<PAGE>
As filed with the Securities and Exchange Commission on October 26, 1999
File Nos. 333-86589
811-09401
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------
FORM N-2
----------------
[X]REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]Pre-Effective Amendment No. 1
[_]Post-Effective Amendment No.
and
[X]REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]Amendment No. 5
----------------
The BlackRock Strategic Municipal 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)
(888) 825-2257
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein President
The BlackRock Strategic Municipal Trust
345 Park Avenue
New York, New York 10154
(Name and address of Agent for Service)
with copies to:
Thomas A. DeCapo Cynthia G. Cobden
Skadden, Arps, Slate, Meagher & Flom Simpson Thacher & Bartlett
LLP 425 Lexington Avenue
One Beacon Street New York, New York 10017
Boston, Massachusetts 02108-3194
----------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement. If any securities on this form
are to be offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, other than securities offered in connection
with a dividend reinvestment plan, check the following box [_]
[_] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 33- .
----------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Share Offering Price(1) Fee(1)(2)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Shares, $.001
par value............. 2,480 $25,000 $62,000,000 $17,236
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $16,680 paid previously.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
CROSS REFERENCE SHEET
Part A--Prospectus
<TABLE>
<CAPTION>
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
<C> <C> <S>
Item 1. Outside Front Cover............ Cover Page
Item 2. Cover Pages; Other Offering
Information................... Cover Page
Item 3. Fee Table and Synopsis......... Prospectus Summary
Item 4. Financial Highlights........... Financial Highlights (Unaudited)
Item 5. Plan of Distribution........... Cover Page; Prospectus Summary;
Underwriting
Item 6. Selling Shareholders........... Not Applicable
Item 7. Use of Proceeds................ Use of Proceeds
Item 8. General Description of the
Registrant.................... The Fund; The Fund's Investments;
Risks; Description of Preferred
Shares; Description of Common
Shares; Certain Provisions in the
Agreement and Declaration of Trust
Item 9. Management..................... Management of the Fund; Custodian
and Transfer and Dividend Disbursing
Agent
Item 10. Capital Stock, Long-Term Debt,
and Other Securities.......... Description of Preferred Shares;
Description of Common Shares;
Certain Provisions in the Agreement
and Declaration of Trust; Repurchase
of Common Shares; Tax Matters
Item 11. Defaults and Arrears on Senior
Securities.................... Not Applicable
Item 12. Legal Proceedings.............. Legal Opinions
Item 13. Table of Contents of the
Statement of Additional Table of Contents for the Statement
Information................... of Additional Information
Part B--Statement of Additional Information
Item 14. Cover Page..................... Cover Page
Item 15. Table of Contents.............. Cover Page
Item 16. General Information and Not Applicable
History.......................
Item 17. Investment Objective and Investment Objectives and Policies;
Policies...................... Investment Policies and Techniques;
Other Investment Policies and
Techniques; Portfolio Transactions
and Brokerage
Item 18. Management..................... Management of the Fund; Portfolio
Transactions and Brokerage
Item 19. Control Persons and Principal
Holders of Securities......... Management of the Fund
Item 20. Investment Advisory and Other
Services...................... Management of the Fund; Experts
Item 21. Brokerage Allocation and Other
Practices..................... Portfolio Transactions and Brokerage
Item 22. Tax Status..................... Tax Matters
Item 23. Financial Statements........... Independent Auditors' Report;
Financial Highlights (Unaudited)
</TABLE>
Part C--Other Information
Items 24-33 have been answered in Part C of this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 26, 1999
PROSPECTUS
$62,000,000
The BlackRock Strategic Municipal Trust
Municipal Auction Rate Cumulative Preferred Shares
("Preferred Shares")
2,480 Shares, Series W
Liquidation Preference $25,000 per share
---------
The BlackRock Strategic Municipal Trust (the "Fund") is a closed-end,
diversified management investment company.
The Fund's investment objectives are:
. to provide current income that is exempt from regular Federal income tax;
and
. to invest in municipal bonds that over time will perform better than the
broader municipal bond market.
Portfolio Contents. The Fund will invest primarily in municipal bonds that
pay interest that is exempt from regular Federal income tax. Under normal
market conditions, the Fund expects to be fully invested in tax-exempt
securities. The Fund will invest at least 80% of its total assets in investment
grade quality securities.
Investment grade quality securities are those rated by national rating
agencies within the four highest grades (Baa or BBB or better), or securities
that are unrated but judged to be of comparable quality by the Fund's
investment adviser. The Fund may invest up to 20% of its total assets in
securities that are rated Ba/BB or B or that are unrated but judged to be of
comparable quality by the Fund's investment adviser. Bonds that are below
investment grade quality are regarded as having predominately speculative
characteristics with respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as junk bonds. See "The Fund's
Investments." The Fund cannot assure you that it will achieve its investment
objectives.
(continued on following page)
---------
Investing in the Preferred Shares involves certain risks. See "Risks"
beginning on page 14. The minimum purchase amount of the Preferred Shares is
$25,000.
Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has approved or disapproved these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
---------
<TABLE>
<CAPTION>
Per Share Total
----------- -----------
<S> <C> <C>
Public Offering Price $25,000 $62,000,000
Sales Load $ $
Proceeds to Fund (before expenses) $ $
</TABLE>
The underwriters are offering the Preferred Shares subject to various
conditions. The underwriters expect to deliver the Preferred Shares to
purchasers, in book-entry form, through the facilities of The Depository Trust
Company on or about , 1999.
---------
Salomon Smith Barney
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Prudential Securities
, 1999
<PAGE>
(continued from previous page)
This prospectus contains important information about the Fund. You should
read the prospectus before deciding whether to invest and retain it for future
reference. A statement of additional information, dated October , 1999,
containing additional information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by reference in its
entirety into this prospectus. You can review the table of contents of the
statement of additional information on page 37 of this prospectus. You may
request a free copy of the statement of additional information by calling
(888) 825-2257. You may also obtain the statement of additional information
and other information regarding the Fund on the Securities and Exchange
Commission web site (http://www.sec.gov).
The Preferred Shares do not represent a deposit or obligation of, and are
not guaranteed or endorsed by, any bank or other insured depository
institution. The Preferred Shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency.
The Fund is offering 2,480 shares of Series W Municipal Auction Rate
Cumulative Preferred Shares. The shares are referred to in this prospectus as
"Preferred Shares." The Preferred Shares have a liquidation preference of
$25,000 per share, plus any accumulated, unpaid dividends. The Preferred
Shares also have priority over the Fund's common shares as to distribution of
assets as described in this prospectus. The dividend rate for the initial
dividend rate period will be %. The initial rate period is from the date of
issuance through , 1999. For subsequent rate periods, Preferred Shares
pay dividends based on a rate set at auction, usually held weekly. Prospective
purchasers should carefully review the auction procedures described in this
prospectus and should note: (1) a buy order (called a "bid order") or sell
order is a commitment to buy or sell Preferred Shares based on the results of
an auction; (2) auctions will be conducted by telephone; and (3) purchases and
sales will be settled on the next business day after the auction.
Preferred Shares are not listed on an exchange. You may only buy or sell
Preferred Shares through an order placed at an auction with or through a
broker-dealer that has entered into an agreement with the auction agent and
the Fund, or in a secondary market maintained by certain broker-dealers. These
broker-dealers are not required to maintain this market, and it may not
provide you with liquidity.
Dividends on Preferred Shares, to the extent payable from tax-exempt income
earned on the Fund's investments, will be exempt from regular Federal income
tax in the hands of owners of such shares. All or a portion of the Fund's
dividends may be subject to the Federal alternative minimum tax. The Fund is
required to allocate net capital gains and other taxable income, if any,
proportionately between common and preferred shares, including the Preferred
Shares, based on the percentage of total dividends distributed to each class
for that year. The Fund may at its election give notice of the amount of any
income subject to Federal income tax to be included in a dividend on a
Preferred Share in advance of the related auction. If the Fund does not give
such advance notice, it generally will be required to pay additional amounts
to Holders of Preferred Shares in order to adjust for their receipt of income
subject to Federal income tax.
<PAGE>
You should rely only on the information contained in this prospectus. The
Fund has not authorized anyone to provide you with different information. The
Fund is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights (Unaudited)........................................... 7
The Fund................................................................... 8
Use of Proceeds............................................................ 8
Capitalization (Unaudited)................................................. 9
Portfolio Composition...................................................... 9
The Fund's Investments..................................................... 10
Risks...................................................................... 14
Management of the Fund..................................................... 16
Description of Preferred Shares............................................ 20
The Auction................................................................ 28
Description of Common Shares............................................... 31
Certain Provisions in the Agreement and Declaration of Trust............... 32
Conversion to Open-End Fund................................................ 33
Repurchase of Common Shares................................................ 33
Tax Matters................................................................ 33
Underwriting............................................................... 35
Custodian and Transfer and Dividend Disbursing Agent; Auction Agent........ 35
Legal Opinions............................................................. 36
Available Information...................................................... 36
Table of Contents for the Statement of Additional Information.............. 37
Taxable Equivalent Yield Table (Appendix A)................................ A-1
</TABLE>
----------------
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information included elsewhere in this prospectus, the statement
of additional information and the Fund's Statement of Preferences of Municipal
Auction Rate Cumulative Preferred Shares (the "Statement") attached as
Appendix A to the statement of additional information. Capitalized terms used
but not defined in this prospectus shall have the meanings given to such terms
in the Statement.
The Fund............... The BlackRock Strategic Municipal Trust is a closed-
end, diversified management investment company. See
"The Fund." The Fund's common shares are traded on
the New York Stock Exchange under the symbol "BSD."
See "Description of Common Shares." As of October
15, 1999, the Fund had 7,241,081 common shares
outstanding and net assets of $101,207,052.
Investment The Fund's investment objectives are to provide
Objectives............. current income that is exempt from regular Federal
income tax and to invest in municipal bonds that
over time will perform better than the broader
municipal bond market. The Fund will invest
primarily in municipal bonds that pay interest that
is exempt from regular Federal income tax. The Fund
will invest in municipal bonds that, in BlackRock
Financial Management, Inc.'s opinion, are underrated
or undervalued. Underrated municipal bonds are those
whose ratings do not, in BlackRock Financial's
opinion, reflect their true higher creditworthiness.
Undervalued municipal bonds are bonds that, in
BlackRock Financial's opinion, are worth more than
the value assigned to them in the marketplace. Under
normal market conditions, the Fund expects to be
fully invested (at least 95% of its net assets) in
securities that pay interest that is or make other
distributions that are exempt from regular Federal
income tax. The Fund will invest at least 80% of its
total assets in securities that at the time of
investment are investment grade quality. Investment
grade quality securities are securities rated within
the four highest grades (Baa or BBB or better by
Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P") or Fitch IBCA,
Inc. ("Fitch")), or securities that are unrated but
judged to be of comparable quality by BlackRock
Financial. The Fund may invest up to 20% of its
total assets in securities that at the time of
investment are rated Ba/BB or B by Moody's, S&P or
Fitch or bonds that are unrated but judged to be of
comparable quality by BlackRock Financial. Bonds of
below investment grade quality are regarded as
having predominately speculative characteristics
with respect to the issuer's capacity to pay
interest and repay principal, and are commonly
referred to as junk bonds. The Fund intends to
invest primarily in long-term bonds and expects
bonds in its portfolio to have a dollar weighted
average maturity of at least 15 years under current
market conditions. The Fund may not attain its
investment objectives. See "The Fund's Investments."
Investment Adviser.....
BlackRock Advisors, Inc. is the Fund's investment
adviser, and BlackRock Advisors' affiliate,
BlackRock Financial, acts as the Fund's sub-adviser
3
<PAGE>
and handles day-to-day investment management of the
Fund. BlackRock Advisors is an indirect subsidiary of
PNC Bank, N.A. See "Management of the Fund."
The Offering.......... The Fund is offering 2,480 shares of Series W
Preferred Shares, each at a purchase price of $25,000
per share. Preferred Shares are being offered by the
underwriters listed under "Underwriting."
Risk Factors Risk is inherent in all investing. Therefore, before
Summary............... investing in the Preferred Shares you should consider
certain risks carefully. The primary risks of
investing in the Preferred Shares are:
. if an auction fails you may not be able to sell
some or all of your shares;
. because of the nature of the market for
Preferred Shares, you may receive less than the
price you paid for your shares if you sell them
outside of the auction, especially when market
interest rates are rising;
. a rating agency could downgrade the rating
assigned to the Preferred Shares, which could
affect liquidity;
. the Fund may be forced to redeem your shares to
meet regulatory or rating agency requirements
or may voluntarily redeem your shares in
certain circumstances;
. in extraordinary circumstances the Fund may not
earn sufficient income from its investments to
pay dividends;
. if interest rates rise, the value of the Fund's
investment portfolio will decline, reducing the
asset coverage for the Preferred Shares;
. if an issuer of a municipal bond in which the
Fund invests experiences financial difficulty
or defaults, there may be a negative impact on
the income and net asset value of the Fund's
portfolio;
. the Fund may invest up to 20% of its total
assets in securities that are below investment
grade quality which are regarded as having
predominately speculative characteristics with
respect to the issuer's capacity to pay
interest and principal.
For additional risks of investing in the Fund, see
"Risks" below.
Trading Market........
Preferred Shares are not listed on an exchange.
Instead, you may buy or sell the Preferred Shares at
an auction that normally is held weekly, by
submitting orders to a broker-dealer that has entered
into an agreement
4
<PAGE>
with the auction agent and the Fund (a "Broker-
Dealer"), or to a broker-dealer that has entered into
a separate agreement with a Broker-Dealer. In
addition to the auctions, Broker-Dealers and other
broker-dealers may maintain a secondary trading
market in Preferred Shares outside of auctions, but
may discontinue this activity at any time. There is
no assurance that a secondary market will provide
shareholders with liquidity. You may transfer shares
outside of auctions only to or through a Broker-
Dealer or a broker-dealer that has entered into a
separate agreement with a Broker-Dealer.
The first auction date for the Preferred Shares will
be , 1999, the business day before the dividend
payment date for the initial rate period. The auction
date for Preferred Shares normally will be a , and
the start date for subsequent rate periods normally
will be the following business day, typically a ,
unless the then-current rate period is a special rate
period, or the day that normally would be the auction
date or the first day of the subsequent rate period
is not a business day.
Dividends and Rate The table below shows the dividend rate for the
Periods............... initial rate period on the Preferred Shares offered
in this prospectus. For subsequent rate periods,
Preferred Shares will pay dividends based on a rate
set at auctions, normally held weekly. In most
instances, dividends are also paid weekly, on the day
following the end of the rate period. The rate set at
auction will not exceed the Maximum Rate. See
"Description of Preferred Shares--Dividends and
Dividend Periods--General."
The Preferred Shares will accumulate dividends from
at the initial rate of . The dividend payment
date for the initial rate period is , and the day
on which dividends will normally be paid is . If
the day on which dividends otherwise would be paid is
not a business day, then your dividends will be paid
on the first business day that falls after that day.
The number of days in the initial rate period for the
Preferred Shares is . Subsequent rate periods
generally will be seven days. The dividend payment
date for special rate periods of more than 28 days
will be set out in the notice designating a special
rate period. See "Description of Preferred Shares--
Dividends and Dividend Periods--Designation of
Special Rate Periods."
Taxation..............
Because under normal circumstances the Fund will
invest substantially all of its assets in municipal
bonds that pay interest that is exempt from regular
Federal income tax, the income you receive will
ordinarily be exempt from Federal income tax. Your
income may be subject to state and local taxes. All
or a portion of the income from these bonds will be
subject to the
5
<PAGE>
Federal alternative minimum tax, so Preferred Shares
may not be a suitable investment if you are subject
to this tax or would become subject to such tax by
investing in Preferred Shares. Taxable income or gain
earned by the Fund will be allocated proportionately
to holders of Preferred Shares and common shares,
based on the percentage of total dividends paid to
each class for that year. Accordingly, certain
specified Preferred Share dividends may be subject to
income tax on income or gains attributed to the Fund.
The Fund may at its election give notice before any
applicable auction of the amount of any taxable
income and gain to be distributed for the period
relating to that auction. If the Fund does not
provide such notice, the Fund generally will make
shareholders whole for taxes owing on dividends paid
to shareholders that include taxable income and gain.
See "Tax Matters" and "Description of Preferred
Shares--Dividends and Dividend Periods--Gross-up
Payments."
Ratings...............
The Preferred Shares will be issued with a rating of
"aaa" from Moody's. In order to maintain this rating,
the Fund must own portfolio securities of a
sufficient value and with adequate credit quality to
meet the rating agency's guidelines. See "Description
of Preferred Shares--Rating Agency Guidelines and
Asset Coverage."
Redemption............ Although the Fund does not ordinarily redeem Preferred
Shares, it may be required to redeem shares if, for
example, the Fund does not meet an asset coverage
ratio required by law or to correct a failure to meet
a rating agency guideline in a timely manner. The
Fund voluntarily may redeem Preferred Shares under
certain conditions. See "Description of Preferred
Shares--Redemption" and "Description of Preferred
Shares--Rating Agency Guidelines and Asset Coverage."
Liquidation The liquidation preference for the Preferred Shares
Preference............ will be $25,000 per share plus accumulated but unpaid
dividends. See "Description of Preferred Shares--
Liquidation."
Voting Rights.........
The holders of preferred shares, including Preferred
Shares, voting as a separate class, have the right to
elect at least two trustees of the Fund at all times.
Such holders also have the right to elect a majority
of the trustees in the event that two years'
dividends on the preferred shares are unpaid. In each
case, the remaining trustees will be elected by
holders of common shares and preferred shares,
including Preferred Shares, voting together as a
single class. The holders of preferred shares,
including Preferred Shares, will vote as a separate
class or classes on certain other matters as required
under the Fund's Agreement and Declaration of Trust,
the Investment Company Act of 1940 (the "1940 Act")
and Delaware law. See "Description of Preferred
Shares--Voting Rights" and "Certain Provisions in the
Agreement and Declaration of Trust."
6
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Information contained in the table below under the headings "Per Share
Operating Performance," "Ratios to Average Net Assets of Common Shareholders"
and "Supplemental Data" shows the unaudited operating performance of the Fund
from the commencement of the Fund's investment operations on August 25, 1999
through October 15, 1999. Since the Fund was recently organized and commenced
investment operations on August 25, 1999, the table covers less than seven
weeks of operations, during which a substantial portion of the Fund's
portfolio was held in temporary investments pending investment in municipal
securities that meet the Fund's investment objectives and policies.
Accordingly, the information presented may not provide a meaningful picture of
the Fund's future operating performance.
<TABLE>
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period.................................. $ 14.33
-------
Net investment income................................................. 0.08
Net realized and unrealized (loss) on investments..................... (0.40)
-------
Net decrease from investment operations............................... (0.32)
-------
Dividends and distributions........................................... 0.00
Capital charge with respect to issuance of common shares................ (0.03)
-------
Net asset value, end of period*......................................... $ 13.98
=======
Per share market value, end of period*.................................. $ 14.00
=======
Total Investment Return+................................................ (6.67)%
=======
Ratios to Average Net Assets of Common Shareholders:++
Operating Expenses#................................................... 0.45%+++
Net investment income................................................. 4.37%+++
Supplemental Data:
Average net assets of common shareholders (in thousands).............. $95,622
Portfolio turnover.................................................... 3.83%
</TABLE>
- --------
* Net asset value and market value are published in Barron's each Saturday,
The New York Times and The Wall Street Journal each Monday.
+ Total investment return is calculated assuming a purchase of common shares
at the current market price on the first day and a sale at the current
market price on the last day of the period reported. Dividends and
distributions, if any, are assumed for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions. Total
investment returns for periods of less than one year are not annualized.
++ Ratios are calculated on the basis of income and expenses to average net
assets.
+++ Annualized.
# The ratio of operating expenses, without giving effect to "advisory fee
waiver," to average net assets was 0.69%+++ for the period indicated
above.
The information above represents the unaudited operating performance of a
common share outstanding, total investment return, ratios to average net
assets and other supplemental data for the period indicated. This information
has been determined based upon financial information provided in the Fund's
unaudited financial statements for the period August 25, 1999 through October
15, 1999 included in the statement of additional information and market value
data for the Fund's shares.
7
<PAGE>
THE FUND
The Fund is a recently organized, closed-end, diversified management
investment company registered under the 1940 Act. The Fund was organized as a
Delaware business trust on June 17, 1999 pursuant to an Agreement and
Declaration of Trust governed by the laws of the State of Delaware (the
"Declaration"). On August 27, 1999, the Fund issued an aggregate of 6,700,000
common shares of beneficial interest, par value $.001 per share, pursuant to
the initial public offering and commenced its investment operations. On
October 13, 1999, the Fund issued an additional 534,100 common shares in
connection with the partial exercise by the underwriters of an over-allotment
option. The Fund's common shares are traded on the New York Stock Exchange
(the "Exchange") under the symbol "BSD." The Fund's principal office is
located at 345 Park Avenue, New York, New York 10154, and its telephone number
is (888) 825-2257.
The following provides information about the Fund's outstanding shares as of
October 15, 1999:
<TABLE>
<CAPTION>
Amount held by
the fund or
Amount for its Amount
Title of Class Authorized Account Outstanding
-------------- ---------- -------------- -----------
<S> <C> <C> <C>
Common................................. Unlimited 0 7,241,081
Preferred.............................. Unlimited 0 0
Series W............................... 3,720 0 0
</TABLE>
USE OF PROCEEDS
The net proceeds of this offering will be approximately $61,220,264 after
payment of the sales load and estimated offering costs.
The net proceeds of the offering will be invested in accordance with the
Fund's investment objectives and policies as stated below. It is presently
anticipated that the Fund will be able to invest substantially all of the net
proceeds in municipal securities that meet those objectives and policies at or
shortly (within six to eight weeks) after the completion of the offering. To
the extent that all of the proceeds cannot be so invested, pending such
investment, they will be invested in short-term, high quality tax-exempt
securities. If necessary in order to fully invest the net proceeds of the
offerings immediately, the Fund may also purchase, as temporary investments,
short-term, taxable investments, the income on which is subject to regular
Federal income tax.
8
<PAGE>
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Fund as of October
15, 1999, and as adjusted to give effect to the issuance of the Preferred
Shares offered hereby.
