRock will receive a portion of the
advisory fee paid by the Trust to BlackRock Advisors, Inc. From the
Investment Advisory Fee, BlackRock Advisors, Inc. will pay BlackRock, for
serving as sub-adviser, a fee equal to an annual rate of 0.35% of the
average weekly value of the Trust's Managed Assets.
The Sub-Investment Advisory Agreement also provides that in the absence of
willful misfeasance, bad faith, gross negligence or disregard of its
obligations thereunder, BlackRock is not liable to the Trust or any of the
Trust's Shareholders for any act or omission by BlackRock 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
indemnification by the Trust of BlackRock, its directors, 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.
Although BlackRock 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 BlackRock are not exclusive and BlackRock provides similar
services to other investment companies and other clients and may engage in
other activities.
The Sub-Investment Advisory Agreement was approved by the Trust's Board of
Trustees on 1999, 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). The Sub-Investment Advisory
Agreement will be submitted to Shareholders for their approval at the first
meeting of Shareholders of the Trust. The Sub-Investment 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 for 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
Sub-Investment 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 BlackRock Advisors, Inc. or by
BlackRock, on 60 days' written notice by either party to the other. The
Sub-Investment 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
ROBERT S. KAPITO, Vice Chairman and Head of the Portfolio Management Group,
has been a member of the Management Committee and the Investment Strategy
Group since March 1988. Mr. Kapito has been responsible for the portfolio
management of the Fixed Income, Domestic Equity and International Equity,
Liquidity, and Alternative Investment Groups of BlackRock since March 1988.
In addition, Mr. Kapito has played a key role in coordinating the efforts
of the analytical and administrative groups with the portfolio management
group. He also has been involved in marketing and managing several of
BlackRock's funds. Since March 1988, Mr. Kapito has served as a Vice
President for BlackRock's family of closed-end mutual funds and for the
Smith Barney Adjustable Rate Government Income Fund. Prior to founding
BlackRock in 1988, Mr. Kapito was a Vice President in the Mortgage Products
Group at The First Boston Corporation. Mr. Kapito joined First Boston in
1979 in the Public Finance Department. Mr. Kapito left First Boston to
complete his MBA degree and returned to the firm in 1983 in the Mortgage
Products Group. While with this Group, Mr. Kapito initially traded mortgage
securities and then became the head trader of collateralized mortgage
obligations (CMOs). Ultimately, Mr. Kapito became head of Mortgage Capital
Markets with responsibility for marketing and pricing all of the
mortgage-backed and asset-backed securities underwritten by First Boston.
In 1982, Mr. Kapito worked as a strategic consultant with Bain & Co. and
with two other private companies in Europe. Mr. Kapito currently serves as
President of the Board of Directors of Periwinkle National Theatre, a
national non-profit effort to help disadvantaged youth, and Chairman of the
1998 Hope & Heroes/Babies & Children's Cancer Fund. Mr. Kapito earned a BS
degree in economics from the Wharton School of the University of
Pennsylvania in 1979 and an MBA degree from Harvard Business School in
1983.
KEITH ANDERSON, Managing Director, Chief Investment Officer, Fixed Income
and Co-head of Fixed Income Operating Committee, is co-chair of the
Investment Strategy Group and a member of the Management Committee of
BlackRock. Mr. Anderson has primary responsibility for managing client
portfolios, specializing in the government and mortgage sectors including
Treasuries, agencies, futures, options, swaps and a wide range of
traditional and non-traditional mortgage securities. Mr. Anderson also
serves as a Vice President for BlackRock's family of closed-end mutual
funds. Prior to founding BlackRock in 1988, Mr. Anderson was a Vice
president in Fixed Income Research at The First Boston Corporation. Mr.
Anderson joined First Boston in 1987 as a mortgage securities and
derivative products strategist working with institutional money managers.