<TABLE>
<CAPTION>
Actual As Adjusted
----------- -----------
<S> <C> <C>
Shareholders' Equity:
Preferred Shares, $.001 par value, $25,000 stated
value per share, at liquidation value; unlimited
shares authorized (no shares issued; 2,480 shares
issued, as adjusted).............................. $ -- $62,000,000
Common shares, $.001 par value per share; unlimited
shares authorized, 7,241,081 shares outstanding*.. 7,241 7,241
Paid-in surplus...................................... 103,504,012 102,724,276
Balance of undistributed net investment income....... 595,433 595,433
Accumulated net realized (loss) from investment
transactions...................................... (130,271) (130,271)
Net unrealized (depreciation) of investments....... (2,769,363) (2,769,363)
----------- -----------
Net assets......................................... 101,207,052 162,427,316
=========== ===========
</TABLE>
- --------
*None of these outstanding shares are held by or for the account of the Fund.
PORTFOLIO COMPOSITION
As of October 15, 1999, approximately 89.2% of the market value of the
Fund's portfolio was invested in long-term municipal securities and
approximately 10.8% of the market value of the Fund's portfolio was invested
in short-term municipal securities. The following table sets forth certain
information with respect to the composition of the Fund's investment portfolio
as of October 15, 1999, based on the highest rating assigned.
<TABLE>
<CAPTION>
Credit Rating Value Percent
------------- ----------- -------
<S> <C> <C>
AAA/Aaa*............................................... $48,783,216 47.5%
AA/Aa.................................................. 10,413,751 10.1%
A/A.................................................... 7,668,692 7.5%
BBB/Baa................................................ 17,014,285 16.5%
BB/Ba.................................................. 5,721,780 5.6%
Unrated+............................................... 2,082,735 2.0%
Short-Term............................................. 11,100,000 10.8%
----------- -----
TOTAL................................................ 102,784,459 100.0%
=========== =====
</TABLE>
- --------
* Includes securities that are backed by an escrow or trust containing
sufficient U.S. Government Securities to ensure the timely payment of
principal and interest.
+ Refers to securities that have not been rated by Moody's, S&P or Fitch, but
that have been assessed by BlackRock Financial as being of comparable
credit quality to rated securities in which the Fund may invest. See "The
Fund's Investment--Investment Objectives and Policies."
9
<PAGE>
THE FUND'S INVESTMENTS
Investment Objectives and Policies
The Fund's investment objectives are:
. to provide current income exempt from regular Federal income tax; and
. to invest in municipal bonds that over time will perform better than the
broader municipal bond market.
The Fund will invest primarily (under normal market conditions, at least 65%
of its total assets) in municipal bonds that pay interest that is exempt from
regular Federal income tax. Under normal market conditions, the Fund expects
to be fully invested (at least 95% of its net assets) in securities that pay
interest that is or make other distributions that are exempt from regular
Federal income tax. The Fund will invest at least 80% of its total assets in
investment grade quality securities. Investment grade quality means that such
securities are rated, at the time of investment, within the four highest
grades (Baa or BBB or better by Moody's, S&P or Fitch) or are unrated but
judged to be of comparable quality by BlackRock Financial. The Fund may invest
up to 20% of its total assets in securities that are rated, at the time of
investment, Ba/BB or B by Moody's, S&P or Fitch or that are unrated but judged
to be of comparable quality by BlackRock Financial. Bonds of below investment
grade quality (Ba/BB or below) are commonly referred to as junk bonds. Bonds
of below investment grade quality are regarded as having predominantly
speculative characteristics with respect to the issuer's capacity to pay
interest and repay principal. These credit quality policies apply only at the
time a security is purchased, and the Fund is not required to dispose of a
security if a rating agency downgrades its assessment of the credit
characteristics of a particular issue. In determining whether to retain or
sell a security that a rating agency has downgraded, BlackRock Financial may
consider such factors as BlackRock Financial's assessment of the credit
quality of the issuer of the security, the price at which the security could
be sold and the rating, if any, assigned to the security by other rating
agencies. Appendix B to the statement of additional information contains a
general description of Moody's, S&P's and Fitch's ratings of municipal bonds.
The Fund may also invest in securities of other open- or closed-end investment
companies that invest primarily in municipal bonds of the types in which the
Fund may invest directly and in tax-exempt preferred shares that pay dividends
that are exempt from regular Federal income tax. See "--Other Investment
Companies," "--Tax-Exempt Preferred Shares" and "--Initial Portfolio
Composition."
The Fund will invest in municipal bonds that, in BlackRock Financial's
opinion, are underrated or undervalued. Underrated municipal bonds are those
whose ratings do not, in the opinion of BlackRock Financial, reflect their
true higher creditworthiness. Undervalued municipal bonds are bonds that, in
the opinion of BlackRock Financial, are worth more than the value assigned to
them in the marketplace. BlackRock Financial may at times believe that bonds
associated with a particular municipal market sector (for example, electric
utilities), or issued by a particular municipal issuer, are undervalued.
BlackRock Financial may purchase those bonds for the Fund's portfolio because
they represent a market sector or issuer that BlackRock Financial considers
undervalued, even if the value of those particular bonds appears to be
consistent with the value of similar bonds. Municipal bonds of particular
types (for example, hospital bonds, industrial revenue bonds or bonds issued
by a particular municipal issuer) may be undervalued because there is a
temporary excess of supply in that market sector, or because of a general
decline in the market price of municipal bonds of the market sector for
reasons that do not apply to the particular municipal bonds that are
considered undervalued. The Fund's investment in underrated or undervalued
municipal bonds will be based on BlackRock Financial's belief that their yield
is higher than that available on bonds bearing equivalent levels of interest
rate risk, credit risk and other forms of risk, and that their prices will
ultimately rise, relative to the market, to reflect their true value. The
10
<PAGE>
Fund attempts to invest in municipal bonds that over time will perform better
than the broader municipal bond market by prudent selection of municipal bonds
regardless of the direction the market may move. Any capital appreciation
realized by the Fund will generally result in capital gain distributions
subject to capital gain taxes.
The Fund may purchase municipal bonds that are additionally secured by
insurance, bank credit agreements or escrow accounts. The credit quality of
companies which provide these credit enhancements will affect the value of
those securities. Although the insurance feature reduces certain financial
risks, the premiums for insurance and the higher market price paid for insured
obligations may reduce the Fund's income. Insurance generally will be obtained
from insurers with a claims-paying ability rated aaa by Moody's or AAA by S&P
or Fitch. The insurance feature does not guarantee the market value of the
insured obligations or the net asset value of the common shares. The Fund may
purchase bonds with insurance purchased by the issuer or other third parties
and may purchase insurance for bonds in its portfolio.
During temporary defensive periods (including the period during which the
net proceeds of this offering are being invested, and in order to keep the
Fund's cash fully invested), the Fund may invest up to 100% of its net assets
in short-term investments, including high quality, short-term securities that
may be either tax-exempt or taxable. The Fund intends to invest in taxable
short-term investments only if suitable tax-exempt short-term investments are
not available at reasonable prices and yields. If the Fund invests in taxable
short-term investments, a portion of your dividends would be subject to
regular Federal income taxes. See the statement of additional information.
The Fund cannot change its investment objectives without the approval of the
holders of a majority of the outstanding common shares and the outstanding
preferred shares, including the Preferred Shares, voting together as a single
class, and of the holders of a majority of the outstanding preferred shares,
including the Preferred Shares, voting as a separate class. A majority of the
outstanding means (1) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the outstanding shares are present or represented
by proxy, or (2) more than 50% of the outstanding shares, whichever is less.
See "Description of Preferred Shares--Voting Rights" and the statement of
additional information for additional information with respect to the voting
rights of holders of Preferred Shares.
Municipal Bonds
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects, such as roads or public buildings, to
pay general operating expenses or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction or for privately owned industrial
development and pollution control projects. General obligation bonds are
backed by the full faith and credit, or taxing authority, of the issuer and
may be repaid from any revenue source. Revenue bonds may be repaid only from
the revenues of a specific facility or source. The Fund also may purchase
municipal bonds that represent lease obligations. These carry special risks
because the issuer of the bonds may not be obligated to appropriate money
annually to make payments under the lease. In order to reduce this risk, the
Fund will only purchase municipal bonds representing lease obligations where
BlackRock Financial believes the issuer has a strong incentive to continue
making appropriations until maturity.
Municipal securities pay interest or make other distributions that, in the
opinion of bond counsel to the issuer, or on the basis of another authority
believed by BlackRock Financial to be reliable, is exempt from regular Federal
income tax. BlackRock Financial will not conduct its own analysis of the tax
status of the interest paid by municipal bonds held by the Fund. The Fund
treats as municipal bonds: investment company shares; tax-
11
<PAGE>
exempt preferred shares; and other securities that pay interest or make other
distributions that are exempt from regular Federal income tax and in which the
Fund may invest as discussed in this prospectus, regardless of the security's
form as bonds, notes, stocks, shares or other interests and regardless of
whether the issuer is a government, governmental entity or private entity.
The yields on municipal bonds depend on a variety of factors, including
prevailing interest rates and the condition of the general money market and
the municipal bond market, the size of a particular offering, the maturity of
the obligation and the rating of the issue. The market value of municipal
bonds will vary with changes in interest rate levels and as a result of
changing evaluations of the ability of bond issuers to meet interest and
principal payments.
The Fund will primarily invest in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15 years or more, but the
dollar weighted average maturity of obligations held by the Fund may be
shortened, depending on market conditions.
When-Issued and Forward Commitment Securities
The Fund may buy and sell municipal bonds on a when-issued basis and may
purchase or sell municipal bonds on a "forward commitment" basis. 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 takes place at a later date. This type of transaction
involves risk because no interest accrues on the bonds prior to settlement
and, because bonds are subject to market fluctuations, the value of the bonds
at the time of delivery may be less or more than cost. A separate account of
the Fund will be established with its custodian consisting of cash, or other
liquid high grade debt securities having a market value at all times, at least
equal to the amount of the commitment.
Other Investment Companies
The Fund may invest up to 10% of its total assets in securities of other
open- or closed-end investment companies that invest primarily in municipal
bonds of the types in which the Fund may invest directly. The Fund generally
expects to invest in other investment companies either during periods when it
has large amounts of uninvested cash, such as the period shortly after the
Fund receives the proceeds of the offering of Preferred Shares, or during
periods when there is a shortage of attractive, high-yielding municipal bonds
available in the market. As a shareholder in an investment company, the Fund
will bear its ratable share of that investment company's expenses, and would
remain subject to payment of the Fund's advisory and other fees and expenses
with respect to assets so invested. Holders of common shares would therefore
be subject to duplicative expenses to the extent the Fund invests in other
investment companies. BlackRock Financial will take expenses into account when
evaluating the investment merits of an investment in an investment company
relative to available municipal bond investments. In addition, the securities
of other investment companies may be leveraged and will therefore be subject
to leverage risks. The net asset value and market value of leveraged shares
will be more volatile and the yield to shareholders will tend to fluctuate
more than the yield generated by unleveraged shares. Investment companies may
have investment policies that differ from those of the Fund. In addition, to
the extent that the Fund invests in other investment companies, the Fund will
be dependent upon the investment and research abilities of persons other than
BlackRock Financial. The Fund treats its investments in such open- or closed-
end investment companies as investments in municipal bonds.
12
<PAGE>
Tax-Exempt Preferred Shares
The Fund may also invest up to 15% of its total assets in preferred
interests of other investment funds that pay dividends that are exempt from
regular Federal income tax. Such funds in turn invest in municipal bonds and
other assets that pay interest or make distributions that are exempt from
regular Federal income tax, such as revenue bonds issued by state or local
agencies to fund the development of low-income, multi-family housing.
Investment in such tax-exempt preferred shares involves many of the same
issues as investing in other open- or closed-end investment companies as
discussed above. These investments also have additional risks, including
liquidity risk, the absence of regulation governing investment practices,
capital structure and leverage, affiliated transactions and other matters, and
concentration of investments in particular issuers or industries. Revenue
bonds issued by state or local agencies to finance the development of low-
income, multi-family housing involve special risks in addition to those
associated with municipal bonds generally, including that the underlying
properties may not generate sufficient income to pay expenses and interest
costs. Such bonds are generally non-recourse against the property owner, may
be junior to the rights of others with an interest in the properties, may pay
interest that changes based in part on the financial performance of the
property, may be prepayable without penalty and may be used to finance the
construction of housing developments which, until completed and rented, do not
generate income to pay interest. Increases in interest rates payable on senior
obligations may make it more difficult for issuers to meet payment obligations
on subordinated bonds. The Fund will treat investments in tax-exempt preferred
shares as investments in municipal bonds.
13
<PAGE>
RISKS
Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no
return on your investment or that you may lose part or all of your investment.
Therefore, before investing you should consider carefully the following risks
that you assume when you invest in Preferred Shares.
Interest Rate Risk
The Fund issues Preferred Shares, which pay dividends based on short-term
interest rates. The Fund then uses the proceeds from the sale of Preferred
Shares to buy municipal bonds, which pay interest based on long-term rates.
Both long-term and short-term interest rates may fluctuate. If short-term
interest rates rise, the Preferred Shares dividend rates may rise so that the
amount of dividends paid to holders of Preferred Shares exceeds the income
from the portfolio securities purchased with the proceeds from the sale of
Preferred Shares. Because income from the Fund's entire investment portfolio
(not just the portion of the portfolio purchased with the proceeds of the
Preferred Shares offering) is available to pay Preferred Share dividends,
however, Preferred Share dividend rates would need to greatly exceed the yield
on the Fund's portfolio before the Fund's ability to pay Preferred Share
dividends would be impaired. Generally, municipal bonds will decrease in value
when interest rates rise and increase in value when interest rates decline. If
long-term rates rise, the value of the Fund's investment portfolio will
decline, reducing the amount of assets serving as asset coverage for the
Preferred Shares.
Auction Risk
The dividend rate for the Preferred Shares normally is set through an
auction process. In the auction, holders of Preferred Shares may indicate the
dividend rate at which they would be willing to hold or sell their Preferred
Shares or purchase additional Preferred Shares. The auction also provides
liquidity for the sale of Preferred Shares. An auction fails if there are more
Preferred Shares offered for sale than there are buyers. You may not be able
to sell your Preferred Shares at an auction if the auction fails. Also, if you
place hold orders (orders to retain Preferred Shares) at an auction only at a
specified dividend rate, and that rate exceeds the rate set at the auction,
you will not retain your Preferred Shares. Finally, if you buy shares or elect
to retain shares without specifying a dividend rate below which you would not
wish to buy or continue to hold those shares, you could receive a lower rate
of return on your shares than the market rate. See "Description of Preferred
Shares" and "The Auction--Auction Procedures."
Secondary Market Risk
If you try to sell your Preferred Shares between auctions, you may not be
able to sell any or all of your shares, or you may not be able to sell them
for $25,000 per share or $25,000 per share plus accumulated dividends. If the
Fund has designated a special rate period (a rate period of more than 7 days),
changes in interest rates could affect the price you would receive if you sold
your shares in the secondary market. Broker-dealers that maintain a secondary
trading market for Preferred Shares are not required to maintain this market,
and the Fund is not required to redeem shares either if an auction or an
attempted secondary market sale fails because of a lack of buyers. Preferred
Shares are not listed on a stock exchange or the NASDAQ stock market. If you
sell your Preferred Shares to a broker-dealer between auctions, you may
receive less than the price you paid for them, especially if market interest
rates have risen since the last auction.
14
<PAGE>
Ratings and Asset Coverage Risk
While Moody's assigns a rating of aaa to the Preferred Shares, the rating
does not eliminate or necessarily mitigate the risks of investing in Preferred
Shares. Moody's could downgrade Preferred Shares, which may make your shares
less liquid at an auction or in the secondary market. If Moody's downgrades
Preferred Shares, the Fund may alter its portfolio or redeem Preferred Shares
in an effort to improve the rating, although there is no assurance that it
will be able to do so to the extent necessary to restore the prior rating. The
Fund may voluntarily redeem Preferred Shares under certain circumstances. See
"Description of Preferred Shares--Rating Agency Guidelines and Asset Coverage"
for a description of the asset maintenance tests the Fund must meet.
Credit Risk
Credit risk is the risk that an issuer of a security will become unable to
meet its obligation to make interest and principal payments. In general, lower
rated municipal bonds carry a greater degree of risk that the issuer will lose
its ability to make interest and principal payments, which could have a
negative impact on the Fund's net asset value or dividends. The Fund may
invest up to 20% of its total assets in municipal securities that are rated
Ba/BB or B by Moody's, S&P or Fitch or that are unrated but judged to be of
comparable quality by BlackRock Financial. Bonds rated Ba/BB or B are regarded
as having predominately speculative characteristics with respect to the
issuer's capacity to pay interest and repay principal, and these bonds are
commonly referred to as junk bonds. These securities are subject to a greater
risk of default. The prices of these lower grade bonds are more sensitive to
negative developments, such as a decline in the issuer's revenues or a general
economic downturn, than are the prices of higher grade securities. Lower grade
securities tend to be less liquid than investment grade securities. The market
values of lower grade securities tend to be more volatile than is the case for
investment grade securities.
The Fund intends to invest substantially all of its assets in municipal
bonds issued by states, cities and local authorities and certain possessions
and territories of the United States. As a result, the Fund bears the
investment risk that economic, political or regulatory changes could hurt many
municipal bond issuers, which would likely reduce the value of the Fund's bond
portfolio.
Municipal Bond Market Risk
Investing in the municipal bond market involves certain risks. The amount of
public information available about the municipal bonds in the Fund's portfolio
is generally less than that for corporate equities or bonds, and the
investment performance of the Fund may therefore be more dependent on the
analytical abilities of BlackRock Financial than a stock fund or taxable bond
fund. The secondary market for municipal bonds, particularly the below-
investment-grade bonds in which the Fund may invest, also tends to be less
well-developed or liquid than many other securities markets, which may
adversely affect the Fund's ability to sell its bonds at attractive prices.
The ability of municipal issuers to make timely payments of interest and
principal may be diminished during general economic downturns and as
governmental cost burdens are reallocated among Federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal
and/or interest, or impose other constraints on enforcement of such
obligations, or on the ability of municipalities to levy taxes. Issuers of
municipal securities might seek protection under the bankruptcy laws. In the
event of bankruptcy of such an issuer, the Fund could experience delays in
collecting principal and interest and the Fund may not, in all circumstances,
be able to collect all principal and interest to which it is entitled. To
enforce its rights in the event of a default in the payment of interest or
repayment of
15
<PAGE>
principal, or both, the Fund may take possession of and manage the assets
securing the issuer's obligations on such securities, which may increase the
Fund's operating expenses. Any income derived from the Fund's ownership or
operation of such assets may not be tax-exempt.
Reinvestment Risk
Reinvestment risk is the risk that income from the Fund's bond portfolio
will decline if and when the Fund invests the proceeds from matured, traded,
prepaid or called bonds at lower interest rates. A decline in income could
affect the Fund's ability to pay dividends on the Preferred Shares.
Inflation Risk
Inflation is the reduction in the purchasing power of money resulting from
the increase in the price of goods and services. Inflation risk is the risk
that the inflation adjusted (or "real") value of the Preferred Shares
investment or the income from that investment will be worth less in the
future. As inflation occurs, the real value of the Preferred Shares and
distributions declines. In an inflationary period, however, it is expected
that, through the auction process, dividend rates on the Preferred Shares
would increase, tending to offset this risk.
Economic Sector and Geographic Risk
The Fund may invest 25% or more of its total assets in municipal obligations
of issuers located in the same state (or U.S. territory) or in municipal
obligations in the same economic sector, including without limitation the
following: lease rental obligations of state and local authorities;
obligations dependent on annual appropriations by a state's legislature for
payment; obligations of state and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations of hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make the Fund more susceptible to adverse economic,
political, or regulatory occurrences affecting a particular state or economic
sector. For example, health care related issuers are susceptible to Medicare,
Medicaid and other third party payor reimbursement policies, and national and
state health care legislation. As concentration increases, so does the
potential for fluctuation in the value of the Fund's assets.
"Year 2000" Risk
The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund,
BlackRock Advisors is currently working to avoid such problems. BlackRock
Advisors is also working with other systems providers and vendors to determine
their systems' ability to handle Year 2000 problems. BlackRock Advisors has
received representations from the Fund's important service providers
concerning their Year 2000 readiness. There is no guarantee, however, that
systems will work properly on January 1, 2000. Year 2000 problems may also
hurt issuers whose securities the Fund holds or securities markets generally.
MANAGEMENT OF THE FUND
Trustees and Officers
The board of trustees is responsible for the overall management of the Fund,
including supervision of the duties performed by BlackRock Advisors and
BlackRock Financial. There are eight trustees of the Fund. Two of the trustees
are "interested persons" (as defined in the 1940 Act). The names and business
addresses of the
16
<PAGE>
trustees and officers of the Fund and their principal occupations and other
affiliations during the past five years are set forth under "Management of the
Fund" in the statement of additional information.
Investment Adviser
BlackRock Advisors acts as the Fund's investment adviser. BlackRock
Advisors, together with its investment advisory subsidiaries, is a global
asset management firm with assets of approximately $142 billion under
management as of June 30, 1999. BlackRock Advisors has its principal office at
345 Park Avenue, New York, New York 10154. BlackRock Advisors and its
subsidiaries constitute the asset management arm of PNC Bank, N.A., and
together have over 630 employees. BlackRock Advisors has appointed BlackRock
Financial, one of its affiliates, to handle the day-to-day investment
management of the Fund. BlackRock Financial and its affiliates provide fixed
income, liquidity, equity, alternative investment, and risk management
products for clients worldwide. As of June 30, 1999, BlackRock Financial
managed approximately $80 billion in various fixed income sectors, including
$8 billion in municipal securities. BlackRock Financial and its affiliates
also manage approximately $44 billion in cash or other short term, highly
liquid investments, including $4.4 billion in short term municipal securities.
BlackRock Advisors has $59 billion in mutual fund assets under management,
including two open-end mutual fund families, BlackRock FundsSM and Provident
Institutional Funds, 21 publicly traded closed-end funds and several short-
term investment funds. Among these products, BlackRock Financial and its
affiliates manage 11 closed-end, six open-end and six money market municipal
funds. In addition, BlackRock Financial manages portfolios of municipal
securities for large insurance companies and high net worth individuals.
Investment Philosophy
BlackRock Financial's investment decision-making process for the municipal
bond sector is subject to the same discipline, oversight and investment
philosophy that the firm applies to other sectors of the fixed income market.
BlackRock Financial uses a relative value strategy that evaluates the trade-
off between risk and return to seek to achieve the Fund's investment
objectives. This strategy is combined with disciplined risk control techniques
and applied in sector, sub-sector and individual security selection decisions.
BlackRock Financial's extensive personnel and technology resources are the key
drivers of the investment philosophy.
BlackRock Financial's Municipal Bond Team. BlackRock Financial uses a team
approach to managing municipal portfolios. BlackRock Financial believes that
this approach offers substantial benefits over one that is dependent on the
market wisdom or investment expertise of only a few individuals.
BlackRock Financial's municipal bond team includes two portfolio managers
and six credit research analysts. The team is lead by Kevin M. Klingert, a
managing director and portfolio manager at BlackRock Financial. Mr. Klingert
is a senior portfolio manager and head of municipal bonds at BlackRock
Financial, a position he has held since joining BlackRock Financial in 1991.
Mr. Klingert has over 15 years of experience in the municipal market. Prior to
joining BlackRock Financial, Mr. Klingert was an Assistant Vice President in
the Unit Investment Trust Department at Merrill Lynch, Pierce, Fenner & Smith
which he joined in 1985. Mr. Klingert has primary responsibility for managing
client portfolios with a special emphasis on municipal securities. The
portfolio management team also includes Craig Kasap. Mr. Kasap has been a
portfolio manager at BlackRock Financial for over two years and is a member of
BlackRock Financial's Investment Strategy Group. Prior to joining BlackRock
Financial in 1997, Mr. Kasap spent three years as a municipal bond trader with
Keystone Investments in Boston where he was involved in formulating the firm's
municipal bond investment strategies.
17
<PAGE>
BlackRock Financial's municipal bond portfolio managers are responsible for
25 municipal bond portfolios, valued as of June 30, 1999 at approximately $5.5
billion, plus approximately an additional $2.5 billion in municipal bonds held
across portfolios with broader investment mandates. The team is responsible
for portfolios with a variety of investment objectives and constraints,
including national funds and state-specific funds. As of June 30, 1999, the
team managed 11 closed-end municipal funds with over $3 billion in assets.
BlackRock Financial's Investment Process. BlackRock Financial has in-depth
expertise in the fixed income market. BlackRock Financial applies the same
risk-controlled, active sector rotation style (discussed below) to the
management process for all of its fixed income portfolios. BlackRock Financial
believes that it is unique in its integration of taxable and municipal bond
specialists. Both taxable and municipal bond portfolio managers share the same
trading floor and interact frequently for determining the firm's overall
investment strategy. This interaction allows each portfolio manager to access
the combined experience and expertise of the entire portfolio management group
at BlackRock Financial.
BlackRock Financial's portfolio management process emphasizes research and
analysis of specific sectors and securities, not interest rate speculation.
BlackRock Financial believes that market-timing strategies can be highly
volatile and potentially produce inconsistent results. Instead, BlackRock
Financial thinks that value over the long-term is best achieved through a
risk-controlled approach, focusing on sector allocation, security selection
and yield curve management (discussed below).
In the municipal market, BlackRock Financial believes one of the most
important determinants of value is supply and demand. BlackRock Financial's
ability to monitor investor flows and frequency and seasonality of issuance is
helpful in anticipating the impact of supply and demand on sectors. BlackRock
Financial believes that the breadth and expertise of its municipal bond team
allows it to anticipate issuance flows, forecast which sectors are likely to
have the most supply and plan its investment strategy accordingly.
BlackRock Financial also believes that over the long-term, intense credit
analysis will add value and avoid significant relative performance
impairments. The municipal credit team is led by Susan Heide, Ph.D who, since
December 15, 1998, has been managing director responsible for municipal credit
research at BlackRock Financial. Ms. Heide supervises a team of five municipal
research analysts who have an average of 10 years of experience in municipal
credit research. Between 1993 and December 15, 1998, Ms. Heide served as a
director at BlackRock Financial, specializing in the credit analysis of
municipal securities.
BlackRock Financial's approach to credit risk incorporates a combination of
sector-based top-down macro-analysis of industry sectors to determine relative
weightings with an issuer-specific, bottom-up detailed credit analysis of
issuers and structures. The sector-based approach focuses on rotating into
sectors that are undervalued and exiting sectors when fundamentals or
technicals become unattractive. The issuer-specific approach focuses on
identifying special opportunities where the market undervalues a credit, and
devoting concentrated resources to research the credit and monitor the
position. BlackRock Financial's analytic process focuses on anticipating
changes in credit trends before market recognition. Credit research is a
critical element of BlackRock Financial's municipal process. BlackRock
Financial's yield curve management process involves an evaluation of the
risk/return trade off for bonds having different durations, and selecting
bonds believed to present an attractive yield relative to the degree of
interest rate risk involved.
18
<PAGE>
Investment Management Agreement
Pursuant to an investment management agreement between BlackRock Advisors
and the Fund, the Fund has agreed to pay for the services and facilities
provided by BlackRock Advisors a fee, payable monthly in arrears, at an annual
rate equal to .60% of the average weekly value of the Fund's Managed Assets
(the "management fee"). The investment management agreement covers both
investment advisory and administration services. The Fund will reimburse
BlackRock Advisors for all out-of-pocket expenses BlackRock Advisors incurs in
connection with performing administrative services for the Fund. In addition,
with the approval of the board of trustees, a pro rata portion of the
salaries, bonuses, health insurance, retirement benefits and similar
employment costs for the time spent on Fund operations (other than the
provision of services required under the investment management agreement) of
all personnel employed by BlackRock Advisors or BlackRock Financial who devote
substantial time to Fund operations or the operations of other investment
companies advised by BlackRock Advisors or BlackRock Financial may be
reimbursed to BlackRock Advisors or BlackRock Financial.
Managed Assets are the total assets of the Fund minus the sum of accrued
liabilities (other than indebtedness attributable to leverage, including the
Preferred Shares). This means that during periods in which the Fund is using
leverage, the fee paid to BlackRock Advisors will be higher than if the Fund
did not use leverage because the fee is calculated as a percentage of the
Fund's Managed Assets, including those purchased with leverage. From the
management fee, BlackRock Advisors will pay BlackRock Financial, for serving
as sub-adviser, a fee equal to an annual rate of .35% of the average weekly
value of the Fund's Managed Assets.
In addition to the fee of BlackRock Advisors, the Fund pays all other costs
and expenses of its operations, including compensation of its trustees (other
than those affiliated with BlackRock Advisors), custodian, transfer and
dividend disbursing expenses, legal fees, rating agency fees, expenses of
independent auditors, expenses of repurchasing shares, expenses of preparing,
printing and distributing shareholder reports, notices, proxy statements and
reports to governmental agencies, and taxes, if any.
For the first nine years of the Fund's operations, BlackRock Advisors has
undertaken to waive fees and expenses in the amounts, and for the time
periods, set forth below:
<TABLE>
<CAPTION>
Year Ending Percentage Waived (as a percentage of
December 31, average weekly Managed Assets)
------------ -------------------------------------
<S> <C>
1999*................................. .25%
2000.................................. .25%
2001.................................. .25%
2002.................................. .25%
2003.................................. .25%
2004.................................. .25%
2005.................................. .20%
2006.................................. .15%
2007.................................. .10%
2008.................................. .05%
</TABLE>
- --------
*From the commencement of operations.
BlackRock Advisors has not undertaken to waive any portion of the Fund's
fees and expenses beyond December 31, 2008 or after termination of the
investment management agreement.
19
<PAGE>
DESCRIPTION OF PREFERRED SHARES
The following is a brief description of the terms of the Preferred Shares.
For the complete terms of the Preferred Shares, please refer to the detailed
description of the Preferred Shares in the Statement attached as Appendix A to
the statement of additional information.
General
The Fund's Declaration authorizes the issuance of an unlimited number of
preferred shares, par value $.001 per share, in one or more classes or series
with rights as determined by the Board of Trustees without the approval of
common shareholders. The Statement currently authorizes the issuance of 3,720
Preferred Shares, Series W. All Preferred Shares will have a liquidation
preference of $25,000 per share, plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared).
The Preferred Shares will rank on parity with any other series of preferred
shares of the Fund as to the payment of dividends and the distribution of
assets upon liquidation. Each Preferred Share carries one vote on matters that
Preferred Shares can be voted. Preferred Shares, when issued, will be fully
paid and non-assessable and have no preemptive, conversion or cumulative
voting rights.
Dividends and Dividend Periods
The following is a general description of dividends and Rate Periods.
Rate Periods. The Initial Rate Period of Preferred Shares will be days.
Subsequent Rate Periods will generally be seven days. The Fund, subject to
certain conditions, may change the length of Subsequent Rate Periods
designating them as Special Rate Periods. See "--Designation of Special Rate
Periods" below.
Dividend Payment Dates. Dividends on Preferred Shares will be payable, when,
as and if declared by the Board, out of legally available funds in accordance
with the Declaration (including the Statement) and applicable law, on ,
1999, and thereafter on each . However, if dividends are payable on a
that is not a Business Day, then dividends will be payable on the next
Business Day. In addition, the Fund may specify different Dividend Payment
Dates in respect of any Special Rate Period of more than 28 Rate Period Days.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date. The Securities Depository, in accordance with its current
procedures, is expected to distribute dividends received from the Fund in
next-day funds on each Dividend Payment Date to Agent Members. These Agent
Members are in turn expected to distribute such dividends to the persons for
whom they are acting as agents. However, each of the current Broker-Dealers
has indicated to the Fund that dividend payments will be available in same-day
funds on each Dividend Payment Date to customers that use such Broker-Dealer
or that Broker-Dealer's designee as Agent Member.
Calculation of Dividend Payment. The Fund computes the dividends per share
by multiplying the Applicable Rate in effect by a fraction. The numerator of
this fraction will normally be seven (i.e. the number of days in the Dividend
Period) and the denominator will normally be 365. If the Fund has designated a
Special
20
<PAGE>
Rate Period, then the numerator will be the number of days in the Dividend
Period, and the denominator will be 360. In either case, this rate is then
multiplied by $25,000 to arrive at dividends per share.
Dividends on Preferred Shares will accumulate from the date of their
original issue. The dividend rate for Preferred Shares for the Initial Rate
Period will be % per annum. For each Subsequent Rate Period, the dividend
rate will be the dividend rate determined at the Auction, except as provided
below. The dividend rate that results from an Auction for Preferred Shares
will not be greater than the Maximum Rate. The Maximum Rate is calculated as
follows:
(a) for any Auction Date which is not immediately prior to the first day
of any proposed Special Rate Period, the product of (i) the Reference Rate
on that Auction Date for the next Rate Period and (ii) the Rate Multiple on
that Auction Date, unless the Preferred Shares have or had a Special Rate
Period of more than 28 Rate Period Days and an Auction at which Sufficient
Clearing Bids existed has not yet occurred for a Minimum Rate Period after
such Special Rate Period, in which case the Maximum Rate will be the higher
of:
(A) the current dividend rate; and
(B) the product of (x) the Reference Rate (or, for longer Rate
Periods, the Treasury Note Rate) for either the current Rate Period or
the new Special Rate Period, whichever is greater and (y) the Rate
Multiple on the Auction Date; or
(b) in the case of any Auction Date which is immediately prior to the
first day of any proposed Special Rate Period, the product of (i) the
Reference Rate (or, for longer Rate Periods, the Treasury Note Rate) for
either the current Rate Period or the new Special Rate Period, or the
Reference Rate on that Auction Date for Minimum Rate Periods, whichever of
the three is greater and (ii) the Rate Multiple on that Auction Date.
If an Auction for any Subsequent Rate Period of Preferred Shares is not held
for any reason other than as described below, the dividend rate on shares for
that Subsequent Rate Period will be the Maximum Rate for those shares on the
Auction Date for that Subsequent Rate Period.
If the Fund fails to pay, in a timely manner, to the Auction Agent the full
amount of any dividend on, or the redemption price of, any Preferred Shares
during any Rate Period (other than a Special Rate Period of more than 364 Rate
Period Days or any Rate Period succeeding a Special Rate Period of more than
364 Rate Period Days during which the failure occurred and has not been
cured), but the Fund cures the failure and pays any late charge (as described
more fully in the Statement) before 12:00 Noon on the third Business Day after
the date of the failure, no Auction will be held for Preferred Shares of that
series for the first Subsequent Rate Period thereafter and the dividend rate
for Preferred Shares of that series for that Subsequent Rate Period will be
the Maximum Rate on the Auction Date for that Subsequent Rate Period.
If the Fund fails to pay, in a timely manner, to the Auction Agent the full
amount of any dividend on, or the redemption price of, any Preferred Shares
during any Rate Period (other than a Special Rate Period of more than 364 Rate
Period Days or any Rate Period succeeding a Special Rate Period of more than
364 Rate Period Days during which the failure occurred and has not been
cured), and the Fund does not cure the failure and pay the late charge (as
described more fully in the Statement) before 12:00 Noon on the third Business
Day after the date of the failure, no Auction will be held for Preferred
Shares of that series for the first Subsequent Rate Period thereafter (or for
any Rate Period thereafter, to and including the Rate Period during which the
failure is cured
21
<PAGE>
and the late charge is paid) (the late charge is to be paid only in the event
Moody's is rating the shares at the time the Fund cures the failure), and the
dividend rate for Preferred Shares of that series for each such Subsequent
Rate Period will be the Maximum Rate on the Auction Date for that Subsequent
Rate Period (but with the prevailing rating for Preferred Shares, for purposes
of determining such Maximum Rate, being "Below ba3").
If the Fund fails to pay, in a timely manner, to the Auction Agent the full
amount of any dividend on, or the redemption price of, any Preferred Shares
during a Special Rate Period of more than 364 Rate Period Days, or during any
Rate Period succeeding a Special Rate Period of more than 364 Rate Period Days
during which a failure occurred that has not been cured, and the Fund does not
cure the failure and pay a late charge (as described more fully in the
Statement), no Auction will be held for Preferred Shares of that series for
that Subsequent Rate Period thereof (or for any Rate Period thereafter to and
including the Rate Period during which the failure is cured and the late
charge so paid) (the late charge to be paid only in the event Moody's is
rating the shares at the time the Fund cures the failure), and the dividend
rate for Preferred Shares of that series for each such Subsequent Rate Period
will be the Maximum Rate on the Auction Date for that Subsequent Rate Period
(but with the prevailing rating for Preferred Shares, for purposes of
determining such Maximum Rate, being "Below ba3").
The Fund cures a failure to pay dividends on, or the redemption price of,
any Preferred Shares for any Rate Period by paying the Auction Agent (a) all
accumulated and unpaid dividends on the Preferred Shares of the series in
question and (b) the redemption price for Preferred Shares of such series for
which notice of redemption has been mailed by the Fund, within the respective
time periods described in the Statement. However, clause (b) shall not apply
when the notice of redemption mailed by the Fund provides that redemption of
the shares is subject to a condition precedent that has not been satisfied.
Gross-up Payments. Holders of Preferred Shares may receive, when, as and if
declared by the Board, out of legally available funds in accordance with the
Declaration (including the Statement) and applicable law, dividends equal to
the aggregate Gross-up Payment as follows:
The Fund may allocate net capital gain or other income taxable for federal
income tax purposes to a dividend paid on Preferred Shares. The Fund may, at
its election, notify the Auction Agent of such allocation in advance as
described below under "The Auction--Auction Procedures." If the Fund does not
give advance notice of the allocation (a "Taxable Allocation") the Fund must
provide notice to the Auction Agent during the Fund's fiscal year in which the
dividend was paid or within 90 days after such fiscal year end. In addition,
in such event, the Fund generally will be required to direct the Fund's
dividend disbursing agent to send a Gross-up Payment relating to such notice
to each holder of Preferred Shares (initially Cede & Co., as nominee of the
Securities Depository) that was entitled to the dividend payment during that
fiscal year at the holder's address as it appears on the Fund's record books.
A "Gross-up Payment" means payment to a holder of Preferred Shares of an
amount which, when taken together with the aggregate amount of Taxable
Allocations made to such holder to which such Gross-up Payment relates, would
cause such holder's dividends in dollars (after Federal income tax
consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be at least equal to the dollar amount of the dividends
which would have been received by such holder if the amount of the aggregate
Taxable Allocations had been excludable from the gross income of such holder.
Such Gross-up Payment shall be calculated: (a) without consideration being
given to the time value of money; (b) assuming that no holder of Preferred
Shares is subject to the Federal alternative minimum tax with respect to
dividends received from the
22
<PAGE>
Fund; and (c) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an exempt-
interest dividend under Section 852(b)(5) of the Internal Revenue Code or
successor provisions) would be taxable in the hands of each holder of
Preferred Shares at the maximum marginal Federal individual income tax rate
applicable to ordinary income or net capital gains, as applicable, or the
maximum regular Federal corporate income tax rate applicable to ordinary
income or net capital gains, as applicable, whichever is greater, in effect at
the time such Gross-up Payment is made.
Restrictions on Dividends and Other Distributions. Except as otherwise
described herein, when the Fund has any Preferred Shares outstanding, the Fund
may not declare, pay or set apart for payment, any dividend or other
distribution (other than a dividend or distribution paid in, or in options,
warrants or rights to subscribe for or purchase, its common shares) in respect
of common shares. In addition, the Fund may not call for redemption, redeem,
purchase or otherwise acquire for consideration any common shares (except by
conversion into or exchange for shares of the Fund ranking junior to the
Preferred Shares as to the payment of dividends and the distribution of assets
upon liquidation). However, the Fund is not confined by the above restrictions
if (a) full cumulative dividends on all Preferred Shares through its most
recently ended Dividend Period are paid or declared and sufficient funds for
the payment are deposited with the Auction Agent; (b) the Fund has redeemed
the full number of Preferred Shares required to be redeemed by any provision
for mandatory redemption; or (c) immediately after such transaction the
Discounted Value of the Fund's portfolio would at least equal the Preferred
Shares Basic Maintenance Amount in accordance with guidelines of the rating
agency or agencies then rating the Preferred Shares.
Except as set forth in the next sentence, the Fund will not declare, pay or
set apart for payment any dividend on any shares of the Fund ranking, as to
the payment of dividends, on a parity with Preferred Shares for any period
unless the Fund has or contemporaneously declares and pays full cumulative
dividends on the Preferred Shares through its most recent Dividend Payment
Date. However, when the Fund has not paid dividends in full on the Preferred
Shares through the most recent Dividend Payment Date or upon any shares of the
Fund ranking, as to the payment of dividends, on a parity with Preferred
Shares through their most recent respective Dividend Payment Dates, the Fund
will declare all dividends upon Preferred Shares and any shares of the Fund
ranking, as to the payment of dividends, on a parity with Preferred Shares,
pro rata so that the amount of dividends declared per share on Preferred
Shares and such other class or series of shares will in all cases bear to each
other the same ratio that accumulated dividends per share on the Preferred
Shares and such other class or series of shares bear to each other.
Designation of Special Rate Periods. The Fund, at its option, may designate
any succeeding Subsequent Rate Period of Preferred Shares as a Special Rate
Period consisting of a specified number of Rate Period Days evenly divisible
by seven and not more than 1,820 (approximately 5 years), subject to certain
adjustments. A designation of a Special Rate Period will only be effective if,
among other things, (a) the Fund has given certain notices to the Auction
Agent, (b) an Auction for shares of such series has been held on the Auction
Date immediately before the first day of the proposed Special Rate Period and
Sufficient Clearing Bids for shares of such series existed in the Auction and
(c) if the Fund has mailed a notice of redemption with respect to any shares
of such series, the redemption price with respect to such shares has been
deposited with the Auction Agent.
Redemption
Mandatory Redemption. If the Fund does not timely cure a failure to maintain
(a) a Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the 1940 Act Preferred Shares Asset
23
<PAGE>
Coverage, in accordance with the requirements of the rating agency that rates
the Preferred Shares, it is mandatory that the Fund redeem the Preferred
Shares. This mandatory redemption will take place on a date that the Board
specifies out of legally available funds in accordance with the Declaration
(including the Statement) and applicable law, at the redemption price of
$25,000 per share plus accumulated but unpaid dividends (whether or not earned
or declared) to (but not including) the date fixed for redemption. Any such
redemption is limited to the number of Preferred Shares necessary to restore
the required Discounted Value or the 1940 Act Preferred Shares Asset Coverage,
as the case may be.
Optional Redemption. The Fund may redeem Preferred Shares at its option:
(a) as a whole or from time to time in part, on the second Business Day
before any Dividend Payment Date, out of legally available funds in
accordance with the Declaration (including the Statement) and applicable
law, at the redemption price of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) to (but not including)
the date fixed for redemption. However, (i) the Fund may not redeem
Preferred Shares in part if after the partial redemption fewer than 300
shares of such series would remain outstanding; (ii) the Fund may only
redeem Preferred Shares during the Initial Rate Period on the second
Business Day before the last Dividend Payment Date for that Initial Rate
Period; and (iii) the notice establishing a Special Rate Period of
Preferred Shares, as delivered to the Auction Agent and filed with the
secretary of the Fund, may provide that the shares are not redeemable
during the whole or any part of that Special Rate Period (except as
provided in (b) below) or are redeemable during the whole or any part of
the Special Rate Period only upon payment of the redemption premium(s) as
specified; and
(b) as a whole but not in part, out of funds legally available therefor
in accordance with the Declaration (including the Statement) and applicable
law, on the first day following any Dividend Period thereof included in a
Rate Period of more than 364 Rate Period Days if, on the date of
determination of the Applicable Rate for shares of such series for such
Preferred Shares for such Rate Period, such Applicable Rate equaled or
exceeded on such date of determination the Treasury Note Rate for such Rate
Period, at a redemption price of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption.
Notwithstanding the foregoing, if any dividends on shares of Preferred
Shares (whether or not earned or declared) are in arrears, the Fund cannot
redeem any Preferred Shares unless the Fund simultaneously redeems all
outstanding Preferred Shares, and the Fund shall not acquire any Preferred
Shares. However, the foregoing shall not prevent the acquisition of all
outstanding Preferred Shares pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, holders of all outstanding shares of Preferred Shares.