From 1983 to 1987, Mr. Anderson was a Vice President and portfolio manager
at Criterion Investment Management Company (now Nicholas-Applegate Capital
Management) where he had primary responsibility for a $2.8 billion fixed
income portfolio. Mr. Anderson has authored numerous articles on fixed
income strategies including two articles in The Handbook of Fixed Income
Options: "Scenario Analysis and the Use of Options in Total Return
Portfolio Management" and "Measuring, Interpreting, and Applying Volatility
within the Fixed Income Market". Mr. Anderson currently serves as Treasurer
of Family Dynamics, a non-profit organization focusing on the prevention of
child abuse. Mr. Anderson earned a BS degree in economics and finance from
Nichols College in 1981 and an MBA degree in business administration from
Rice University in 1983.
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, from 1989-1998, 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 from 1983-1985, followed
by four years with The First Boston Corporation from 1985-1989; 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.
Prior to embarking on an investment career, Mr Schaney worked with United
Technologies from 1980-1983. Mr. Schaney earned a BS degree in finance from
the University of Bridgeport in 1980 and an MS degree in financial
management from Fairfield University in 1995. He is a member of the Fixed
Income Analyst Society.
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 from 1990-1998 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 from 1983-1990. Mr. Williams
obtained a BA in Economics from Franklin and Marshall College in 1983.
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") from 1990-1998 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 in 1990. He is a Chartered Financial Analyst and has
been on the Indianapolis Society of Financial Analysts since 1993.
PETER SCHWARTZMAN, Vice President of BlackRock. Mr. Schwartzman is Senior
Industry Analyst on the High Yield Team responsible for covering the health
care, gaming, retail, textile and lodging industries. Prior to joining
BlackRock in 1998, he spent four years as a Vice President at Alliance
Capital Management where he was an analyst from 1994-1998 covering a broad
range of high yield and high grade companies in those sectors. In addition,
Mr. Schwartzman has done considerable work on a broad array of distressed
situations in the manufacturing, convenience store, and consumer products
industries. Previously, Mr. Schwartzman spent four years as an Analyst at
Moody's Investors Service in the Tax-Exempt Health Care Group from
1989-1994. At Moody's, he 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 in 1997 and his
BA from Trinity College in 1988. 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 AGREEMENT
will act as the Trust's administrators (the "Administrators").
Under the Administration Agreement with the Trust (the "Administration
Agreement"), 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 BlackRock Advisors, Inc. 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, each Administrator
will bear the following expenses:
(a) salaries and expenses of all personnel of such Administrator; and
(b) all expenses incurred by such Administrator 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 Agreement provides that the Trust shall pay to each
Administrator a monthly fee for its services at an annual rate of 0.075% of
the Trust's average weekly Managed Assets (as described above).
The Administration Agreement was approved by the Trust's Board of Trustees
on , 1999 and is effective until terminated. The Administration
Agreement 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 any party.
EXPENSES OF THE TRUST
Except as indicated above, the Trust will pay all of its expenses,
including fees of the trustees not affiliated with BlackRock Advisors, Inc.
and board meeting expenses; fees of BlackRock Advisors, Inc. and the
Administrator; interest charges; taxes; 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. The Trust
will pay offering expenses of $ ($ if the over-allotment option is
exercised in full), which will be deducted from the total proceeds of the
offering. BlackRock Advisors, Inc. has agreed that it or an affiliate will
pay all organizational expenses of the Trust. BlackRock Advisors, Inc. has
agreed that it or an affiliate will also pay all offering expenses of the
Trust that exceed $0.02 per Share.
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, BlackRock Advisors, Inc., and their Board members and officers
is 345 Park Avenue, New York, New York 10154, unless specified otherwise
below. The Trustees listed below are either trustees or directors of other
closed-end funds in which BlackRock acts as investment adviser.
PRINCIPAL OCCUPATION DURING THE
NAME AND ADDRESS TITLE PAST FIVE YEARS AND OTHER AFFILIATIONS
- ---------------- ----- --------------------------------------
Andrew F. Brimmer Trustee President of Brimmer & Company, Inc., a
4400 MacArthur Blvd., Washington, D.C.-based economic and
N.W. financial consulting firm. Director of
Suite 302 AirBorne Express, CarrAmerica Realty
Washington, DC 20007 Corporation and Borg-Warner Automotive.
Age: 72 Formerly member of the Board of
Governors of the Federal Reserve System.