Liquidation
Upon a voluntary or involuntary liquidation of the Fund, the holders of
outstanding Preferred Shares will receive, from the assets of the Fund
available for distribution to its shareholders, the liquidation preference
plus all accumulated but unpaid dividends (whether or not earned or declared)
to (but not including) the date of final distribution, in same-day funds,
together with any applicable Gross-up Payments before any payment is made to
the common shares. The holders of outstanding Preferred Shares will be
entitled to receive these amounts subject to the rights of holders of any
series or class of shares ranking on a parity with Preferred Shares with
respect to the distribution of assets upon liquidation of the Fund. After the
payment to the holders of Preferred Shares of the full preferential amounts
provided for as described, the holders of Preferred Shares will have no right
or claim to any of the remaining assets of the Fund.
24
<PAGE>
Neither the sale of all or substantially all the property or business of the
Fund, nor the merger or consolidation of the Fund into or with any other
corporation, nor the merger or consolidation of any other corporation into or
with the Fund, is a voluntary or involuntary liquidation for the purposes of
the foregoing paragraph.
Rating Agency Guidelines and Asset Coverage
The Fund is required under Moody's guidelines to maintain assets having in
the aggregate a Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount. To the extent any particular portfolio holding does not
satisfy Moody's guidelines, all or a portion of such holding's value will not
be included in the calculation of Discounted Value (as defined by such rating
agency). The Moody's guidelines do not impose any limitations on the
percentage of the Fund's assets that may be invested in holdings not eligible
for inclusion in the calculation of the Discounted Value of the Fund's
portfolio. The amount of such assets included in the portfolio at any time may
vary depending upon the rating, diversification and other characteristics of
the eligible assets included in the portfolio. The Preferred Shares Basic
Maintenance Amount includes the sum of (a) the aggregate liquidation
preference of Preferred Shares then outstanding and (b) certain accrued and
projected payment obligations of the Fund.
The Fund is also required under rating agency guidelines to maintain, with
respect to Preferred Shares, as of the last Business Day of each month in
which any such shares are outstanding, asset coverage of at least 200% with
respect to senior securities which are shares, including Preferred Shares (or
such other asset coverage as may in the future be specified in or under the
1940 Act as the minimum asset coverage for senior securities which are shares
of a closed-end investment company as a condition of declaring dividends on
its common shares) ("1940 Act Preferred Shares Asset Coverage"). Based on the
composition of the portfolio of the Fund and market conditions as of October
15, 1999, the 1940 Act Preferred Shares Asset Coverage with respect to
Preferred Shares, assuming the issuance on that date of all Preferred Shares
offered here and giving effect to the deduction of related sales load and
related offering costs estimated at $779,736 would have been computed as
follows:
Value of Fund assets less liabilities
not constituting senior securities $162,427,316
------------------------------------------- = ------------- = 261.98%
Senior securities representing indebtedness
plus
liquidation value of the Preferred Shares $62,000,000
In the event the Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the 1940 Act Preferred Shares Asset Coverage, in
each case in accordance with the requirements of the rating agency or agencies
then rating the Preferred Shares, the Fund will be required to redeem
Preferred Shares as described under "--Redemption--Mandatory Redemption"
above.
The Fund may, but is not required to, adopt any modifications to the
guidelines that may be established by Moody's. Failure to adopt any such
modifications, however, may result in a change in the ratings described above
or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the Preferred Shares may, at any time, change or
withdraw any such rating. The Board may, without shareholder approval, amend,
alter or repeal any or all of the definitions and related provisions which
have been adopted by the Fund pursuant to the rating agency guidelines in the
event the Fund receives written confirmation from Moody's that any such
amendment, alteration or repeal would not impair the rating then assigned by
Moody's to Preferred Shares.
25
<PAGE>
As recently described by Moody's, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock
obligations. The rating on the Preferred Shares is not a recommendation to
purchase, hold or sell those shares, inasmuch as the rating does not comment
as to market price or suitability for a particular investor. The rating agency
guidelines described above also do not address the likelihood that an owner of
Preferred Shares will be able to sell such shares in an Auction or otherwise.
The rating is based on current information furnished to Moody's by the Fund
and BlackRock Advisors and information obtained from other sources. The rating
may be changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information. The common shares have not been rated by
a nationally recognized statistical rating organization.
A rating agency's guidelines will apply to Preferred Shares only so long as
such rating agency is rating such shares. The Fund will pay certain fees to
Moody's for rating the Preferred Shares.
Voting Rights
Except as otherwise provided in this prospectus and in the statement of
additional information or as otherwise required by law, holders of Preferred
Shares will have equal voting rights with holders of common shares and any
other preferred shares (one vote per share) and will vote together with
holders of common shares and any preferred shares as a single class.
In connection with the election of the Fund's trustees, holders of
outstanding preferred shares, including Preferred Shares, voting as a separate
class, are entitled to elect two of the Fund's trustees, and the remaining
trustees are elected by holders of common shares and preferred shares,
including Preferred Shares, voting together as a single class. In addition, if
at any time dividends (whether or not earned or declared) on outstanding
preferred shares, including Preferred Shares, are due and unpaid in an amount
equal to two full years of dividends, and sufficient cash or specified
securities have not been deposited with the Auction Agent for the payment of
such dividends, then, the sole remedy of holders of outstanding preferred
shares, including Preferred Shares, is that the number of trustees
constituting the Board will be automatically increased by the smallest number
that, when added to the two trustees elected exclusively by the holders of
preferred shares, including Preferred Shares, as described above, would
constitute a majority of the Board. The holders of preferred shares, including
Preferred Shares, will be entitled to elect that smallest number of additional
trustees at a special meeting of shareholders held as soon as possible and at
all subsequent meetings at which trustees are to be elected. The terms of
office of the persons who are trustees at the time of that election will
continue. If the Fund thereafter shall pay, or declare and set apart for
payment, in full, all dividends payable on all outstanding preferred shares,
including Preferred Shares, the special voting rights stated above will cease,
and the terms of office of the additional trustees elected by the holders of
preferred shares, including Preferred Shares, will automatically terminate.
As long as any Preferred Shares are outstanding, the Fund will not, without
the affirmative vote or consent of the holders of at least a majority of the
Preferred Shares outstanding at the time (voting as a separate class):
(a) authorize, create or issue any class or series of stock ranking prior
to or on a parity with Preferred Shares with respect to the payment of
dividends or the distribution of assets upon liquidation, or authorize,
create or issue additional shares of any series of Preferred Shares (except
that, notwithstanding the foregoing, but subject to certain rating agency
approvals, the Board, without the vote or consent of the holders of
Preferred Shares, may from time to time authorize and create, and the Fund
may from time to time issue, additional shares of any series of Preferred
Shares or classes or series of preferred shares ranking
26
<PAGE>
on a parity with Preferred Shares with respect to the payment of dividends
and the distribution of assets upon liquidation; provided, however, that if
Moody's is not then rating the Preferred Shares, the aggregate liquidation
preference of all preferred shares of the Fund outstanding after any such
issuance, exclusive of accumulated and unpaid dividends, may not exceed
$62,000,000) or
(b) amend, alter or repeal the provisions of the Declaration, including
the Statement, by merger, consolidation or otherwise, to affect (and, in
the case of the Statement, adversely) any preference, right or power of the
Preferred Shares or the holders of Preferred Shares;
provided, however, that (i) none of the actions permitted by the exception to
(a) above will be deemed to affect any preferences, rights or powers, (ii) a
division of Preferred Shares will be deemed to affect such preferences, rights
or powers only if the terms of such division adversely affect the holders of
Preferred Shares and (iii) the authorization, creation and issuance of classes
or series of shares ranking junior to Preferred Shares with respect to the
payment of dividends and the distribution of assets upon liquidation will be
deemed to affect such preferences, rights or powers only if Moody's is then
rating Preferred Shares and such issuance would, at that time, cause the Fund
not to satisfy the 1940 Act Preferred Shares Asset Coverage or the Preferred
Shares Basic Maintenance Amount. As long as any Preferred Shares are
outstanding, the Fund will not, without the affirmative vote or consent of the
holders of at least 66 2/3% of the Preferred Shares outstanding at the time,
voting as a separate class, file a voluntary application for relief under
Federal bankruptcy law or any similar application under state law for so long
as the Fund is solvent and does not foresee becoming insolvent.
If any action set forth above would adversely affect the rights of one or
more series (the "Affected Series") of preferred shares in a manner different
from any other series of preferred shares, the Fund will not approve any such
action without the affirmative vote or consent of the holders of at least a
majority of the shares of each such Affected Series outstanding at the time,
in person or by proxy, either in writing or at a meeting (each Affected Series
voting as a separate class). Unless a higher percentage is provided for in the
Declaration (see "Certain Provisions in the Agreement and Declaration of
Trust"), the affirmative vote of the holders of a majority of the outstanding
preferred shares, including the Preferred Shares voting as a separate class,
will be required: (A) to approve any conversion of the Fund from a closed-end
to an open-end investment company; and (B) to approve any plan of
reorganization (as such term is used in the 1940 Act) adversely affecting
those shares. The affirmative vote of the holders of a majority of the
outstanding preferred shares, including Preferred Shares, voting as a separate
class, shall be required to approve any action not described in the preceding
sentence requiring a vote of security holders of the Fund under Section 13(a)
of the 1940 Act.
The foregoing voting provisions will not apply with respect to Preferred
Shares if, at or prior to the time when a vote is required, such shares have
been (i) redeemed or (ii) called for redemption and sufficient funds have been
deposited in trust to effect such redemption.
27
<PAGE>
THE AUCTION
General
The Statement provides that, except as otherwise described herein, the
Applicable Rate for the Preferred Shares for each Rate Period after the
Initial Rate Period shall be equal to the rate per annum that the Auction
Agent advises has resulted on the Business Day preceding the first day of such
Subsequent Rate Period (an "Auction Date") from implementation of the auction
procedures (the "Auction Procedures") set forth in the Statement and
summarized below, in which persons determine to hold or offer to sell or,
based on dividend rates bid by them, offer to purchase or sell Preferred
Shares. Each periodic implementation of the Auction Procedures is referred to
herein as an "Auction." See the Statement for a more complete description of
the Auction process.
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Bankers Trust Company) which provides, among other things, that the Auction
Agent will follow the Auction Procedures to determine the Applicable Rate for
Preferred Shares so long as the Applicable Rate for Preferred Shares is to be
based on the results of an Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Fund no earlier than 45 days after such notice. If the Auction Agent
should resign, the Fund will use its best efforts to enter into an agreement
with a successor Auction Agent containing substantially the same terms and
conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into
such an agreement with a successor Auction Agent.
Broker-Dealer Agreements. Each Auction requires the participation of one or
more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those Broker-
Dealers in Auctions for shares of Preferred Shares.
The Auction Agent after each Auction for Preferred Shares will pay to each
Broker-Dealer, from funds provided by the Fund, a service charge at the annual
rate of 1/4 of 1% in the case of any Auction immediately preceding a Rate
Period of less than one year, or a percentage agreed to by the Fund and the
Broker-Dealers in the case of any Auction immediately preceding a Rate Period
of one year or longer, of the purchase price of Preferred Shares placed by
such Broker-Dealer at such Auction. For the purposes of the preceding
sentence, Preferred Shares will be placed by a Broker-Dealer if such shares
were (a) the subject of Hold Orders deemed to have been submitted to the
Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for
its own account or were acquired by such Broker-Dealer for its customers who
are Beneficial Owners or (b) the subject of an Order submitted by such Broker-
Dealer that is (i) a Submitted Bid of an Existing Holder that resulted in such
Existing Holder continuing to hold such shares as a result of the Auction or
(ii) a Submitted Bid of a Potential Holder that resulted in such Potential
Holder purchasing such shares as a result of the Auction or (iii) a valid Hold
Order.
The Fund may request the Auction Agent to terminate one or more Broker-
Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
Auction Procedures
Prior to the Submission Deadline on each Auction Date for the Preferred
Shares, each customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of
28
<PAGE>
Preferred Shares (a "Beneficial Owner") may submit orders ("Orders") with
respect to Preferred Shares to that Broker-Dealer as follows:
. Hold Order--indicating its desire to hold Preferred Shares without
regard to the Applicable Rate for the next Rate Period thereof.
. Bid--indicating its desire to sell Preferred Shares at $25,000 per share
if the Applicable Rate for shares of such series for the next Rate
Period thereof is less than the rate specified in such Bid (also known
as a hold-at-a-rate order).
. Sell Order--indicating its desire to sell Preferred Shares at $25,000
per share without regard to the Applicable Rate for shares of such
series for the next Rate Period thereof.
A Beneficial Owner may submit different types of Orders to its Broker-Dealer
with respect to Preferred Shares then held by such Beneficial Owner. A
Beneficial Owner that submits a Bid to its Broker-Dealer having a rate higher
than the Maximum Rate on the Auction Date therefor will be treated as having
submitted a Sell Order to its Broker-Dealer. A Beneficial Owner that fails to
submit an Order to its Broker-Dealer will be deemed to have submitted a Hold
Order to its Broker-Dealer; provided however, that if a Beneficial Owner fails
to submit an Order to its Broker-Dealer for an Auction relating to a Rate
Period of more than 28 Rate Period Days, such Beneficial Owner will be deemed
to have submitted a Sell Order to its Broker-Dealer. A Sell Order shall
constitute an irrevocable offer to sell the Preferred Shares subject thereto.
A Beneficial Owner that offers to become the Beneficial Owner of additional
Preferred Shares is, for purposes of such offer, a Potential Beneficial Owner
as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of Preferred
Shares but that wishes to purchase Preferred Shares, or that is a Beneficial
Owner that wishes to purchase additional Preferred Shares (in each case, a
"Potential Beneficial Owner"), may submit Bids to its Broker-Dealer in which
it offers to purchase Preferred Shares at $25,000 per share if the Applicable
Rate for the next Rate Period thereof is not less than the rate specified in
such Bid. A Bid placed by a Potential Beneficial Owner specifying a rate
higher than the Maximum Rate on the Auction Date therefor will not be
accepted.
The Broker-Dealers in turn will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves (unless otherwise permitted by the Fund)
as Existing Holders in respect of shares subject to Orders submitted or deemed
submitted to them by Beneficial Owners and as Potential Holders in respect of
shares subject to Orders submitted to them by Potential Beneficial Owners.
However, neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. Any Order placed with
the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or
a Potential Holder will be treated in the same manner as an Order placed with
a Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner.
Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an
Order in respect of any Preferred Shares held by it or customers who are
Beneficial Owners will be treated in the same manner as a Beneficial Owner's
failure to submit to its Broker-Dealer an Order in respect of Preferred Shares
held by it. A Broker-Dealer may also submit Orders to the Auction Agent for
its own account as an Existing Holder or Potential Holder, provided it is not
an affiliate of the Fund.
If Sufficient Clearing Bids for Preferred Shares exist (that is, the number
of shares subject to Bids submitted or deemed submitted to the Auction Agent
by Broker-Dealers as or on behalf of Potential Holders with rates equal to or
lower than the Maximum Rate is at least equal to the number of Preferred
Shares subject to Sell Orders submitted or deemed submitted to the Auction
Agent by Broker-Dealers as or on behalf of Existing
29
<PAGE>
Holders), the Applicable Rate for Preferred Shares for the next succeeding
Rate Period thereof will be the lowest rate specified in the Submitted Bids
which, taking into account such rate and all lower rates bid by Broker-Dealers
as or on behalf of Existing Holders and Potential Holders, would result in
Existing Holders and Potential Holders owning the Preferred Shares available
for purchase in the Auction. If Sufficient Clearing Bids for Preferred Shares
do not exist, the Applicable Rate for the next succeeding Rate Period thereof
will be the Maximum Rate on the Auction Date therefor. In such event,
Beneficial Owners of Preferred Shares that have submitted or are deemed to
have submitted Sell Orders may not be able to sell in such Auction all shares
subject to such Sell Orders. If Broker-Dealers submit or are deemed to have
submitted to the Auction Agent Hold Orders with respect to all Existing
Holders of Preferred Shares, the Applicable Rate for the next succeeding Rate
Period thereof will be the All Hold Order Rate.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or
selling, or a Potential Holder purchasing, a number of Preferred Shares that
is fewer than the number of shares specified in its Order. To the extent the
allocation procedures have that result, Broker-Dealers that have designated
themselves as Existing Holders or Potential Holders in respect of customer
Orders will be required to make appropriate pro rata allocations among their
respective customers.
Settlement of purchases and sales will be made on the next Business Day
(also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in same-
day funds to the Securities Depository against delivery to their respective
Agent Members. The Securities Depository will make payment to the sellers'
Agent Members in accordance with the Securities Depository's normal
procedures, which now provide for payment against delivery by their Agent
Members in same-day funds.
The Auctions for Preferred Shares will normally be held every , and each
Subsequent Rate Period of shares of such series will normally begin on the
following .
Whenever the Fund intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on Preferred Shares,
the Fund may, at its election, notify the Auction Agent of the amount to be so
included not later than the Dividend Payment Date next preceding the Auction
Date on which the Applicable Rate for such dividend is to be established.
Whenever the Auction Agent receives such notice from the Fund, it will be
required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its customers who are Beneficial Owners and Potential Beneficial
Owners believed by it to be interested in submitting an Order in the Auction
to be held on such Auction Date. In the event of such notice, the Fund will
not be required to make a Gross-up Payment with respect to such dividend.
Secondary Market Trading and Transfer of Preferred Shares
The Broker-Dealers are expected to maintain a secondary trading market in
Preferred Shares outside of Auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance that such
secondary trading market in Preferred Shares will provide owners with
liquidity of investment. The Preferred Shares are not registered on any stock
exchange or on the Nasdaq Stock Market. Investors who purchase shares in an
Auction for a Special Rate Period should note that because the dividend rate
on such shares will be fixed for the length of such Rate Period, the value of
the shares may fluctuate in response to changes in interest rates, and may be
more or less than their original cost if sold on the open market in advance of
the next Auction therefor, depending upon market conditions.
30
<PAGE>
A Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of Preferred Shares only in whole shares and only (1) pursuant to a
Bid or Sell Order placed with the Auction Agent in accordance with the Auction
Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be
permitted by the Fund; provided, however, that (a) a sale, transfer or other
disposition of Preferred Shares from a customer of a Broker-Dealer who is
listed on the records of that Broker-Dealer as the holder of such shares to
that Broker-Dealer or another customer of that Broker-Dealer shall not be
deemed to be a sale, transfer or other disposition for purposes of the
foregoing if such Broker-Dealer remains the Existing Holder of the shares so
sold, transferred or disposed of immediately after such sale, transfer or
disposition and (b) in the case of all transfers other than pursuant to
Auctions, the Broker-Dealer (or other person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.
DESCRIPTION OF COMMON SHARES
In addition to the Preferred Shares, the Declaration authorizes the issuance
of an unlimited number of common shares, par value $.001 per share. All common
shares have equal rights to the payment of dividends and the distribution of
assets upon liquidation. Common shares are fully paid and non-assessable when
issued and have no preemptive, conversion or cumulative voting rights. So long
as any Preferred Shares are outstanding, the Fund is not permitted to declare
dividends on, make any distributions with respect to, or purchase its common
shares unless, at the time of such declaration, distribution or purchase, as
applicable (and after giving effect thereto), all accumulated dividends on
Preferred Shares have been paid.
The net asset value of the common shares of the Fund will be computed based
upon the value of the Fund's portfolio securities and other assets. Net asset
value per common share will be determined as of the close of the regular
trading session on the New York Stock Exchange no less frequently than once
each week. The Fund calculates net asset value per common share by subtracting
the Fund's liabilities (including accrued expenses, dividends payable and any
borrowings of the Fund) and the liquidation value of any outstanding shares of
preferred shares, including Preferred Shares, of the Fund from the Fund's
total assets (the value of the securities the Fund holds plus cash or other
assets, including interest accrued but not yet received) and dividing the
result by the total number of common shares of the Fund outstanding.
The Fund values its fixed income securities by using market quotations,
prices provided by market makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics
in accordance with procedures established by the board of trustees of the
Fund. A substantial portion of the Fund's fixed income investments will be
valued utilizing one or more pricing services approved by the board of
trustees. Debt securities having a remaining maturity of 60 days or less when
purchased and debt securities originally purchased with maturities in excess
of 60 days but which currently have maturities of 60 days or less are valued
at cost (or, in the latter case, value on the 61st day) adjusted for
amortization of premiums and accretion of discounts. Any securities or other
assets for which current market quotations are not readily available are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Fund's board of trustees.
31
<PAGE>
CERTAIN PROVISIONS IN THE AGREEMENT
AND DECLARATION OF TRUST
The Declaration includes provisions that could have the effect of limiting
the ability of other entities or persons to acquire control of the Fund or to
change the composition of its board of trustees. This 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 over the Fund, which attempts could have the effect of
increasing the expenses of the Fund and disrupting the normal operation of the
Fund. 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 by the action of two-thirds of
the remaining trustees or by a vote of the holders of at least two-thirds of
the shares.
In addition, the Declaration requires the favorable vote of the holders of
at least 75% of the outstanding shares of each class of the Fund, voting as a
class, then entitled to vote to approve, adopt or authorize certain
transactions with five percent-or-greater holders of a class of shares and
their associates, unless two-thirds of the board of trustees by resolution has
approved a memorandum of understanding with such holders, in which case normal
voting requirements would be in effect. For purposes of these provisions, a
five percent-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 shares of beneficial
interest of the Fund. The transactions subject to these special approval
requirements are:
. the merger or consolidation of the Fund or any subsidiary of the Fund
with or into any Principal Shareholder;
. the issuance of any securities of the Fund to any Principal Shareholder
for cash, except pursuant to the Fund's Dividend Reinvestment Plan;
. the sale, lease or exchange of all or any substantial part of the assets
of the Fund to any Principal Shareholder, except assets having an
aggregate fair market value of less than $1 million, aggregating for the
purpose of such computation all assets sold, leased or exchanged in any
series of similar transactions within a twelve-month period; or
. the sale, lease or exchange to the Fund or any subsidiary of the Fund,
in exchange for securities of the Fund, of any assets of any Principal
Shareholder, except assets having an aggregate fair market value of less
than $1 million, 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 1940 Act, are in the best interest of shareholders
generally. Reference should be made to the Declaration on file with the
Securities and Exchange Commission for the full text of these provisions.
32
<PAGE>
CONVERSION TO OPEN-END FUND
The Fund may be converted to an open-end investment company at any time by
an amendment to the Declaration. The Declaration provides that such an
amendment must be approved by the affirmative vote of a majority of trustees
then in office and by the holders of two-thirds of the Fund'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 by the affirmative vote of a majority of preferred shares,
including the Preferred Shares, voting as a separate class. Such a vote also
would satisfy a separate requirement in the 1940 Act that the change be
approved by the shareholders. If approved in the foregoing manner, conversion
of the Fund 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 Fund to an open-end
investment company would require the redemption of any outstanding preferred
shares, including the Preferred Shares. The board of trustees believes,
however, that the closed-end structure is desirable in light of the Fund's
investment objectives and policies. Therefore, you should assume that it is
not likely that the board of trustees would vote to convert the Fund to an
open-end fund.
REPURCHASE OF COMMON SHARES
Shares of closed-end investment companies often trade at a discount to their
net asset values, and the Fund's common shares may also trade at a discount to
their net asset value. The market price of the Fund's common shares will be
determined by such factors as relative demand for and supply of such common
shares in the market, the Fund's net asset value, general market and economic
conditions and other factors beyond the control of the Fund. Although the
Fund's common shareholders will not have the right to redeem their common
shares, the Fund may take action to repurchase common shares in the open
market or make tender offers for its common shares at their net asset value.
This may have the effect of reducing any market discount from net asset value.
TAX MATTERS
Federal Income Tax Matters
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and intends to distribute substantially all of its net income and gains to its
shareholders. Therefore, it is not expected that the Fund will be subject to
any Federal income tax. Substantially all of the Fund's dividends to the
common shareholders and Preferred Shareholders will qualify as "exempt-
interest dividends." A shareholder treats an exempt-interest dividend as
interest on state and local bonds which is exempt from regular Federal income
tax. Some or all of an exempt-interest dividend, however, may be subject to
Federal alternative minimum tax imposed on the shareholder. Different Federal
alternative minimum tax rules apply to individuals and to corporations. In
addition to exempt-interest dividends, the Fund also may distribute to its
shareholders amounts that are treated as long-term capital gain or ordinary
income. The Fund will allocate distributions to shareholders that are treated
as tax-exempt interest and as long-term capital gain and ordinary income, if
any, proportionately among the common shares and preferred shares, including
the Preferred Shares. The Fund intends to notify Preferred Shareholders in
advance if it will allocate income to them that is not exempt from regular
Federal income tax. In certain circumstances the Fund will make payments to
33
<PAGE>
Preferred Shareholders to offset the tax effects of the taxable distribution.
See "Description of Preferred Shares--Dividends and Dividend Periods--Gross-Up
Payments." The sale or other disposition of common shares or Preferred Shares
of the Fund will normally result in capital gain or loss to shareholders.
Present law taxes both long-term and short-term capital gains of corporations
at the rates applicable to ordinary income. For non-corporate taxpayers, under
current law short-term capital gains and ordinary income will be taxed at a
maximum rate of 39.6% while long-term capital gains will generally be taxed at
a maximum rate of 20%. Because of certain limitations on itemized deductions
and the deduction for personal exemptions applicable to higher income
taxpayers, the effective rate of tax may be higher in certain circumstances.
Losses realized by a shareholder on the sale or exchange of shares of the Fund
held for six months or less are disallowed to the extent of any exempt-
interest dividends received with respect to such shares, and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distribution of net capital gain received with respect to such shares.
A shareholder's 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 of the Fund will be disallowed to the extent those shares of the Fund
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 original
shares. In that event, the basis of the replacement shares of the Fund will be
adjusted to reflect the disallowed loss. The statement of additional
information contains a more detailed summary of the Federal tax rules that
apply to the Fund and its shareholders. Legislative, judicial or
administrative action may change the tax rules that apply to the Fund or its
shareholders, and any such change may be retroactive. You should consult with
your tax adviser about Federal income tax matters.
State and Local Tax Matters
While exempt-interest dividends are exempt from regular Federal income tax,
they may not be exempt from state or local income or other taxes. Some states
exempt from state income tax that portion of any exempt-interest dividend that
is derived from interest that a regulated investment company receives on its
holdings of securities of that state and its political subdivisions and
instrumentalities. Therefore, the Fund will report annually to its
shareholders the percentage of interest income the Fund earned during the
preceding year on tax-exempt obligations and the Fund will indicate, on a
state-by-state basis, the source of this income. You should consult with your
tax adviser about state and local tax matters.
34
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, each underwriter named below has severally agreed to purchase,
and the Fund has agreed to sell to such underwriter, the number of Preferred
Shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Salomon Smith Barney Inc.......................................
A.G. Edwards & Sons, Inc.......................................
PaineWebber Incorporated.......................................
Prudential Securities Incorporated.............................
-----
Total........................................................ 2,480
=====
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to the approval
of certain legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the Preferred Shares if they
purchase any shares. In the underwriting agreement, the Fund, BlackRock
Advisors and BlackRock Financial have agreed to indemnify the underwriters
against certain liabilities, including liabilities arising under the
Securities Act of 1933, or to contribute payments the underwriters may be
required to make for any of those liabilities.
The underwriters, Salomon Smith Barney Inc., A.G. Edwards & Sons, Inc.,
PaineWebber Incorporated and Prudential Securities Incorporated, propose to
initially offer some of the Preferred Shares directly to the public at the
public offering price set forth on the cover page of this prospectus and some
of the Preferred Shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The sales load the Fund will pay
of $ per share is equal to % of the initial offering price. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share on sales to certain other dealers. After the initial
public offering, the underwriters may change the public offering price and the
concession. Investors must pay for any Preferred Shares purchased in the
initial public offering on or before , 1999.
The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Fund's portfolio transactions after they
have ceased to be underwriters. The underwriters are active underwriters of,
and dealers in, securities and act as market makers in a number of such
securities, and therefore can be expected to engage in portfolio transactions
with the Fund.
The Fund anticipates that the underwriters or one of their respective
affiliates may, from time to time, act in auctions as Broker-Dealers and
receive fees as set forth under "The Auction."
CUSTODIAN AND TRANSFER AND
DIVIDEND DISBURSING AGENT; AUCTION AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as the Fund's Custodian and its Transfer Agent and
Dividend Disbursing Agent with respect to the common shares.
Bankers Trust Company, 4 Albany Street, New York, New York 10006, a banking
corporation organized under the laws of New York, is the auction agent with
respect to the Preferred Shares and acts as transfer agent, registrar,
dividend disbursing agent, and redemption agent with respect to such shares.
35
<PAGE>
LEGAL OPINIONS
Certain legal matters in connection with the Preferred Shares offered hereby
will be passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP,
Boston, Massachusetts, and for the underwriters by Simpson Thacher & Bartlett,
New York, New York.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and is required to file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). These documents can be inspected and copied for a fee at the
SEC's public reference room, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the SEC's New York Regional Office, Seven World Trade Center, New York,
New York 10048 and Chicago Regional Office, Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Reports, proxy
statements, and other information about the Funds can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
This prospectus does not contain all of the information in the Fund's
registration statement, including amendments, exhibits, and schedules.
Statements in this prospectus about the contents of any contract or other
document are not necessarily complete and in each instance reference is made
to the copy of the contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
this reference.
Additional information about the Fund and Preferred Shares can be found in
the Fund's registration statement (including amendments, exhibits, and
schedules) on Form N-2 filed with the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains the Fund's registration statement, other
documents incorporated by reference, and other information the Fund has filed
electronically with the Commission, including proxy statements and reports
filed under the Securities Exchange Act of 1934.
36
<PAGE>
TABLE OF CONTENTS
FOR THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies....................................... B-2
Investment Policies and Techniques....................................... B-4
Other Investment Policies and Techniques................................. B-10
Management of the Fund................................................... B-12
Portfolio Transactions and Brokerage..................................... B-17
Additional Information Concerning the Auctions for Preferred Shares...... B-18
Description of Common Shares............................................. B-20
Repurchase of Common Shares.............................................. B-20
Tax Matters.............................................................. B-21
Experts.................................................................. B-25
Additional Information................................................... B-25
Independent Auditors' Report............................................. B-25
Statement of Assets and Liabilities (Audited)............................ B-26
Statement of Operations (Audited)........................................ B-26
Financial Statements (Unaudited)......................................... B-28
Statement of Preferences of Municipal Auction Rate Cumulative Preferred
Shares (Appendix A)..................................................... AA-1
Ratings of Investments (Appendix B)...................................... BB-1
General Characteristics and Risks of Hedging Transactions (Appendix C)... CC-1
</TABLE>
You should rely only on the information contained in this prospectus. The
Fund has not authorized anyone to provide you with different information. The
Fund is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
37
<PAGE>
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLE
The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated Federal tax-free yield on a
municipal investment. To assist you to more easily compare municipal
investments like the Preferred Shares with taxable alternative investments,
the table below presents the taxable equivalent yields for a range of
hypothetical Federal tax-free yields and tax rates:
TAXABLE EQUIVALENT OF TAX EXEMPT YIELDS
TAX EXEMPT YIELD
<TABLE>
<CAPTION>
TAX RATE 2.50% 3.00% 3.50% 4.00% 4.50%
- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
28.0%.................................................3.47%.4.17%.4.86% 5.56% 6.25%
31.0%.................................................3.62%.4.35%.5.07% 5.80% 6.52%
36.0%.................................................3.91%.4.69%.5.47% 6.25% 7.03%
39.6%.................................................4.14%.4.97%.5.79% 6.62% 7.45%
</TABLE>
- --------
* In the table above, the taxable equivalent yields are calculated assuming
that the Fund's income dividends are 100% federally tax-free. To the extent
the Fund were to invest in federally taxable investments, its taxable
equivalent yield would be lower. The tax-exempt yields shown above are for
illustration purposes only and do not represent or predict the tax-exempt
yield of the Fund. Dividends may be subject to the Federal alternative
minimum tax.
A-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$62,000,000
The BlackRock
Strategic Municipal Trust
Municipal Auction Rate Cumulative Preferred Shares
2,480 Shares, Series W
----------------
PROSPECTUS
, 1999
----------------
Salomon Smith Barney
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Prudential Securities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 26, 1999
The BlackRock Strategic Municipal Trust
STATEMENT OF ADDITIONAL INFORMATION
The BlackRock Strategic Municipal Trust (the "Fund") is a newly organized,
closed-end, diversified management investment company. This statement of
additional information relating to Preferred Shares does not constitute a
prospectus, but should be read in conjunction with the prospectus relating
hereto dated October , 1999. This statement of additional information does
not include all information that a prospective investor should consider before
purchasing Preferred Shares, and investors should obtain and read the prospectus
prior to purchasing such shares. A copy of the prospectus may be obtained
without charge by calling (888) 825-2257. You may also obtain a copy of the
prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this statement
of additional information have the meanings ascribed to them in the prospectus
or the Statement attached as Appendix A.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies........................................................... B-2
Investment Policies and Techniques........................................................... B-4
Other Investment Policies and Techniques..................................................... B-10
Management of the Fund....................................................................... B-12
Portfolio Transactions and Brokerage......................................................... B-17
Additional Information Concerning the Auctions for Preferred Shares.......................... B-18
Description of Common Shares................................................................. B-20
Repurchase of Common Shares.................................................................. B-20
Tax Matters.................................................................................. B-21
Experts...................................................................................... B-25
Additional Information....................................................................... B-25
Independent Auditors's Report................................................................ B-25
Statement of Assets and Liabilities (Audited)................................................ B-26
Statement of Operations (Audited)............................................................ B-26
Financial Statements (Unaudited)............................................................. B-28
Statement of Preferences of Municipal Auction Rate Cumulative Preferred Shares (Appendix A).. AA-1
Ratings of Investments (Appendix B).......................................................... BB-1
General Characteristics and Risks of Hedging Transactions (Appendix C)....................... CC-1
</TABLE>
This statement of additional information is dated , 1999.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund has not established any limit on the percentage of its portfolio
that may be invested in municipal bonds subject to the alternative minimum tax
provisions of Federal tax law, and the Fund expects that a substantial portion
of the income it produces will be includable in alternative minimum taxable
income. Preferred Shares therefore would not ordinarily be a suitable
investment for investors who are subject to the Federal alternative minimum tax
or who would become subject to such tax by purchasing Preferred Shares. The
suitability of an investment in Preferred Shares will depend upon a comparison
of the after-tax yield likely to be provided from the Fund with that from
comparable tax-exempt investments not subject to the alternative minimum tax,
and from comparable fully taxable investments, in light of each such investor's
tax position. Special considerations apply to corporate investors. See "Tax
Matters."
Investment Restrictions
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding common
shares and Preferred Shares, voting together as a single class, and of the
holders of a majority of the outstanding Preferred Shares voting as a separate
class:
(1) invest 25% or more of the value of its total assets in any one
industry, provided that this limitation does not apply to municipal
bonds other than those municipal bonds backed only by assets and
revenues of non-governmental users;
(2) issue senior securities or borrow money other than as permitted by the
1940 Act;
(3) make loans of money or property to any person, except through loans of
portfolio securities, the purchase of fixed income securities
consistent with the Fund's investment objectives and policies or the
entry into repurchase agreements;
(4) underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities or the sale
of its own securities the Fund may be deemed to be an underwriter;
(5) purchase or sell real estate or interests therein other than municipal
bonds secured by real estate or interests therein; provided that the
Fund may hold and sell any real estate acquired in connection with its
investment in portfolio securities; or
(6) purchase or sell commodities or commodity contracts for any purposes
except as, and to the extent, permitted by applicable law without the
Fund becoming subject to registration with the Commodities Futures
Trading Commission as a commodity pool.
When used with respect to particular shares of the Fund, "majority of the
outstanding" means (i) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the outstanding shares are present or represented by
proxy, or (ii) more than 50% of the outstanding shares, whichever is less.
For purposes of applying the limitation set forth in subparagraph (1)
above, securities of the U.S. Government, its agencies, or instrumentalities,
and securities backed by the credit of a governmental entity are not considered
to represent industries. However, obligations backed only by the assets and
revenues of non-governmental users may for this purpose be deemed to be issued
by such non-governmental users. Thus, the 25% limitation would apply to such
obligations. It is nonetheless possible that the Fund may invest more than 25%
of its total assets in a broader economic sector of the market for municipal
obligations, such as revenue obligations of hospitals and other health care
facilities or electrical utility revenue obligations. The Fund reserves the
right to invest more than 25% of its assets in industrial development bonds and
private activity securities.
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<PAGE>
For the purpose of applying the limitation set forth in subparagraph (1)
above, an issuer shall be deemed the sole issuer of a security when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a non-
governmental issuer, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental issuer, then such non-governmental issuer would be deemed
to be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental or other entity (other than a
bond insurer), it shall also be included in the computation of securities owned
that are issued by such governmental or other entity. Where a security is
guaranteed by a governmental entity or some other facility, such as a bank
guarantee or letter of credit, such a guarantee or letter of credit would be
considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the Fund's assets that may be invested in municipal
bonds insured by any given insurer.
Under the 1940 Act, the Fund may invest only up to 10% of its total assets
in the aggregate in shares of other investment companies and only up to 5% of
its total assets in any one investment company, provided the investment does not
represent more than 3% of the voting stock of the acquired investment company at
the time such shares are purchased. As a shareholder in any investment company,
the Fund will bear its ratable share of that investment company's expenses, and
would remain subject to payment of the Fund's advisory fees and other expenses
with respect to assets so invested. In addition, the securities of other
investment companies may also be leveraged and will therefore be subject to
leverage risks. The net asset value and market value of leveraged shares will
be more volatile and the yield to shareholders will tend to fluctuate more than
the yield generated by unleveraged shares.
In addition to the foregoing fundamental investment policies, the Fund is
also subject to the following non-fundamental restrictions and policies, which
may be changed by the board of trustees. The Fund may not:
(1) Make any short sale of securities except in conformity with applicable
laws, rules and regulations and unless, giving effect to such sale,
the market value of all securities sold short does not exceed 25% of
the value of the Fund's total assets and the Fund's aggregate short
sales of a particular class of securities does not exceed 25% of the
then outstanding securities of that class. The Fund may also make
short sales "against the box" without respect to such limitations. In
this type of short sale, at the time of the sale, the Fund owns or has
the immediate and unconditional right to acquire at no additional cost
the identical security.
(2) Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act or any exemptive relief
obtained thereunder.
(3) Purchase securities of companies for the purpose of exercising
control.
(4) Invest in inverse floating rate securities (which are securities that
pay interest at rates that vary inversely with changes in prevailing
short-term tax-exempt interest rates and which represent a leveraged
investment in an underlying municipal bond).
(5) Invest more than 5% of total Fund assets in securities of any one
issuer, except that this limitation does not apply to bonds issued by
the United States Government, its agencies and instrumentalities or to
the investment of 25% of the Fund's total assets.
The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
In addition, to comply with Federal tax requirements for qualification as a
"regulated investment company," the Fund's investments will be limited in a
manner such that at the close of each quarter of each fiscal year, (a) no more
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than 25% of the Fund's total assets are invested in the securities of a single
issuer and (b) with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer.
These tax-related limitations may be changed by the Trustees to the extent
appropriate in light of changes to applicable tax requirements.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's
investment objectives, policies and techniques that are described in the
prospectus.
Investment in Municipal Bonds
Portfolio Investments
The Fund will invest its net assets primarily in municipal bonds that pay
interest that is exempt from regular Federal income tax.
Issuers of bonds rated Ba/BB or B are regarded as having current capacity
to make principal and interest payments but are subject to business, financial
or economic conditions which could adversely affect such payment capacity.
Municipal bonds rated Baa or BBB are considered "investment grade" securities;
municipal bonds rated Baa are considered medium grade obligations which lack
outstanding investment characteristics and have speculative characteristics,
while municipal bonds rated BBB are regarded as having adequate capacity to pay
principal and interest. Municipal bonds rated AAA in which the Fund may invest
may have been so rated on the basis of the existence of insurance guaranteeing
the timely payment, when due, of all principal and interest. Municipal bonds
rated below investment grade quality are obligations of issuers that are
considered predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the possibility of issuer
default and bankruptcy and increased market price volatility. Municipal bonds
rated below investment grade tend to be less marketable than higher-quality
bonds because the market for them is less broad. The market for unrated
municipal bonds is even narrower. During periods of thin trading in these
markets, the spread between bid and asked prices is likely to increase
significantly and the Fund may have greater difficulty selling its portfolio
securities. The Fund will be more dependent on BlackRock Financial's research
and analysis when investing in these securities.
A general description of Moody's, S&P's and Fitch's ratings of municipal
bonds is set forth in Appendix B hereto. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the municipal bonds they rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, municipal bonds with the same maturity,
coupon and rating may have different yields while obligations of the same
maturity and coupon with different ratings may have the same yield.
The Fund will primarily invest in municipal bonds with long-term maturities
in order to maintain a dollar weighted average maturity of 15-30 years, but the
dollar average weighted maturity may be shortened from time to time depending on
market conditions. As a result, the Fund's portfolio at any given time may
include both long-term and intermediate-term municipal bonds. Moreover, during
temporary defensive periods (e.g., times when, in BlackRock Financial's opinion,
temporary imbalances of supply and demand or other temporary dislocations in the
tax-exempt bond market adversely affect the price at which long-term or
intermediate-term municipal bonds are available), and in order to keep cash on
hand fully invested, including the period during which the net proceeds of the
offering are being invested, the Fund may invest any percentage of its assets in
short-term investments including high quality, short-term securities which may
be either tax-exempt or taxable and securities of other open- or closed-end
investment companies that invest primarily in municipal bonds of the type in
which the Fund may invest directly. The Fund intends to invest in taxable
short-term investments only in the event that suitable tax-exempt temporary
investments are not available at reasonable prices and yields. Tax-exempt
temporary investments include various obligations issued by state and local
governmental issuers, such as tax-exempt notes (bond anticipation notes, tax
anticipation notes and revenue anticipation notes or other such municipal bonds
maturing in three years or less from the date of issuance) and municipal
commercial
B-4
<PAGE>
paper. The Fund will invest only in taxable temporary investments
which are U.S. Government securities or securities rated within the highest
grade by Moody's, S&P or Fitch, and which mature within one year from the date
of purchase or carry a variable or floating rate of interest. See Appendix B
for a general description of Moody's, S&P's and Fitch's ratings of securities in
such categories. Taxable temporary investments of the Fund may include
certificates of deposit issued by U.S. banks with assets of at least $1 billion,
or commercial paper or corporate notes, bonds or debentures with a remaining
maturity of one year or less, or repurchase agreements. See "Other Investment
Policies and Techniques--Repurchase Agreements." To the extent the Fund invests
in taxable investments, the Fund will not at such times be in a position to
achieve its investment objective of tax-exempt income.
The foregoing policies as to ratings of portfolio investments will apply
only at the time of the purchase of a security, and the Fund will not be
required to dispose of securities in the event Moody's, S&P or Fitch downgrades
its assessment of the credit characteristics of a particular issuer.
Also included within the general category of municipal bonds described in
the prospectus are participations in lease obligations or installment purchase
contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although a Municipal Lease
Obligation does not constitute a general obligation of the municipality for
which the municipality's taxing power is pledged, a Municipal Lease Obligation
is ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the Municipal Lease Obligation. However,
certain Municipal Lease Obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In the case of a "non-appropriation" lease, the Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property, without
recourse to the general credit of the lessee, and disposition or releasing of
the property might prove difficult. In order to reduce this risk, the Fund will
only purchase Municipal Lease Obligations where BlackRock Financial believes the
issuer has a strong incentive to continue making appropriations until maturity.
Obligations of issuers of municipal bonds are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to the laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of legislation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
municipal bonds may be materially affected.
In addition to the types of municipal bonds described in the prospectus, the
Fund may invest in other securities that pay interest that is or make other
distributions that are exempt from regular Federal income tax, regardless of
the technical legal structure of the issuer or the instrument. The Fund treats
all of such tax-exempt securities as municipal bonds.
Short-Term Investments
Short-Term Taxable Fixed Income Securities
For temporary defensive purposes or to keep cash on hand fully invested,
the Fund may invest up to 100% of its total assets in cash equivalents and
short-term taxable fixed-income securities, although the Fund intends to invest
in taxable short-term investments only in the event that suitable tax-exempt
short-term investments are not available at reasonable prices and yields.
Short-term taxable fixed income investments are defined to include, without
limitation, the following:
(1) U.S. government securities, including bills, notes and bonds differing
s to maturity and rates of interest that are either issued or
guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities. U.S. government agency securities include securities
issued by (a) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States,
B-5
<PAGE>
Small Business Administration, and the Government National Mortgage
Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury; (c) the Federal National Mortgage Association, whose
securities are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or
instrumentality; and (d) the Student Loan Marketing Association, whose
securities are supported only by its credit. While the U.S. government
provides financial support to such U.S. government-sponsored agencies
or instrumental ities, no assurance can be given that it always will do
so since it is not so obligated by law. The U.S. government, its
agencies, and instrumentalities do not guarantee the market value of
their securities. Consequently, the value of such securities may
fluctuate.