Formerly Director of BankAmerica
Corporation (Bank of America), BellSouth
Corporation, 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, Equitable Life
Assurance Society of the United States,
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 Officer of
845 Third Avenue The Conference Board, Inc., a leading
New York, NY 10022 global business membership organization
Age: 52 from 1995-present. 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, Drucker
Foundation and Educational Testing
Services (ETS). Director, Olin Corp.
(chemicals and metals), Fremont Group
(investments) and The Guardian Life
Insurance Company of America
(insurance).
Kent Dixon Trustee Consultant/Investor. Former President
9495 Blind Pass Road and Chief Executive Officer of Empire
Unit #602 Federal Savings Bank of America and Banc
St. Petersburg, FL 33706 PLUS Savings Association, former
Age: 61 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 of
Age: 50 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 of
Age: 45 BlackRock Financial Management, Inc.
since March 1998. 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 (December
1980-March 1988). 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
and BlackRock MQE Investors Trustee of
New York University Medical Center,
Dwight Englewood School, 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, BlackRock
Drive Trust Investors II, BlackRock Trust
Suite 3000 Investors III, BlackRock Asset Investors
Southfield, MI 48076 and Copart, Inc. (retail-automobile).
Age: 61 Formerly Chairman of the Board and Chief
Executive Officer of Pulte Corporation
(homebuilding and mortgage banking and
finance) from 1974-1990.
James Clayburn Trustee Dean Emeritus of The John E. Anderson
LaForce, Jr. Graduate School of Management,
P.O. Box 1595 University of California since July 1,
Pauma Valley, CA 92061 1993. Director, Eli Lilly and Company
Age: 69 (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) and 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 firm
220 South Sixth Street (December 1996-present, 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 since March 1988.
Age: 47 and Formerly a Managing Director of Lehman
President Brothers, Inc. and co-head of its
Mortgage and Savings Institutional
Group. Currently President of each of
the closed-end funds in which BlackRock
acts as investment adviser. 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.
Dennis Schaney Vice Managing Director of BlackRock and Head of
Age: 41 President the High Yield Team since February 1998.
From June 1989 to February 1998,
Managing Director at Merrill Lynch in
the Global Fixed Income Research and
Economics Department.
Keith T. Anderson Vice Managing Director of BlackRock since April
Age: 39 President 1988. From 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 Operating
Age: 51 Officer of BlackRock since February
1989. From September 1984 to February
1989, Vice President at The First Boston
Corporation.
Robert S. Kapito Vice Managing Director and Vice Chairman of
Age: 41 President BlackRock since March 1988. Formerly
Vice President at The First Boston
Corporation in the Mortgage Products
Group (from December 1985 to March
1988).
James Kong Assistant Managing Director of BlackRock since
Age: 38 Treasurer January 1991. From April 1987 to April
1989, Assistant Vice President at The
First Boston Corporation in the CMO/ABO
Administration Department. Previously
affiliated with Deloitte Haskins & Sells
(now Deloitte & Touche LLP).
Karen H. Sabath Secretary Managing Director of BlackRock since
Age: 33 August 1988. From 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
BlackRock Advisors, Inc.
Richard Shea, Esq. Vice Director of BlackRock since February 1993.
Age: 39 President/ From December 1988 to February 1993,
Tax Associate Vice President and Tax Counsel
at Prudential Securities Incorporated.
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 were
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) $3,800 per annum. In addition, the Trust
pays each Trustee who is not an "interested person" of the Trust (as
defined in the Investment Company Act) $950 per Board 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.
The aggregate estimated compensation received by each current Trustee of
the Trust for the fiscal year ending October 31, 1999 and the aggregate
estimated compensation received by each current Trustee of the BlackRock
Family of Funds for the fiscal year ending October 31, 1999 as a whole were
as follows:
ESTIMATED TOTAL
COMPENSATION
1999 ESTIMATED FROM THE
AGGREGATE TRUST AND FUND
COMPENSATION COMPLEX PAID TO BOARD
NAME OF BOARD MEMBER FROM TRUST MEMBER*
- -------------------- -------------- ---------------------
Andrew R. Brimmer................ $ 7,600 $160,000
Richard E. Cavanagh.............. $ 7,600 $160,000
Kent Dixon....................... $ 7,600 $160,000
Frank J. Fabozzi................. $ 7,600 $160,000
Laurence D. Fink................. $ 0 $ 0
James Grosfeld................... $ 7,600 $160,000
James Clayburn LaForce, Jr....... $ 7,600 $160,000
Ralph L. Schlosstein............. $ 0 $ 0
Walter F. Mondale................ $ 7,600 $140,000
- ------------
* The BlackRock Family of Funds consists of 21 closed-end funds. Total
compensation from Trust and Fund complex paid to each Board member is
capped at $160,000.
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. With respect to
Senior Loans, the Trust generally will engage in privately negotiated
transactions for purchase or sale in which the Adviser will negotiate on
behalf of the Trust, although a more developed market may exist for certain
Senior Loans. The Trust may be required to pay fees, or forgo a portion of
interest and any fees payable to the Trust, to the Lender selling
Participations or Assignments to the Trust. The Adviser will determine the
Lenders from whom the Trust will purchase Assignments and Participations by
considering their professional ability, level of service, relationship with
the Borrower, financial condition, credit standards and quality of
management. Although the Trust intends generally to hold interests in
Senior Loans until maturity or prepayment of the Senior Loan, the
illiquidity of many Senior Loans may restrict the ability of the Adviser to
locate in a timely manner persons willing to purchase the Trust's interests
in Senior Loans at a fair price should the Trust desire to sell such
interests. See "Risk Factors and Special Considerations."
Other 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 Shareholders 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 may be many instances
when, in the judgment of BlackRock, more than one firm can offer comparable
execution services. In selecting among such firms, consideration will be
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 if it 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 Trustees 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, under normal market conditions, it is not the Trust's policy to
engage in transactions with the objective of seeking profits from short
term trading. The portfolio turnover rate is expected to vary from year to
year. 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 (100% or more) 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 ask 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.
Senior Loans will be valued in accordance with guidelines established by
the Board of Trustees. Under the Trust's current guidelines, Senior Loans
for which an active secondary market exists to a reliable degree in the
opinion of BlackRock and for which BlackRock can obtain at least two
quotations believed by BlackRock to be reliable from banks or dealers in
Senior Loans will be valued by BlackRock by calculating [the mean of the
last available bid and asked prices in the market for such Senior Loans,
and then using the [mean of those two means]. If only one quote believed by
BlackRock to be reliable for a particular Senior Loan is available, such
Senior Loan will be valued on the basis of the [mean of the last available
bid and asked prices in the market]. For Senior Loans for which an active
secondary market does not exist to a reliable degree in the opinion of
BlackRock, such Senior Loans will be valued by BlackRock at fair value,
which is intended to approximate market value. In valuing a Senior Loan at
fair value, BlackRock will consider, among other factors, (i) the
creditworthiness of the Borrower and any intermediaries, (ii) the current
interest rate period until next interest rate reset and maturity of the
Senior Loan, (iii) recent prices in the market for similar Senior loans, if
any, (iv) recent prices in the market for instruments of similar quality,
rate, period until next interest rate reset and maturity, and (v) prices
furnished by one or more pricing services that take into account factors
comparable to one or more of the foregoing factors.
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 ask 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 certain types of securities, the Trust
may 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. See "Taxes." 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
approximately 60 days of the date of this Prospectus.
TAXES
The Trust intends to elect and to qualify each year to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Trust so qualifies and
distributes each year to its Shareholders at least 90% of its "investment
company taxable income" (including, among other things, interest and net
short-term capital gains, but not "net capital gains", which are the excess
of net long-term capital gains over net short-term capital losses) from
that year, the Trust will not be required to pay federal income taxes on
any income distributed to Shareholders. The Trust will not be subject to
federal income tax on any net capital gains distributed to Shareholders.
If the Trust failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Trust
would be taxed as an ordinary corporation on its taxable income (even if
such income were distributed to its Shareholders) and all distributions out
of earnings and profits would be taxed to Shareholders as ordinary income.