(2) Certificates of deposit issued against funds deposited in a bank or a
savings and loan association. Such certificates are for a definite
period of time, earn a specified rate of return, and are normally
negotiable. The issuer of a certificate of deposit agrees to pay the
amount deposited plus interest to the bearer of the certificate on the
date specified thereon. Certificates of deposit purchased by the Fund
may not be fully insured by the FDIC.
(3) Repurchase agreements, which involve purchases of debt securities. At
the time the Fund purchases securities pursuant to a repurchase
agreement, it simultaneously agrees to resell and redeliver such
securities to the seller, who also simultaneously agrees to buy back
the securities at a fixed price and time. This assures a predetermined
yield for the Fund during its holding period, since the resale price is
always greater than the purchase price and reflects an agreed-upon
market rate. Such actions afford an opportunity for the Fund to invest
temporarily available cash. The Fund may enter into repurchase
agreements only with respect to obligations of the U.S. government, its
agencies or instrumentalities; certificates of deposit; or bankers'
acceptances in which the Fund may invest. Repurchase agreements may be
considered loans to the seller, collateralized by the underlying
securities. The risk to the Fund is limited to the ability of the
seller to pay the agreed-upon sum on the repurchase date; in the event
of default, the repurchase agreement provides that the Fund is entitled
to sell the underlying collateral. If the value of the collateral
declines after the agreement is entered into, and if the seller
defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, the Fund could incur a
loss of both principal and interest. BlackRock Financial monitors the
value of the collateral at the time the action is entered into and at
all times during the term of the repurchase agreement. BlackRock
Financial does so in an effort to determine that the value of the
collateral always equals or exceeds the agreed-upon repurchase price to
be paid to the Fund. If the seller were to be subject to a Federal
bankruptcy proceeding, the ability of the Fund to liquidate the
collateral could be delayed or impaired because of certain provisions
of the bankruptcy laws.
(4) Commercial paper, which consists of short-term unsecured promissory
notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between the Fund and a corporation.
There is no secondary market Financial will consider the financial
condition of the corporation (e.g., earning power, cash flow, and other
liquidity ratios) and will continuously monitor the corporation's
ability to meet all of its financial obligations, because the Fund's
liquidity might be impaired if the corporation were unable to pay
principal and interest on demand. Investments in commercial paper will
be limited to commercial paper rated in the highest categories by a
major rating agency and which mature within one year of the date of
purchase or carry a variable or floating rate of interest.
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Short-Term Tax-Exempt Fixed Income Securities
Short-term tax-exempt fixed-income securities are securities that are
exempt from regular Federal income tax and mature within three years or less
from the date of issuance. Short-term tax-exempt fixed income securities are
defined to include, without limitation, the following:
Bond Anticipation Notes ("BANs") are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes ("TANs") are issued by state and local governments
to finance the current operations of such governments. Repayment is generally
to be derived from specific future tax revenues. TANs are usually general
obligations of the issuer. A weakness in an issuer's capacity to raise taxes
due to, among other things, a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs.
Revenue Anticipation Notes ("RANs") are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general, they also constitute
general obligations of the issuer. A decline in the receipt of projected
revenues, such as anticipated revenues from another level of government, could
adversely affect an issuer's ability to meet its obligations on outstanding
RANs. In addition, the possibility that the revenues would, when received, be
used to meet other obligations could affect the ability of the issuer to pay the
principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These notes
may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper ("municipal paper") represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available
therefrom. Maturities on municipal paper generally will be shorter than the
maturities of TANs, BANs or RANs. There is a limited secondary market for
issues of Municipal Paper.
Certain municipal bonds may carry variable or floating rates of interest
whereby the rate of interest is not fixed but varies with changes in specified
market rates or indices, such as a bank prime rate or tax-exempt money market
indices.
While the various types of notes described above as a group represent the
major portion of the tax-exempt note market, other types of notes are available
in the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objectives, policies and limitations.
Such notes may be issued for different purposes and may be secured differently
from those mentioned above.
Duration Management and Other Management Techniques
The Fund may use a variety of other investment management techniques and
instruments. The Fund may purchase and sell futures contracts, enter into
various interest rate transactions and may purchase and sell exchange-listed and
over-the-counter put and call options on securities, financial indices and
futures contracts (collectively, "Additional Investment Management Techniques").
These Additional Investment Management Techniques may be used for duration
management and other risk management to attempt to protect against possible
changes in the market value of the Fund's portfolio resulting from trends in the
debt securities markets and changes in
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interest rates, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to establish a position in the securities markets as a temporary
substitute for purchasing particular securities and to enhance income or gain.
There is no particular strategy that requires use of one technique rather than
another as the decision to use any particular strategy or instrument is a
function of market conditions and the composition of the portfolio. The
Additional Investment Management Techniques are described below. The ability of
the Fund to use them successfully will depend on BlackRock Financial's ability
to predict pertinent market movements as well as sufficient correlation among
the instruments, which cannot be assured. Inasmuch as any obligations of the
Fund that arise from the use of Additional Investment Management Techniques will
be covered by segregated liquid high grade assets or offsetting transactions,
the Fund and BlackRock Financial believe such obligations do not constitute
senior securities and, accordingly, will not treat them as being subject to its
borrowing restrictions. Commodity options and futures contracts regulated by the
Commodity Futures Trading Commission (the "CFTC") have specific margin
requirements described below and are not treated as senior securities. The use
of certain Additional Investment Management Techniques may give rise to taxable
income and have certain other consequences. See "Tax Matters."
Interest Rate Transactions. The Fund may enter into interest rate swaps and
the purchase or sale of interest rate caps and floors. The Fund 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 Fund anticipates
purchasing at a later date. The Fund will ordinarily use these transactions as a
hedge or for duration or risk management although it is permitted to enter into
them to enhance income or gain. The Fund will not sell interest rate caps or
floors that it does not own. Interest rate swaps involve the exchange by the
Fund 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 Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments on the payment dates. The Fund will accrue the net amount of the
excess, if any, of the Fund'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 high grade securities having an aggregate net asset
value at all times at least equal to the accrued excess. The Fund 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 statistical
rating organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction.
Futures Contracts and Options on Futures Contracts. The Fund may also enter
into contracts for the purchase or sale for future delivery ("futures
contracts") of debt securities, aggregates of debt securities or indices or
prices thereof, other financial indices and U.S. government debt securities or
options on the above. The Fund will ordinarily engage in such transactions only
for bona fide hedging, risk management (including duration management) and other
portfolio management purposes. However, the Fund is also permitted to enter into
such transactions for non-hedging purposes to enhance income or gain, in
accordance with the rules and regulations of the CFTC, which currently provide
that no such transaction may be entered into if at such time more than 5% of the
Fund's net assets would be posted as initial margin and premiums with respect to
such non-hedging transactions.
Calls on Securities Indices and Futures Contracts. The Fund may sell or
purchase call options ("calls") on municipal bonds and indices based upon the
prices of future contracts and debt securities that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets. A call 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
Fund must be "covered" as long as the call
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is outstanding (i.e., the Fund must own the securities or futures contract
subject to the call or other securities acceptable for applicable escrow
requirements). A call sold by the Fund exposes the Fund 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
Fund to hold a security of futures contract which it might otherwise have sold.
The purchase of a call gives the Fund the right to buy a security, futures
contract or index at a fixed price. Calls on futures on municipal bonds must
also be covered by deliverable securities or the futures contract or by liquid
high grade debt securities segregated to satisfy the Fund's obligations pursuant
to such instruments.
Puts on Securities, Indices and Futures Contracts. The Fund may purchase
put options ("puts") that relate to municipal bonds (whether or not it holds
such securities in its portfolio), indices or futures contracts. The Fund may
also sell puts on municipal bonds, indices or futures contracts on such
securities if the Fund'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 Fund will not sell puts if, as a
result, more than 50% of the Fund's assets would be required to cover its
potential obligations under its hedging and other investment transactions. In
selling puts, there is a risk that the Fund may be required to buy the
underlying security at a price higher than the current market price.
Appendix C contains further information about the characteristics, risks
and possible benefits of Additional Investment Management Techniques and the
Fund's other policies and limitations (which are not fundamental policies)
relating to investment in futures contracts and options. The principal risks
relating to the use of futures contracts and other Additional Investment
Management Techniques are: (a) less than perfect correlation between the prices
of the instrument and the market value of the securities in the Fund's
portfolio; (b) possible lack of a liquid secondary market for closing out a
position in such instruments; (c) losses resulting from interest rate or other
market movements not anticipated by the adviser; and (d) the obligation to meet
additional variation margin or other payment requirements, all of which could
result in the Fund being in a worse position than if such techniques had not
been used.
Certain provisions of the Internal Revenue Code of 1986 may restrict or
affect the ability of the Fund to engage in Additional Investment Management
Techniques. See "Tax Matters."
Short Sales
The Fund may make short sales of municipal bonds. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund may make short
sales to hedge positions, for duration and risk management, in order to maintain
portfolio flexibility or to enhance income or gain.
When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. government
securities or other high grade liquid securities. The Fund will also be
required to segregate similar collateral with its custodian to the extent, if
any, necessary so that the aggregate collateral value is at all times at least
equal to the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over of any payments received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a gain.
Any gain will be decreased, and any loss increased, by the transaction costs
described above. Although the Fund's gain is limited to the price at which it
sold the security short, its potential loss is theoretically unlimited.
B-9
<PAGE>
The Fund will not make a short sale if, after giving effect to such sale,
the market value of all securities sold short exceeds 25% of the value of its
total assets or the Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. The Fund may
also make short sales "against the box" without respect to such limitations. In
this type of short sale, at the time of the sale, the Fund owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Restricted and Illiquid Securities
Certain of the Fund's investments may be illiquid. Illiquid securities are
subject to legal or contractual restrictions on disposition or lack an
established secondary trading market. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale.
When-Issued and Forward Commitment Securities
The Fund may purchase municipal bonds on a "when-issued" basis and may
purchase or sell municipal bonds on a "forward commitment" basis. 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 Fund 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 Fund
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
can incur a gain or loss. At the time the Fund entered into a transaction on a
when-issued or forward commitment basis, it will segregate with its custodian
cash or other liquid high grade debt securities with a value not less than 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 Fund. There
is always a risk that the securities may not be delivered and that the Fund may
incur a loss. Settlements in the ordinary course, which typically occur monthly
for mortgage-related securities, are not treated by the Fund as when-issued or
forward commitment transactions and accordingly are not subject to the foregoing
restrictions.
Borrowing
Although it has no present intention of doing so, the Fund reserves the
right to borrow funds to the extent permitted as described under the caption
"Investment Objectives and Policies--Investment Limitations." The proceeds of
borrowings may be used for any valid purpose including, without limitation,
liquidity, investing and repurchases of shares of the Fund. Borrowing is a form
of leverage and, in that respect, entails risks, including volatility in net
asset value, market value and income available for distribution.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with respect to its
portfolio investments subject to the investment restrictions set forth herein
and in the prospectus. Reverse repurchase agreements involve the sale of
securities held by the Fund with an agreement by the Fund to repurchase the
securities at an agreed upon price, date and interest payment. At the time the
Fund enters into a reverse repurchase agreement, it may establish and maintain a
segregated account with its custodian containing liquid instruments having a
value not less than the repurchase price (including accrued interest). If the
Fund establishes and maintains such a segregated account, a reverse repurchase
agreement will not be considered a borrowing by the Fund; however, under
circumstances in which the Fund does not establish and maintain such a
segregated account, such reverse repurchase agreement will be considered a
borrowing for the purpose of the Fund's limitation on borrowings. The use by
the Fund of reverse repurchase agreements involves many of the same risks of
leverage since the proceeds derived from such reverse repurchase agreements may
be invested
B-10
<PAGE>
in additional securities. 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 Fund 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
Fund 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 Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision. Also, the Fund 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.
Repurchase Agreements
As temporary investments, the Fund may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of securities
(U.S. Government securities or municipal bonds) agrees to repurchase the same
security at a specified price on a future date agreed upon by the parties. The
agreed-upon repurchase price determines the yield during the Fund's holding
period. Repurchase agreements are considered to be loans collateralized by the
underlying security that is the subject of the repurchase contract. Income
generated from transactions in repurchase agreements will be taxable. See "Tax
Matters" for information relating to the allocation of taxable income between
common shares and Preferred Shares. The Fund will only enter into repurchase
agreements with registered securities dealers or domestic banks that, in the
opinion of BlackRock Financial, present minimal credit risk. The risk to the
Fund is limited to the ability of the issuer to pay the agreed-upon repurchase
price on the delivery date; however, although the value of the underlying
collateral at the time the transaction is entered into always equals or exceeds
the agreed-upon repurchase price, if the value of the collateral declines there
is a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but the Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Fund may be delayed or limited. BlackRock
Financial will monitor the value of the collateral at the time the transaction
is entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that such value always equals or exceeds the
agreed-upon repurchase price. In the event the value of the collateral declines
below the repurchase price, BlackRock Advisors will demand additional collateral
from the issuer to increase the value of the collateral to at least that of the
repurchase price, including interest.
Zero Coupon Bonds
The Fund may invest in zero coupon bonds. A zero coupon bond is a bond that
does not pay interest for its entire life. The market prices of zero coupon
bonds are affected to a greater extent by changes in prevailing levels of
interest rates and thereby tend to be more volatile in price than securities
that pay interest periodically. In addition, because the Fund accrues income
with respect to these securities prior to the receipt of such interest, it may
have to dispose of portfolio securities under disadvantageous circumstances in
order to obtain cash needed to pay income dividends in amounts necessary to
avoid unfavorable tax consequences.
Lending of Securities
The Fund may lend its portfolio securities to brokers, dealers and other
financial institutions that meet certain creditworthiness standards. By lending
its portfolio securities, the Fund 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 Fund. The Fund may lend its portfolio securities so long as the
terms and the structure of such loans are not inconsistent with the requirements
of the 1940 Act, which currently require that (a) the borrower pledge and
maintain with the Fund 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, (b) 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), (c) the loan be made subject to termination by the
B-11
<PAGE>
Fund at any time and (d) the Fund receive reasonable interest on the loan (which
may include the Fund'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 Fund will not lend portfolio securities if, as a
result, the aggregate value of such loans exceeds 33 1/3% of the value of the
Fund's total assets (including such loans). Loan arrangements made by the Fund
will comply with all other applicable regulatory requirements, including the
rules of the New York Stock Exchange. All relevant facts and circumstances,
including the creditworthiness of the Qualified Institution, will be monitored
by the Adviser, and will be considered in making decisions with respect to
lending of securities, subject to review by the Fund's board of trustees.
The Fund 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 Fund'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.
MANAGEMENT OF THE FUND
Investment Advisory Agreement
Although BlackRock Advisors intends to devote such time and effort to the
business of the Fund as is reasonably necessary to perform its duties to the
Fund, the services of BlackRock Advisors are not exclusive and BlackRock
Advisors provides similar services to other investment companies and other
clients and may engage in other activities.
The investment management agreement also provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, BlackRock Advisors is not liable to the Fund or any of
the Fund's shareholders for any act or omission by BlackRock Advisors in the
supervision or management of its respective investment activities or for any
loss sustained by the Fund or the Fund's shareholders and provides for
indemnification by the Fund of BlackRock Advisors, its directors, officers,
employees, agents and control persons for liabilities incurred by them in
connection with their services to the Fund, subject to certain limitations and
conditions.
The investment management agreement was approved by the Fund's board of
trustees, on August 19, 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 1940 Act). The investment management agreement was approved
by the sole common shareholder of the Fund on August 23, 1999. The investment
management 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 Fund's board of trustees or the vote of a majority of the outstanding voting
securities of the Fund (as such term is defined in the 1940 Act) and (2) by the
vote of a majority of the trustees who are not parties to the agreement or
interested persons (as such term is defined in the 1940 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 Fund,
without the payment of any penalty, upon the vote of a majority of the Fund's
board of trustees or a majority of the outstanding voting securities of the Fund
or by BlackRock Advisors, 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 1940 Act and the rules thereunder).
The Fund's management has agreed to reduce expenses over the first nine
years by waiving certain fees. This may enable the Fund to pay higher share
dividends, even though the Fund will have a lower net asset value than a no-load
fund. The Fund expects that, for the first five years of operation, its
expenses will be lower than those of many comparable funds, allowing investors
to receive a larger portion of the Fund's income.
B-12
<PAGE>
Sub-Investment Advisory Agreement
BlackRock Financial is a wholly-owned subsidiary of BlackRock Advisors.
Pursuant to the sub-investment advisory agreement, BlackRock Advisors has
appointed BlackRock Financial, one of its affiliates, to handle the day-to-day
investment management of the Fund. BlackRock Financial will receive a portion of
the advisory fee paid by the Fund to BlackRock Advisors. From the management
fee, BlackRock Advisors will pay BlackRock Financial, for serving as sub-
adviser, a fee equal to an annual rate of .35% of the average weekly value of
the Fund'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 Financial is not liable to the Fund or any of the Fund's
shareholders for any act or omission by BlackRock Financial in the supervision
or management of its respective investment activities or for any loss sustained
by the Fund or the Fund's shareholders and provides indemnification by the Fund
of BlackRock Financial, its directors, officers, employees, agents and control
persons for liabilities incurred by them in connection with their services to
the Fund, subject to certain limitations and conditions.
Although BlackRock Financial intends to devote such time and effort to the
business of the Fund as is reasonably necessary to perform its duties to the
Fund, the services of BlackRock Financial are not exclusive and BlackRock
Financial 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 Fund's board of
trustees on August 19, 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 1940 Act). The sub-investment advisory agreement was approved
by the sole common shareholder of the Fund on August 23, 1999. 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 Fund's board of trustees or the vote of a majority of the outstanding voting
securities of the Fund (as such term is defined in the 1940 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 1940 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 Fund, without the payment of any penalty, upon the vote of a majority of
the Fund's board of trustees or a majority of the outstanding voting securities
of the Fund or by BlackRock Advisors or by BlackRock Financial, on 60 days'
written notice by either party to the other. The sub-investment advisory
agreement will terminate automatically upon any termination of the investment
advisory agreement between the Fund and BlackRock Advisors. The sub-investment
advisory agreement will also terminate automatically in the event of its
assignment (as such term is defined in the 1940 Act and the rules thereunder).
Trustees and Officers
The officers of the Fund manage its day to day operations. The officers
are directly responsible to the Fund's board of trustees which sets broad
policies for the Fund and chooses its officers. The following is a list of the
trustees and officers of the Fund and a brief statement of their present
positions and principal occupations during the past five years. Trustees who
are interested persons of the Fund (as defined in the 1940 Act) are denoted by
an asterisk (*). The business address of the Fund, BlackRock Advisors, BlackRock
Financial 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
Advisors acts as investment adviser.
B-13
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During The
Name and Address Title Past Five Years and Other Affiliations
---------------- ----- ----------------------------------------------------------
<S> <C> <C>
Andrew F. Brimmer Trustee President of Brimmer & Company, Inc., a Washington, D.C.
4400 MacArthur Blvd., N.W. based economic and financial consulting firm. Director of
Suite 302 AirBorne Express, CarrAmerica Realty Cor poration and
Washington, DC 20007 Borg-Warner Automotive. Formerly mem ber of the Board of Governors of
Age: 72 the Federal Reserve System. Formerly Director of BankAmerica Corporation
(Bank of America), BellSouth Corporation, College Retirement Equities
Fund (Trustee), Commodity Exchange, Inc. (Public Governor), Connecticut
Mutual Life Insurance Company, E.I. duPont 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 The Conference Board, Inc.,
845 Third Avenue Leading global business membership orga nization from 1995-present.
New York, NY 10022 Former Executive Dean of the John F. Kennedy School of Government at Harvard
Age: 52 University from 1988-1995. Acting Director, Harvard Center for Business and
Government (1991-1993). For merly 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 PER
FORMANCE (best selling management book published in 13 national editions).
Trustee, Wesleyan University, Drucker Foundation and Educational Testing Services
(ETS). Director, Arch Chemicals (chemicals), Fremont Group (investments) and The
Guardian Life Insurance Company of America (insurance).
Kent Dixon Trustee Consultant/Investor. Former President and Chief Executive
9495 Blind Pass Road Officer of Empire Federal Savings Bank of America
Unit #602 and Banc PLUS Savings Association, former Chairman
St. Petersburg, FL 33706 of the Board, President and Chief Executive Officer of
Age: 61 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 PORTFOLIO
858 Tower View Circle MANAGEMENT and Adjunct Professor of Finance at
New Hope, PA 18938 the School of Management at Yale University. Director,
Age: 50 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.
</TABLE>
B-14
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During The
Name and Address Title Past Five Years And Other Affiliations
---------------- ----- ----------------------------------------------------------
<S> <C> <C>
Laurence D. Fink* Trustee Chairman and Chief Executive Officer of BlackRock
Age: 45 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 Financial'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 Clayburn LaForce, Jr. Trustee Dean Emeritus of The John E. Anderson Graduate School
P.O. Box 1595 of Management, University of California since July 1,
Pauma Valley, CA 92061 1993. Director, Imperial Credit Industries (mortgage
Age: 69 banking), Jacobs Engineering Group, Inc., Rockwell
International Corporation, Payden & Rygel Investment
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 (December
220 South Sixth Street 1996-present, September 1987-August 1993). Formerly
Minneapolis, MN 55402 U.S. Ambassador to Japan (1993-1996). Formerly Vice
Age: 70 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 and President of BlackRock Financial since March 1988.
Age: 47 President Formerly a Managing Director of Lehman Brothers, Inc.
and co-head of its Mortgage and Savings Institutional
Group. Currently President of each of the closed-end
funds in which BlackRock Financial 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.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During The
Name and Address Title Past Five Years And Other Affiliations
---------------- ----- ----------------------------------------------------------
<S> <C> <C>
Keith T. Anderson Vice Managing Director of BlackRock Financial 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 Officer of
Age: 51 BlackRock Financial 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 BlackRock
Age: 41 President Financial 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 Financial since January
Age: 38 Treasurer 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 Financial since August
Age: 34 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.
Michael C. Huebsch Vice Managing Director of the Adviser since January 1989.