The Trust intends to make monthly distributions of net investment income,
after payment of interest on any outstanding borrowings or dividends on any
outstanding preferred shares. The Trust will distribute annually any net
short-term capital gain and any net capital gain. Distributions to
Shareholders cannot be assured, and the amount of each monthly distribution
is likely to vary. Initial distributions to Shareholders are expected to be
paid approximately 60 days after the completion of this offering. While
there are any borrowings or preferred shares outstanding, the Trust may not
be permitted to declare any cash dividend or other distribution on its
Shares in certain circumstances. See "Description of Capital Structure."
Distributions of the Trust's investment company taxable income are taxable
to Shareholders as ordinary income, whether paid in cash or reinvested in
additional Shares. Distributions of the Trust's net capital gain ("capital
gain dividends"), if any, are taxable to Shareholders at the rates
applicable to long-term capital gains, regardless of the length of time
Shares have been held by Shareholders. Distributions, if any, in excess of
the Trust's earnings and profits will first reduce the adjusted tax basis
of a holder's Shares and, after such adjusted tax basis has been reduced to
zero, will constitute capital gains to such holder (assuming such Shares
are held as a capital asset). See below for a summary of the maximum tax
rates applicable to capital gains (including capital gain dividends).
The Trust will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The Trust's
distributions will not qualify for the dividends-received deduction for
corporations.
Selling Shareholders will generally recognize gain or loss in an amount
equal to the difference between their adjusted tax basis in the Shares and
the amount received. If such Shares are held as a capital asset, the gain
or loss will be a capital gain or loss. The maximum tax rate applicable to
net capital gains recognized by individuals and other non-corporate
taxpayers is (i) the same as the maximum ordinary income tax rate for
capital assets held for one year or less or (ii) 20% for capital assets
held for more than one year. Any loss recognized upon a taxable disposition
of Shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received with
respect to such Shares. For purposes of determining whether Shares have
been held for six months or less, the holding period is suspended for any
periods during which the Shareholder's risk of loss is diminished as a
result of holding one or more other positions in substantially similar or
related property, or through certain options or short sales. Any loss
realized 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, if the Shareholder is a
participant in the Plan (as defined below)). In that event, the basis of
the replacement Shares will be adjusted to reflect the disallowed loss.
An investor should be aware that if Shares are purchased in the open market
shortly before the record date for any dividend (including a capital gain
dividend), the purchase price likely will reflect the value of the
distribution and the investor then would receive a taxable distribution
likely to reduce the trading value of such Shares, in effect resulting in a
taxable return of some of the purchase price. Shareholders that are not
liable for tax on their income and whose Shares are not debt-financed are
not required to pay tax on dividends they receive from the Trust. Taxable
distributions to individuals and certain other non-corporate Shareholders,
including those who have not provided their correct taxpayer identification
number and other required certifications, may be subject to "backup"
federal income tax withholding of 31%.
The foregoing briefly summarizes some of the important federal income tax
consequences to Shareholders of investing in Shares and does not address
special tax rules applicable to certain types of investors, such as
corporate and foreign investors, individual retirement accounts and other
retirement plans. There may be other federal, state, local or foreign tax
considerations applicable to a particular investor. Investors should
consult their tax advisers.
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 Boston EquiServe L.P. 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 Boston
EquiServe L.P., 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
Boston EquiServe L.P., 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
through receipt of additional unissued but authorized Shares from the Trust
("newly issued shares"). On the payment date for the dividend, 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%.
The Plan Agent maintains all Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts,
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 of 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. 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.
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 150 Royal Street Canton, Massachusetts 02021.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, 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. Boston EquiServe L.P. 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 , 1999. The Trust is authorized to issue an unlimited
number of shares of beneficial interest, par value $.001 per Share. 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 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 has applied for listing on the New York Stock Exchange of its
Shares 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 objectives 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 to 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 net 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 objective and policy of investing at least 80% of
its assets in Senior Loans under normal market conditions. In the event of
conversion, the Shares would cease to be listed on the New York Stock
Exchange or other national securities exchanges or market systems.
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 would 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.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom
are acting as representatives (the "Representatives") have
severally agreed, subject to the terms and conditions contained in the
underwriting agreement with the Trust and BlackRock Advisors, Inc. (the
"Underwriting Agreement"), to purchase from the Trust the number of Shares
set forth below opposite their respective names. The Trust is obligated to
sell, and the Underwriters are obligated to purchase, all of the Shares
offered hereby, if any are purchased.
UNDERWRITER NUMBER OF SHARES
Total..........................................................
BlackRock Advisors, Inc. (or an affiliate) has agreed to pay to the
Underwriters compensation in the gross amount of $ per Share ( % of
the pubic offering 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 Trust will
pay offering expenses of $ ($ if the Underwriters' over-allotment
option is exercised in full), which will be deducted from the total
proceeds of the offering. BlackRock Advisors, Inc. has agreed that it or an
affiliate will pay all offering expenses of the Trust that exceed $0.02 per
Share. The Underwriters, through the Representatives, have advised the
Trust that the Underwriters propose to offer the Shares set forth above at
the public offering price set forth on the cover page of this Prospectus,
that the Underwriters may allow a concession of $ per Share to certain
dealers and that such dealers may reallow a concession of up to $ per
Share to certain other dealers. After the initial public offering, the
public offering price and the concessions may be changed by the
Representatives.
The Trust has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus to purchase up to an additional Shares
at the 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 Underwriters
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 Underwriter 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
Underwriter's name in the preceding table bears to .
The Trust, BlackRock and BlackRock Advisors, Inc. have each agreed to
indemnify the several Underwriters for or to contribute to the losses
arising out of certain liabilities, including liabilities under the
Securities Act.
The Trust, its officers and Trustees (with certain limited exceptions),
have agreed not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer to sell, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of
any Shares of the Trust or any securities convertible into, or exchangeable
or exercisable for, Shares of the Trust (other than pursuant to the
over-allotment option granted to the Underwriters, and pursuant to the
Automatic Dividend Reinvestment Plan), for a period of 180 days from the
closing of this offering, without the prior written consent of
, on behalf of the Underwriters. may,
in its sole discretion, at any time and without notice, release all or any
portion of the Shares subject to the foregoing lock-up agreements.
The Representatives have informed the Trust that the Underwriters 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 Underwriters 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.
Prior to this offering there has been no public market for the Shares or
any other securities of the Trust. Prior to completion of this offering,
BlackRock Advisors, Inc. will control the Trust.
In the ordinary course of their businesses, some of the
other Underwriters and their respective affiliates have in the past
engaged, and in the future may engage, in investment banking and financial
transactions with the Trust, BlackRock and their affiliates.
In connection with the Offering, certain Underwriters and their respective
affiliates may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Shares. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such persons may bid for or purchase Shares
for the purpose of stabilizing its market price. The Underwriters may also
create a short position for the account of the Underwriters by selling more
Shares in connection with the Offering than they are committed to purchase
from the Trust, and in such case may purchase Shares in the open market
following the completion of the Offering to cover all or a portion of such
short position. The Underwriters may also cover all or a portion of such
short position, up to Shares, by exercising the Underwriters'
over-allotment option referred to previously. In addition, the
Representatives, on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangement with the Underwriters whereby they may
reclaim from an Underwriter for the account of the other Underwriters the
concession with respect to Shares that are distributed in the Offering but
subsequently purchased by the Representatives for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Shares at a
level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph is required and, if they are
undertaken, they may be discontinued at any time.
LEGAL PROCEEDINGS
From time to time BlackRock experiences a number of claims and legal
proceedings incidental to the normal conduct of its businesses. BlackRock
does not believe that liabilities related to such claims and proceedings
are likely to be, individually or in the aggregate, material to the
consolidated financial condition of BlackRock.
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 has applied for listing on the NYSE of its Shares under the
symbol " ," 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 Underwriters by .