Age: 40 President From July 1985 to January 1989, Vice President at The
First Boston Corporation in the Fixed Income Research
Department.
Kevin Klingert Vice Managing Director of the Adviser since October 1991.
Age: 36 President From March 1985 to October 1991, Assistant Vice President
at Merrill Lynch, Pierce, Fenner & Smith in the Unit Investment
Trust Department.
Richard Shea, Esq. Vice Director of BlackRock Financial since February 1993.
Age: 39 President From December 1988 to February 1993, Associate Vice
President and Tax Counsel at Prudential Securities Incorporated.
From August 1984 to December 1988, Senior Tax Specialist at Laventhol
& Horwath.
</TABLE>
As of October 15, 1999, no person is known to the Fund to own of record or
beneficially 5% or more of the outstanding common shares or Preferred Shares,
except Cede & Co., Bowling Green Station, P.O. Box 20, New York, NY 10274-0020,
which owned of record 98.49% of the outstanding common shares.
B-16
<PAGE>
Laurence D. Fink and Ralph L. Schlosstein serve as members of the Executive
Committee of the Board of Trustees. The Executive Committee, which meets
between regular meetings of the Board of Trustees, is authorized to exercise all
of the powers of the Board of Trustees except as otherwise set forth in the
Declaration.
The Fund has an Audit Committee consisting of those Trustees who are not
interested persons of BlackRock Advisors or BlackRock Financial.
At the next annual meeting, holders of preferred shares, voting as a
separate class, will elect two trustees and the remaining trustees shall be
elected by common shareholders and holders of Preferred Shares, voting together
as a single class.
No officer or employee of the Fund receives any compensation from the Fund
for serving as an officer or trustee of the Fund. The Fund pays each trustee
who is not an "interested person" of the Fund (as defined in the 1940 Act)
$6,000 per year plus $1,500 per board meeting attended in person or by telephone
for travel and out-of-pocket expenses.
The aggregate estimated compensation received by each current trustee of
the Fund for the fiscal year ending December 31, 1999 and the aggregate
estimated compensation to be received by each current trustee of the BlackRock
family of funds for the fiscal year ending December 31, 1999 as a whole are
estimated as follows:
<TABLE>
<CAPTION>
1999 Estimated
Aggregate Estimated Total Compensation from
Compensation From the Fund and Fund
Name of Board Member Fund Complex Paid to Board Member*
<S> <C> <C>
Andrew R. Brimmer $6,000 $160,000
Richard E. Cavanagh $6,000 $160,000
Kent Dixon $6,000 $160,000
Frank J. Fabozzi $6,000 $160,000
Laurence D. Fink $ 0 $ 0
James Clayburn LaForce, Jr. $6,000 $160,000
Ralph L. Schlosstein $ 0 $ 0
Walter F. Mondale $6,000 $160,000
</TABLE>
* The BlackRock family of funds consists of 21 closed-end funds. Total
compensation from the Fund and Fund complex paid to each board member is
capped at $160,000; Trustee fees paid by the Fund are reduced based on the
Fund's relative net asset value in the event that the cap is applicable.
PORTFOLIO TRANSACTIONS AND BROKERAGE
BlackRock Financial is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the transactions
and the negotiation of prices and any brokerage commissions. The securities in
which the Fund 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 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
B-17
<PAGE>
Fund may also purchase certain money market instruments directly from an issuer,
in which case no commissions or discounts are paid. Purchases and sales of debt
securities on a stock exchange are effected through brokers who charge a
commission for their services.
BlackRock Financial is responsible for effecting securities transactions of
the Fund and will do so in a manner deemed fair and reasonable to shareholders
of the Fund and not according to any formula. BlackRock Financial's primary
considerations in selecting the manner of executing securities transactions for
the Fund 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 the difficulty in executing the
order, and the best net price. There are many instances when, in the judgment of
BlackRock Financial, more than one firm can offer comparable execution services.
In selecting among such firms, consideration is given to those firms which
supply research and other services in addition to execution services.
Consideration may also be given to the sale of shares of the Fund. However, it
is not the policy of BlackRock Financial, absent special circumstances, to pay
higher commissions to a firm because it has supplied such research or other
services.
BlackRock Financial is able to fulfill its obligations to furnish a
continuous investment program to the Fund 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 Financial, and does not reduce BlackRock Financial's
normal research activities in rendering investment advice. It is possible that
BlackRock Financial'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 investment companies or accounts which BlackRock
Financial manages may own from time to time some of the same investments as the
Fund. Investment decisions for the Fund are made independently from those of
such other investment companies or 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 Financial 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 Fund. In other cases, however, the ability of the Fund to
participate in volume transactions may produce better execution for the Fund. It
is the opinion of the Fund's board of trustees that this advantage, when
combined with the other benefits available due to BlackRock Financial's
organization, outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.
Although the investment management agreement contains no restrictions on
portfolio turnover, it is not the Fund's policy to engage in transactions with
the objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Fund will be approximately 100%
excluding securities having a maturity of one year or less. Because it is
difficult to predict accurately portfolio turnover rates, actual turnover may be
higher or lower. Higher portfolio turnover results in increased Fund expenses,
including brokerage commissions, dealer mark-ups and other transaction costs on
the sale of securities and on the reinvestment in other securities.
ADDITIONAL INFORMATION CONCERNING
THE AUCTIONS FOR PREFERRED SHARES
General
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Bankers Trust Company) which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of each series of Preferred Shares so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
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Broker-Dealer Agreements. Each Auction requires the participation of one
or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those Broker-
Dealers in Auctions for shares of Preferred Shares. See "Broker-Dealers" below.
Securities Depository. The Depository Trust Company ("DTC") will act as
the Securities Depository for the Agent Members with respect to Preferred
Shares. One certificate for all of the shares of Preferred Shares will be
registered in the name of Cede & Co., as nominee of the Securities Depository.
Such certificate will bear a legend to the effect that such certificate is
issued subject to the provisions restricting transfers of shares of Preferred
Shares contained in the Statement. The Fund will also issue stop-transfer
instructions to the transfer agent for Preferred Shares. Prior to the
commencement of the right of holders of Preferred Shares to elect a majority of
the Fund's trustees, as described under "Description of Preferred Shares-Voting
Rights" in the prospectus, Cede & Co. will be the holder of record of all shares
of Preferred Shares and owners of such shares will not be entitled to receive
certificates representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs services
for its participants (including the Agent Members), some of whom (and/or their
representatives) own DTC. DTC maintains lists of its participants and will
maintain the positions (ownership interests) held by each such participant (the
"Agent Member") in shares of Preferred Shares, whether for its own account or as
a nominee for another person. Additional information concerning DTC and the DTC
depository system is included as an Exhibit to the Registration Statement of
which this statement of additional information forms a part.
Concerning the Auction Agent
The Auction Agent is acting as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under the Auction
Agency Agreement and will not be liable any error of judgment made in good faith
unless the Auction Agent will have been negligent in ascertaining the pertinent
facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of Preferred Shares, the Auction Agent's registry of Existing
Holders, the results of Auctions and notices from any Broker-Dealer (or other
Person, if permitted by the Fund) with respect to transfers described under "The
Auction-Secondary Market Trading and Transfer of Preferred Shares" in the
prospectus and notices from the Fund. The Auction Agent is not required to
accept any such notice for an Auction unless it is received by the Auction Agent
by 3:00 p.m., New York City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Fund on a date no earlier than 45 days after such notice. If the Auction
Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into such
an agreement with a successor Auction Agent.
Broker-Dealers
The Auction Agent after each Auction for shares of Preferred Shares will
pay to each Broker-Dealer, from funds provided by the Fund, a service charge at
the annual rate of 1/4 of 1% in the case of any Auction immediately preceding
a Rate Period of less than one year, or a percentage agreed to by the Fund and
the Broker-Dealers in the case of any Auction immediately preceding a Rate
Period of one year or longer, of the purchase price of shares of Preferred
Shares placed by such Broker-Dealer at such Auction. For the purposes of the
preceding sentence, shares of Preferred Shares will be placed by a Broker-Dealer
if such shares were (a) the subject of Hold Orders deemed to have been submitted
to the Auction Agent by the Broker-Dealer and were acquired by such Broker-
Dealer for its own account or were acquired by such Broker-Dealer for its
customers who are Beneficial Owners or (b) the subject of an Order submitted by
such Broker-Dealer that is (i) a Submitted Bid of an Existing Holder that
resulted in such Existing Holder continuing to hold such shares as a result of
the Auction or (ii) a Submitted Bid of a Potential Holder that resulted in such
Potential Holder purchasing such shares as a result of the Auction or (iii) a
valid Hold Order.
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The Fund may request the Auction Agent to terminate one or more Broker-
Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer (other than an
affiliate of the Fund) may submit Orders in Auctions for its own account, unless
the Fund notifies all Broker-Dealers that they may no longer do so, in which
case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their
own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit
Orders in Auctions, but only if such Orders are not for its own account. If a
Broker-Dealer submits an Order for its own account in any Auction, it might have
an advantage over other Bidders because it would have knowledge of all Orders
submitted by it in that Auction; such Broker-Dealer, however, would not have
knowledge of Orders submitted by other Broker-Dealers in that Auction.
DESCRIPTION OF COMMON SHARES
A description of common shares is contained in the prospectus. The Fund
intends to hold annual meetings of shareholders so long as the common shares are
listed on a national securities exchange and such meetings are required as a
condition to such listing.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end investment company and as such its common
shareholders will not have the right to cause the Fund to redeem their shares.
Instead, the Fund's common shares will trade in the open market at a price that
will be a function of several factors, including dividend levels (which are in
turn affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Because shares of a closed-
end investment company may frequently trade at prices lower than net asset
value, the Fund's board of trustees may consider action that might be taken to
reduce or eliminate any material discount from net asset value in respect of
common shares, which may include the repurchase of such shares in the open
market or in private transactions, the making of a tender offer for such shares
at net asset value, or the conversion of the Fund to an open-end investment
company. The board of trustees may not decide to take any of these actions. In
addition, there can be no assurance that share repurchases or tender offers, if
undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when the Fund's Preferred Shares
are outstanding, the Fund may not purchase, redeem or otherwise acquire any of
its common shares unless (1) all accrued Preferred Shares dividends have been
paid and (2) at the time of such purchase, redemption or acquisition, the net
asset value of the Fund's portfolio (determined after deducting the acquisition
price of the common shares) is at least 200% of the liquidation value of the
outstanding Preferred Shares (expected to equal the original purchase price per
share plus any accrued and unpaid dividends thereon). The staff of the
Securities and Exchange Commission currently requires that any tender offer made
by a closed-end investment company for its shares must be at a price equal to
the net asset value of such shares on the close of business on the last day of
the tender offer. Any service fees incurred in connection with any tender offer
made by the Fund will be borne by the Fund and will not reduce the stated
consideration to be paid to tendering shareholders.
Subject to its investment limitations, the Fund may borrow to finance the
repurchase of common shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of cash
by the Fund in anticipation of share repurchases or tenders will reduce the
Fund's net income. Any share repurchase, tender offer or borrowing that might
be approved by the Fund's board of trustees would have to comply with the
Securities Exchange Act of 1934 and the 1940 Act and the rules and regulations
under each of those Acts.
Although the decision to take action in response to a discount from net
asset value will be made by the board of trustees at the time it considers such
issue, it is the board's present policy, which may be changed by the board of
trustees, not to authorize repurchases of common shares or a tender offer for
such shares if (1) such transactions, if
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consummated, would (a) result in the delisting of the common shares from the New
York Stock Exchange, or (b) impair the Fund's status as a regulated investment
company under the Internal Revenue Code of 1986 (which would make the Fund a
taxable entity, causing the Fund's income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from the Fund) or
as a registered closed-end investment company under the 1940 Act; (2) the Fund
would not be able to liquidate portfolio securities in an orderly manner and
consistent with the Fund's investment objectives and policies in order to
repurchase shares; or (3) there is, in the board's judgment, any (a) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b) general
suspension of or limitation on prices for trading securities on the New York
Stock Exchange, (c) declaration of a banking moratorium by Federal or state
authorities or any suspension of payment by United States banks in which the
Fund invests, (d) material limitation affecting the Fund or the issuers of its
portfolio securities by Federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States, or (f) other event or condition which
would have a material adverse effect (including any adverse tax effect) on the
Fund or its shareholders if shares were repurchased. The board of trustees may
in the future modify these conditions in light of experience.
The repurchase by the Fund of its common shares at prices below net asset
value will result in an increase in the net asset value of those shares that
remain outstanding. However, there can be no assurance that share repurchases
or tenders at or below net asset value will result in the Fund's common shares
trading at a price equal to their net asset value. Nevertheless, the fact that
the Fund's shares may be the subject of repurchase or tender offers at net asset
value from time to time, or that the Fund may be converted to an open-end
company, may reduce any spread between market price and net asset value that
might otherwise exist.
In addition, a purchase by the Fund of its common shares will decrease the
Fund's total assets which would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its common shares at a time when
Preferred Shares are outstanding will increase the leverage applicable to the
outstanding common shares then remaining and decrease the asset coverage of the
Preferred Shares.
Before deciding whether to take any action if the common shares trade below
net asset value, the Fund's board of trustees would likely consider all relevant
factors, including the extent and duration of the discount, the liquidity of the
Fund's portfolio, the impact of any action that might be taken on the Fund or
its shareholders and market considerations. Based on these considerations, even
if the Fund's shares should trade at a discount, the board of trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken.
TAX MATTERS
The Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), as a regulated investment company and to
satisfy conditions which enable dividends on common shares or Preferred Shares
which are attributable to interest on tax-exempt municipal securities to be
exempt from Federal income tax in the hands of owners of such shares, subject to
the possible application of the Federal alternative minimum tax.
To qualify under Subchapter M for tax treatment as a regulated investment
company, the Fund must, among other things: (a) distribute to its shareholders
at least an amount equal to the sum of (i) 90% of its net investment income
(which is its investment company taxable income as that term is defined in the
Code but determined without regard to the deduction for dividends paid) and (ii)
90% of its net tax-exempt income and (b) diversify its holdings so that, at the
end of each fiscal quarter of the Fund (i) at least 50% of the market value of
the Fund's assets is represented by cash, cash items, U.S. government securities
and securities of other regulated investment companies, and other securities,
with these other securities limited, with respect to any one issuer, to an
amount not greater in value than 5% of the Fund's total assets, and to not more
than 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the market value of the Fund's assets is invested in the securities
of any one issuer (other than U.S. government securities or securities of other
regulated investment companies). In meeting these requirements of Subchapter M
of the Code, the Fund may be restricted in the utilization of certain of the
investment techniques described above and in the prospectus. If in any year the
Fund should fail to qualify under Subchapter M for tax treatment as a regulated
investment company, the Fund would incur a regular Federal corporate
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income tax upon its taxable income for that year, and distributions to its
shareholders would be taxable to such holders as ordinary income to the extent
of the earnings and profits of the Fund. A regulated investment company that
fails to distribute, by the close of each calendar year, at least an amount
equal to the sum of 98% of its ordinary taxable income for such year and 98% of
its capital gain net income for the one year period ending October 31 in such
year, plus any shortfalls from the prior year's required distribution, is liable
for a 4% excise tax on the portion of the undistributed amount of such income
that is less than the required amount for such distributions. To avoid the
imposition of this excise tax, the Fund generally makes the required
distributions of its ordinary taxable income, if any, and its capital gain net
income, to the extent possible, by the close of each calendar year.
Certain of the Fund's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of certain
deductions or losses of the Fund and affect the holding period of securities
held by the Fund and the character of the gains or losses realized by the Fund.
These provisions may also require the Fund to recognize income or gain without
receiving cash with which to make distributions in the amounts necessary to
satisfy the requirements for maintaining regulated investment company status and
for avoiding income and excise taxes. The Fund will monitor its transactions
and may make certain tax elections in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.
The Fund intends to qualify to pay "exempt-interest" dividends, as defined
in the Code on its common shares and Preferred Shares. In order for any
distributions to owners of the Fund's Preferred Shares to be eligible to be
treated as exempt-interest dividends, such Preferred Shares must be treated as
stock for Federal income tax purposes. Under the Code, at the close of each
quarter of its taxable year, if at least 50% of the value of its total assets
consists of municipal bonds, the Fund will be qualified to pay exempt-interest
dividends to its shareholders. Exempt-interest dividends are dividends or any
part thereof (other than a capital gain dividend) paid by the Fund which are
attributable to interest on municipal bonds and are so designated by the Fund.
Exempt-interest dividends will be exempt from Federal income tax, subject to the
possible application of the Federal alternative minimum tax. Insurance proceeds
received by the Fund under any insurance policies in respect of scheduled
interest payments on defaulted municipal bonds, as described herein, will
generally be excludable from gross income under Section 103(a) of the Code. In
the case of non-appropriation by a political subdivision, however, there can be
no assurance that payments made by the issuer representing interest on such
"non-appropriation" municipal lease obligations will be excludable from gross
income for Federal income tax purposes. See "Investment Policies and Techniques"
above. Gains of the Fund that are attributable to market discount on certain
municipal obligations acquired after April 30, 1993 are treated as ordinary
income. Distributions to shareholders by the Fund of net income received, if
any, from taxable temporary investments and net short-term capital gains, if
any, realized by the Fund will be taxable to its shareholders as ordinary
income. Distributions by the Fund of net capital gains (which are the excess of
net long-term capital gains over net short term capital loss), if any, are
taxable as long-term capital gain, regardless of the length of time the
shareholder has owned common shares or Preferred Shares. The amount of taxable
income allocable to the Fund's Preferred Shares will depend upon the amount of
such income realized by the Fund, but is not generally expected to be
significant. Except for dividends paid on Preferred Shares which include an
allocable portion of any net capital gains or other taxable income, the Fund
anticipates that all other dividends paid on shares of its Preferred Shares will
constitute exempt-interest dividends for Federal income tax purposes.
Distributions, if any, in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a shareholder's shares and, after that basis
has been reduced to zero, will constitute capital gains to the shareholder
(assuming the shares are held as a capital asset). As long as the Fund qualifies
as a regulated investment company under the Code, no part of its distributions
to shareholders will qualify for the dividends-received deduction for
corporations. The interest on private activity bonds in most instances is not
Federally tax-exempt to a person who is a "substantial user" of a facility
financed by such bonds or a "related person" of such "substantial user." As a
result, the Fund may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. In general, a "substantial user" of a facility includes a "non-
exempt person who regularly uses a part of such facility in his trade or
business." "Related persons" are in general defined to include persons among
whom there exists a relationship, either by family or business, which would
result in a disallowance of losses in transactions among them under various
provisions of the Code (or if they are members of the same controlled group of
corporations under the Code), including a partnership and each of its partners
(and certain members of their families), an S corporation and each of its
shareholders (and certain members of their families) and various combinations of
these and other relationships. The foregoing is not a complete description of
all of the provisions of the Code covering the definitions of "substantial user"
and "related person."
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain municipal obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent that the Fund
receives income from municipal obligations subject to the Federal alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from Federal income tax, will be taxable to its shareholders to the extent that
their tax liability is determined under the alternative minimum tax. The Fund
will annually supply a report indicating the percentage of the Fund's income
attributable to municipal obligations subject to the Federal alternative minimum
tax. In addition, for certain corporations, alternative minimum taxable income
is increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all municipal obligations, and
therefore all distributions by the Fund that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings. Certain
small corporations are not subject to the alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the Fund, is
taken into account in calculating the amount of social security and railroad
retirement benefits that may be subject to Federal income tax.
The Internal Revenue Service (the "IRS") requires that a regulated
investment company that has two or more classes of shares must designate to each
such class proportionate amounts of each type of its income for each tax year
based upon the percentage of total dividends distributed to each class for such
year. The Fund intends each year to allocate, to the fullest extent practicable,
net tax-exempt interest, net capital gain and other taxable income, if any,
between its common shares and preferred shares, including the Preferred Shares,
in proportion to the total dividends paid to each class with respect to such
year. To the extent permitted under applicable law, the Fund reserves the right
to make special allocations of income within a class, consistent with the
objectives of the Fund. The Fund may, at its election, notify the Auction Agent
of the amount of any net capital gain or other income taxable for Federal income
tax purposes to be included in any dividend on shares of its Preferred Shares
prior to the Auction establishing the Applicable Rate for such dividend. If the
Fund allocates any net capital gain or other taxable income for Federal income
tax purposes to its Preferred Shares without having given advance notice thereof
as described above, the Fund generally will be required to make payments to
owners of its Preferred Shares to which such allocation was made in order to
offset the
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Federal income tax effect of the taxable income so allocated as described under
"Description of Preferred Shares-Dividends and Dividend Periods-Gross-up
Payments" in the prospectus.
If at any time when the Fund's Preferred Shares are outstanding the Fund
fails to meet the Preferred Shares Basic Maintenance Amount or the 1940 Act
Preferred Shares Asset Coverage, the Fund will be required to suspend
distributions to holders of its common shares until such maintenance amount or
asset coverage, as the case may be, is restored. See "Description of Preferred
Shares-Dividends and Dividend Periods-Restrictions on Dividends and Other
Distributions" in the prospectus. This may prevent the Fund from distributing at
least an amount equal to the sum of 90% of its net investment income and 90% of
its net tax-exempt income, and may therefore jeopardize the Fund's qualification
for taxation as a regulated investment company or cause the Fund to incur a tax
liability or a non-deductible 4% excise tax on the undistributed taxable income
(including gain), or both. Upon failure to meet the Preferred Shares Basic
Maintenance Amount or the 1940 Act Preferred Shares Asset Coverage, the Fund
will be required to redeem its shares of Preferred Shares in order to maintain
or restore such maintenance amount or asset coverage and avoid the adverse
consequences to the Fund and its shareholders of failing to qualify as a
regulated investment company. There can be no assurance, however, that any such
redemption would achieve such objectives.
The Fund may, at its option, redeem its Preferred Shares in whole or in
part, and is required to redeem Preferred Shares to the extent required to
maintain the Preferred Shares Basic Maintenance Amount and the 1940 Act
Preferred Shares Asset Coverage. Gain or loss, if any, resulting from a
redemption of Preferred Shares will be taxed as gain or loss from the sale or
exchange of Preferred Shares under Section 302 of the Code rather than as a
dividend, but only if the redemption distribution (a) is deemed not to be
essentially equivalent to a dividend, (b) is in complete redemption of an owners
interest in the Fund, (c) is substantially disproportionate with respect to the
owner, or (d) with respect to a non-corporate owner, is in partial liquidation
of the owners interest in the Fund. For purposes of (a), (b) and (c) above, a
shareholder's ownership of common shares will be taken into account.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry the Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.