EXPERTS
The statement of assets and liabilities of the Trust included in this
Prospectus has been so included in reliance upon the report of Deloitte &
Touche LLP, independent auditors, as stated in their report appearing
herein and is included in reliance upon the report of such firm given upon
their authority as experts in auditing and accounting.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholder of The BlackRock Senior Income Trust:
We have audited the accompanying statement of assets and liabilities of The
BlackRock Senior Income Trust (the "Trust") as of and the
related statement of operations for the period through . These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements 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 statements are 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 statements referred to above present fairly,
in all material respects, the financial position of the Trust as of in
conformity with generally accepted accounting principles.
New York, New York
STATEMENT OF ASSETS AND LIABILITIES
ASSETS:
Cash.............................................................. $100,000
Offering Costs....................................................
Receivable from BlackRock Advisors, Inc...........................
Total Assets..................................................
LIABILITIES:
Liabilities and Accrued Expenses..................................
Organization Costs................................................
Total Liabilities.................................................
Net Assets....................................................
Net assets per share, equivalent to shares of
beneficial interest issued and outstanding, par
value $.001, unlimited authorized shares....................
STATEMENT OF OPERATIONS
FOR THE PERIOD (INCEPTION) TO
INVESTMENT INCOME:
Investment income.............................................$ --
EXPENSES:
Organization expenses.........................................
Total expenses before reimbursement...........................
Reimbursement from BlackRock Advisors, Inc. (Note 3)..........
Total expenses after reimbursement............................ --
Investment income -- net...................................... --
Net Change in Net Assets Resulting from Operations................$ --
NOTE 1. ORGANIZATION
The BlackRock Senior Income Trust (the "Trust") was organized as a Delaware
business trust on and is registered as a non-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 Advisors, Inc.
of shares of beneficial interest for $100,000.
NOTE 2. AGREEMENTS
The Trust has entered into an Investment Advisory Agreement with BlackRock
Advisors, Inc. The Trust will pay BlackRock Advisors, Inc. a monthly fee
(the "Investment Advisory Fee") at an annual rate of 1.05% of the average
weekly value of the Trust's Managed Assets. From such Investment Advisory
Fee, BlackRock Advisors, Inc. will pay BlackRock, for serving as
sub-adviser, a fee equal to an annual rate of 0.35% 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
Prudential Investments Fund Management LLC, which provides for payment of a
monthly fee to each of the foregoing at an annual rate of 0.075% of the
average weekly value of the Trust's Managed Assets.
NOTE 3. ORGANIZATION AND OFFERING COSTS
Organization Expenses are reimbursed by BlackRock Advisors, Inc. Offering
Costs will be charged to capital upon the sale of shares of beneficial
interest. All organizational costs will be reimbursed by BlackRock
Advisors, Inc. by .
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 fundamentally 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
CERTAIN CHARACTERISTICS AND RISKS OF FUTURES AND OPTIONS
In order to seek to hedge against changes in the value of its portfolio
securities, the Trust may from time to time engage in certain hedging and
risk management strategies. The Trust will engage in such activities from
time to time in BlackRock'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 a 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 for hedging or to manage 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. BlackRock 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.
STRATEGIC 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 BlackRock'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 Strategic
Transactions will reduce net asset value.
The Trust's investments in Strategic Transactions may be limited or
affected by certain provisions of the Code.
================================== ====================================
Investors should rely only on the
information contained in this
Prospectus. Neither the Trust,
BlackRock Advisors, Inc. nor any of SHARES
the Underwriters have authorized
anyone to provide investors with
different information. No offer to
sell securities is being made in
any jurisdiction where the offer or
sale is not permitted. Investors
should not assume that the
information contained in this THE BLACKROCK
Prospectus is accurate as of any ENIOR INCOME TRUST
other date than the date of this
Prospectus.
------------
PROSPECTUS
------------
LOGO
Until , all dealers effecting
transactions in these securities,
whether or not participating in
this offering, may be required to
deliver a Prospectus. This is in
addition to the obligation of
dealers to deliver a Prospectus
when acting as Underwriters 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.
** Previously Filed.
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 February 17, 1999 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 Advisors, 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 19th day of February 1999.
/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 19th day of February 1999.
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)
* Signed by Ralph L. Schlosstein pursuant to a power of attorney dated
February 18, 1999.