Nonresident alien individuals and certain foreign corporations and other
entities ("foreign investors") generally are subject to U.S. withholding tax at
the rate of 30% (or possibly a lower rate provided by an applicable tax treaty)
on distributions of taxable net investment income (which includes net short-term
capital gains). To the extent received by foreign investors, exempt-interest
dividends, distributions of net capital gains and gain from the sale or other
disposition of Preferred Shares generally are exempt from U.S. Federal income
taxation. Different tax consequences may result if the owner is engaged in a
trade or business in the United States or, in the case of an individual, is
present in the United States for 183 or more days during a taxable year.
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Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year declared.
The sale or other disposition of common shares or Preferred Shares of the
Fund will normally result in capital gain or loss to shareholders. Present law
taxes both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income. For non-corporate taxpayers, however, under
current law short-term capital gains and ordinary income will be taxed at a
maximum rate of 39.6% while long-term capital gains generally will be taxed at a
maximum rate of 20%. However, because of the limitations on itemized deductions
and the deduction for personal exemptions applicable to higher income taxpayers,
the effective rate of tax may be higher in certain circumstances. Losses
realized by a shareholder on the sale or exchange of shares of the Fund held for
six months or less are disallowed to the extent of any distribution of exempt-
interest dividends received with respect to such shares, and, if not disallowed,
such losses are treated as long-term capital losses to the extent of any
distribution of net capital gain received with respect to such shares. A
shareholder's 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 of the
Fund will be disallowed to the extent those shares of the Fund 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 original shares. In that event, the
basis of the replacement shares of the Fund will be adjusted to reflect the
disallowed loss.
The Fund is required in certain circumstances to backup withhold 31% of
taxable dividends and certain other payments paid to non-corporate holders of
the Fund's shares who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld from payments
made to a shareholder may be refunded or credited against such shareholder's
United States Federal income tax liability, if any, provided that the required
information is furnished to the IRS.
The Code provides that every shareholder required to file a tax return must
include for information purposes
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on such return the amount of tax-exempt interest received during the taxable
year, including any exempt-interest dividends received from the Fund.
The foregoing is a general, summary of the provisions of the Code and
regulations thereunder presently in effect as they directly govern the taxation
of the Fund and its shareholders. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive.
Moreover, the foregoing does not address many of the factors that may be
determinative of whether an investor will be liable for the alternative minimum
tax. Shareholders are advised to consult their own tax advisers for more
detailed information concerning the Federal income tax consequences of
purchasing, holding and disposing of Fund shares.
EXPERTS
The Statement of Assets and Liabilities of the Fund as of August 19, 1999
and statement of operations for the period then ended appearing in this
statement of additional information has been audited by Deloitte & Touche LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and is included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. Deloitte & Touche LLP, located
at 200 Berkeley street, Boston, Massachusetts, provides auditing services to the
Fund.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto,
relating to the shares offered hereby, has been filed by the Fund with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. The
prospectus and this statement of additional information do not contain all of
the information set forth in the Registration Statement, including any exhibits
and schedules thereto. For further information with respect to the Fund and the
shares offered hereby, reference is made to the Registration Statement.
Statements contained in the prospectus and this statement of additional
information as to the contents of any contract or other document referred to 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 Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of The BlackRock Strategic Municipal Trust
We have audited the accompanying statement of assets and liabilities of The
BlackRock Strategic Municipal Trust (the "Trust") as of August 19, 1999, and the
related statement of operations for the period then ended. 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, such financial statements present fairly, in all material
respects, the financial position of The BlackRock Strategic Municipal Trust as
of August 19, 1999, and the results of its operations for the period then ended
in conformity with generally accepted accounting principles.
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Deloitte & Touche LLP
Boston, Massachusetts
August 20, 1999
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 19, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash $ 100,003
Receivable from Investment Adviser (Note 3) 25,000
------------
Total Assets 125,003
------------
LIABILITIES:
Organization costs payable 25,000
------------
Net Assets $ 100,003
============
Net assets per share, equivalent to 6,981 shares of beneficial interest
issued and outstanding, par value $0.001 unlimited shares authorized $ 14.33
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the period June 17, 1999 (inception) to August 19, 1999
<S> <C>
Investment Income $ -
-----------
Expenses
Organization expenses 25,000
-----------
Total expenses before reimbursement 25,000
Reimbursement from BlackRock Advisors, Inc (Note 3) (25,000)
-----------
Total expenses after reimbursement -
Net investment income -
Net change in net assets resulting from operations $ -
===========
</TABLE>
B-26
<PAGE>
Note 1. Organization
The BlackRock Strategic Municipal Trust (the "Trust") was organized as a
Delaware business trust on June 17, 1999 and is registered as a diversified,
closed-end management investment company under the 1940 Act of 1940. The Trust
has had no operations other than the sale to BlackRock Advisors, Inc. of 6,981
shares of beneficial interest for $100,003.
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 0.60% 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.
BlackRock Advisors, Inc. has undertaken to waive receipt of a portion of fees or
other payments from the Trust to which it is entitled in the amounts, and for
the time periods, set forth below:
- --------------------------------------------------------------------------------
Percentage Waived
(as a percentage
Year Ending of average weekly
December 31, Managed Assets)
- --------------------------------------------------------------------------------
1999* ...................................... .25%
- --------------------------------------------------------------------------------
2000........................................ .25%
- --------------------------------------------------------------------------------
2001........................................ .25%
- --------------------------------------------------------------------------------
2002........................................ .25%
- --------------------------------------------------------------------------------
2003........................................ .25%
- --------------------------------------------------------------------------------
2004........................................ .25%
- --------------------------------------------------------------------------------
2005........................................ .20%
- --------------------------------------------------------------------------------
2006........................................ .15%
- --------------------------------------------------------------------------------
2007........................................ .10%
- --------------------------------------------------------------------------------
2008........................................ .05%
- --------------------------------------------------------------------------------
* From the commencement of operations.
BlackRock Advisors, Inc. has not undertaken to waive any amount after
December 31, 2008.
Note 3. Organization and Offering Costs
Organization Expenses of $25,000 will be reimbursed by BlackRock Advisors, Inc.
Offering Costs, limited to $0.03 per share, will be charged to capital upon the
sale of shares of beneficial interest. Offering costs in excess of $0.03 per
share will be reimbursed by BlackRock Advisors, Inc.
B-27
<PAGE>
FINANCIAL STATEMENTS
(UNAUDITED)
PORTFOLIO OF INVESTMENTS
As of October 15, 1999
(Unaudited)
<TABLE>
<CAPTION>
Principal Option
Amount Call Value
Rating* (000) Description (a) Provisions+ (Note 1)
------- --------- --------------- ------------ -----------
<C> <C> <S> <C> <C>
LONG-TERM INVESTMENTS--90.6%
Colorado--4.2%
AAA $4,500 Denver City & Cnty. Arpt. Rev.,
Ser. D, 5.50%, 11/15/25, MBIA... 11/06 at 101 $ 4,210,695
-----------
Connecticut--4.0%
Mashantucket Western Pequot
Tribe, Spec. Rev.,
Baa3 1,500 Ser. A, 5.50%, 9/01/28........... 9/09 at 101 1,324,860
Baa3 3,000 Ser. B, 5.75%, 9/01/27........... 9/07 at 102 2,751,240
-----------
4,076,100
-----------
Florida--4.2%
Florida Hsg. Fin. Corp. Rev.,
Sunset Place, Ser. K-1,
A 2,400 6.00%, 10/01/19.................. 10/09 at 102 2,344,752
A 2,000 6.10%, 10/01/29.................. 10/09 at 102 1,946,580
-----------
4,291,332
-----------
Hawaii--3.5%
AAA 3,750 Hawaii St. Harbor Cap. Impvt.
Rev., 5.50%, 7/01/27, MBIA...... 7/07 at 102 3,493,238
-----------
Illinois--7.2%
AAA 3,445 Chicago Sales Tax Rev., 5.375%,
1/01/27, FGIC................... 1/08 at 102 3,115,003
AAA 4,500 Met. Pier and Expo. Auth. Tax
Rev., McCormick Pl. Expn. Proj.,
Ser. A, 5.50%, 12/15/24, FGIC... 12/09 at 101 4,181,715
-----------
7,296,718
-----------
Massachusetts--4.4%
AAA 4,500 Massachusetts St. Wtr. Poll.
Abatement Trust, Ser. 5, 5.75%,
8/01/18......................... 8/09 at 101 4,448,115
-----------
New Jersey--5.7%
BB 6,000 New Jersey Econ. Dev. Auth. Spec.
Fac. Rev., Continental Airlines
Inc. Proj., 6.25%, 9/15/19...... 9/09 at 101 5,721,780
-----------
New York--3.9%
Aa2 4,000 New York St. Mtge. Agcy. Rev.,
Homeowner Mtge., Ser. 85, 5.70%,
10/01/17........................ 9/09 at 101 3,902,000
-----------
Oklahoma--4.2%
AAA 4,500 Edmond Pub. Wks. Auth. Util.
Rev., 5.625%, 7/01/24, AMBAC.... 7/09 at 100 4,261,365
-----------
Pennsylvania--15.5%
AAA 4,000 Allegheny Cnty. San. Auth. Swr.
Rev., 5.375%, 12/01/24, MBIA.... 12/07 at 102 3,677,320
AAA 4,500 Delaware Valley Regl. Fin. Auth.,
Loc. Govt. Rev., Ser. A, 5.50%,
8/01/28, AMBAC.................. No Opt. Call 4,252,005
NR 2,250 Lehigh Cnty. Gen. Purp. Auth.
Rev., Kidspeace Oblig. Group,
6.00%, 11/01/23................. 11/08 at 102 2,082,735
</TABLE>
B-28
<PAGE>
<TABLE>
<CAPTION>
Principal Option
Amount Call Value
Rating* (000) Description (a) Provisions+ (Note 1)
------- --------- --------------- ------------ ------------
<C> <C> <S> <C> <C>
Pennsylvania--(Continued)
A- $4,000 Montgomery Cnty. Ind. Dev. Auth.
Rev., Retirement Life Cmnty.,
5.25%, 11/15/28................ 11/08 at 101 $ 3,377,360
BBB+ 2,500 Pennsylvania Econ. Dev. Fin.
Auth., Solid Waste Disp. Rev.,
USG Corp. Proj., 6.00%,
6/01/31........................ 6/09 at 102 2,336,150
------------
15,725,570
------------
South Carolina--14.9%
Aa1 4,500 Richland Cnty. Sch. Dist. No.
001, 5.60%, 3/01/24............ 3/10 at 100 4,298,310
AAA 4,500 So. Carolina St. Pub. Svc. Auth.
Rev., Ser. A, 5.50%, 1/01/18,
MBIA........................... 1/10 at 101 4,289,940
AAA 7,000 Trans. Infrastructure Bank Rev.,
Ser. A, 5.375%, 10/01/24,
AMBAC.......................... 10/09 at 101 6,462,680
------------
15,050,930
------------
Texas--16.7%
Baa1 5,000 Brazos River Auth., Coll. Utils.
Elec. Co., Ser. C., 5.55%,
6/01/30, P.C.R. ............... 4/08 at 102 4,318,550
Baa1 6,500 Dallas Fort Worth Texas Intl.
Arpt. Facs. Impt. Corp. Rev.,
American Airlines Inc., 6.375%,
5/01/35........................ 11/09 at 101 6,283,485
AAA 7,000 Houston Wtr. & Swr. Sys. Rev.,
Ser. A, 5.375%, 12/01/27,
FGIC........................... 12/07 at 101 6,391,140
------------
16,993,175
------------
Utah--2.2%
AA 2,315 Salt Lake Cnty. Mun. Bldg. Auth.
Lease Rev., 5.60%, 10/01/21.... 10/09 at 100 2,213,441
------------
Total Long-Term Investments
(cost $94,453,822)............. 91,684,459
------------
SHORT-TERM INVESTMENTS**--10.9%
California--2.0%
Los Angeles California Regl.
Arpts. Impt. Corp.
A-1+ 1,700 Lease Rev., 3.40%, 10/18/99,
F.R.D.D. ...................... N/A 1,700,000
A-1+ 300 Term Facs., 3.50%, 10/18/99,
F.R.D.D. ...................... N/A 300,000
------------
2,000,000
------------
New York--4.8%
A-1+ 2,000 Long Island Pwr. Auth., Elec.
Sys. Rev., 3.35%, 10/18/99,
F.R.D.D. ...................... N/A 2,000,000
A-1+ 2,900 New York City Mun. Wtr. Fin.
Auth., Wtr. & Swr. Sys. Rev.,
Ser. G, 3.35%, 10/18/99, FGIC,
F.R.D.D. ...................... N/A 2,900,000
------------
4,900,000
------------
Texas--2.4%
A-1+ 2,500 Harris Cnty. Hlth. Facs. Dev.
Corp. Rev., St. Lukes Episcopal
Hosp., Ser. A, 3.40%, 10/18/99,
F.R.D.D. ...................... N/A 2,500,000
------------
</TABLE>
B-29
<PAGE>
<TABLE>
<CAPTION>
Principal Option
Amount Call Value
Rating* (000) Description (a) Provisions+ (Note 1)
------- --------- --------------- ----------- ------------
<C> <C> <S> <C> <C>
Wyoming--1.7%
P-1 $1,700 Uinta Cnty. Poll. Ctrl. Rev.,
Chevron Inc. Proj., 3.35%,
10/18/99, F.R.D.D.............. N/A $ 1,700,000
------------
Total Short-Term Investments
(cost $11,100,000)............. 11,100,000
------------
Total Investments--101.6% (cost
105,553,822)................... 102,784,459
Liabilities in excess of other
assets--(1.5)%................. (1,577,407)
------------
Net Assets Applicable to Common
Shareholders--100%............. $101,207,052
============
</TABLE>
- --------
* Rating: Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the earlier of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
+ Option call provisions: Date (month/year) and price of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
THE FOLLOWING ABBREVIATIONS ARE USED IN PORTFOLIO DESCRIPTIONS:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
F.R.D.D. -- Floating Rate Daily Demand**
</TABLE>
<TABLE>
<S> <C>
MBIA -- Municipal Bond Insurance Association
P.C.R. -- Pollution Control Revenue
</TABLE>
See Notes to Financial Statements.
B-30
<PAGE>
Statement of Assets and Liabilities
As of October 15, 1999 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $105,553,822) (Note 1) .............. $102,784,459
Interest receivable.............................................. 1,044,073
------------
103,828,532
------------
Liabilities
Payable for investments purchased................................ 2,444,868
Due to brokers................................................... 99,209
Investment advisory and administration fee payable (Note 2)...... 46,080
Offering costs payable........................................... 16,023
Other accrued expenses........................................... 15,300
------------
2,621,480
------------
Net Investment Assets............................................ $101,207,052
============
Net investment assets were comprised of:
Common shares:
Par value (Note 4)............................................. $ 7,241
Paid-in capital in excess of par............................... 103,504,012
------------
103,511,253
Undistributed net investment income............................. 595,433
Accumulated net realized loss................................... (130,271)
Net unrealized depreciation..................................... (2,769,363)
------------
Net investment assets............................................ $101,207,052
============
Net assets applicable to common shareholders..................... $101,207,052
============
Net asset value per common share:
($101,207,052/7,241,081 shares of common shares issued and
outstanding)................................................... $ 13.98
============
</TABLE>
See Notes to Financial Statements.
B-31
<PAGE>
Statement of Operations
For the Period August 25, 1999* through
October 15, 1999 (Unaudited)
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned.................................... $ 656,813
-----------
Expenses
Investment advisory and administration (net of advisory fee
waiver of $32,914)............................................. 46,080
Reports to shareholders......................................... 4,100
Audit........................................................... 3,400
Custodian....................................................... 1,650
Directors....................................................... 1,450
Transfer agent.................................................. 750
Legal........................................................... 700
Miscellaneous................................................... 3,250
-----------
Total expenses.................................................. 61,380
-----------
Net investment income............................................. 595,433
-----------
Realized and Unrealized Loss on Investments (Note 3)
Net realized loss on investments.................................. (130,271)
Net change in unrealized depreciation on investments.............. (2,769,363)
-----------
Net loss on investments........................................... (2,899,634)
-----------
Net Decrease in Net Investment Assets Resulting from Operations... $(2,304,201)
===========
</TABLE>
- --------
* Commencement of investment operations.
See Notes to Financial Statements.
B-32
<PAGE>
Statements of Changes in Net Investment Assets
For the Period August 25, 1999* through
October 15, 1999 (Unaudited)
<TABLE>
<S> <C>
Increase (Decrease) in Net Investment Assets:
Operations:
Net investment income.......................................... $ 595,433
Net change in unrealized depreciation on investments........... (2,899,634)
------------
Decrease in net investment assets resulting from operations.... (2,304,201)
Dividends and distributions...................................... 0
------------
Net decrease in net investment assets resulting from
operations.................................................... (2,304,201)
------------
Capital share transactions:
Net proceeds from initial public offering of Trust shares...... 95,776,291
Net proceeds from underwriters' over-allotment option.......... 7,634,959
Net proceeds from capital share transactions................. 103,411,250
------------
Total increase............................................... 101,107,049
Net Investment Assets
Beginning of period............................................ 100,003
------------
End of period.................................................. $101,207,052
============
</TABLE>
- --------
* Commencement of investment operations.
See Notes to Financial Statements.
B-33
<PAGE>
Financial Highlights
For the Period August 25, 1999** through
October 15, 1999 (Unaudited)
<TABLE>
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................. $ 14.33
-------
Net investment income............................................. 0.08
Net realized and unrealized loss on investments................... (0.40)
-------
Net decrease from investment operations........................... (0.32)
Capital charge with respect to issuance of common shares............ (0.03)
-------
Net asset value, end of period*................................... $ 13.98
=======
Per share market value, end of period*............................ $ 14.00
=======
TOTAL INVESTMENT RETURN+............................................ (6.67)%
=======
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:++
Operating Expenses#............................................. 0.45%+++
Net investment income........................................... 4.37%+++
SUPPLEMENTAL DATA:
Average net assets of common shareholders (in thousands).......... $95,622
Portfolio turnover................................................ 3.83%
</TABLE>
- --------
* Net asset value and market value are published in Barron's each Saturday,
The New York Times and The Wall Street Journal each Monday.
** Commencement of investment operations.
+ Total investment return is calculated assuming a purchase of common shares
at the current market price on the first day and a sale at the current
market price on the last day of the period reported. Dividends and
distributions, if any, are assumed for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions.
Total investment returns for periods of less than one year are not
annualized.
++ Ratios are calculated on the basis of income and expenses to average net
assets.
+++ Annualized.
# The ratio of operating expenses, including advisory fees waived, to average
net assets was 0.69%+++ for the period indicated above.
The information above represents the unaudited operating performance for a
common share outstanding, total investment return, ratios to average net assets
and other supplemental data for the period indicated. This information has been
determined based upon financial information provided elsewhere in the unaudited
financial statements and market value data for the Fund's shares.
See Notes to Financial Statements.
B-34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization & Accounting Policies
The BlackRock Strategic Municipal Trust (the "Trust") was organized in
Delaware on June 17, 1999 as a diversified, closed-end management investment
company. The Fund had no transactions until August 19, 1999 when it sold
6,981 shares of common stock for $100,003 to BlackRock Financial Management,
Inc. Investment operations commenced on August 25, 1999. The Fund's
investment objectives are to provide current income exempt from regular
Federal income tax and to invest in municipal bonds that over time will
perform better than the broader municipal bond market. The ability of issuers
of debt securities held by the Fund to meet their obligations may be affected
by economic developments in a specific industry or region. No assurance can be
given that the Fund's investment objective will be achieved.
The following is a summary of significant accounting policies followed by
the Fund.
Securities Valuation: Municipal securities (including commitments to
purchase such securities on a "when-issued" basis) are valued on the basis of
prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. Any securities or other assets for which such current
market quotations are not readily available are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors. No such
securities were held by the Fund at October 15, 1999.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost, if their term to maturity from date of
purchase is 60 days or less, or by amortizing their value on the 61st day
prior to maturity, if their original term to maturity from date of purchase
exceeded 60 days.
Securities Transactions and Investment Income: Securities transactions are
recorded on trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Fund accretes original issue discount or amortizes
premium on securities purchased using the interest method.
Federal Income Taxes: It is the Fund's intention to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute sufficient net income to shareholders. For this
reason and because substantially all of the Fund's gross income consists of
tax-exempt interest, no Federal income tax provision is required.
Dividends and Distributions: The Fund declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Net long-
term capital gains, if any, in excess of loss carryforwards may be distributed
annually. Dividends and distributions are recorded on the ex-dividend date.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B-35
<PAGE>
Note 2. Agreements
The Fund has an Investment Advisory Agreement with BlackRock Advisors,
Inc., (the "Adviser"), which is an indirect majority-owned subsidiary of PNC
Bank, N.A. The investment management agreement covers both investment
management and advisory services.
The investment fee paid to the Adviser is computed weekly and payable
monthly at an annual rate of 0.60% of the Fund's average weekly net
investment assets. The Adviser has undertaken to waive fees and expenses as
follows: Through year ended 12/31/04 at 0.25%, for year ended 12/31/05 at
0.20%, for year ended 12/31/06 at 0.15%, for year ended 12/31/07 at 0.10% and
for year ended 12/31/08 at 0.05%.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Fund
who are affiliated persons of the Adviser. The Fund bears all other costs and
expenses.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term
investments, for the period August 25, 1999 (commencement of operations)
through October 15, 1999, aggregated $99,082,723 and $4,501,670, respectively.
The federal income tax basis of the Fund's investments at October 15, 1999
was substantially the same as the basis for financial reporting purposes and,
accordingly, net and gross unrealized depreciation was $2,769,363.
Note 4. Capital
There are an unlimited number of common shares of $.001 par value authorized.
Of the 7,241,081 common shares outstanding at October 15, 1999, the Adviser
owned 6,981 shares.
Transactions in common shares for the period August 25, 1999 (commencement of
investment operations) to October 15, 1999 were as follows:
<TABLE>
<S> <C>
Shares issued in connection with initial public offering............ 6,700,000
Shares issued in connection with the exercise of the underwriters'
overallotment option............................................... 534,100
---------
Net increase in shares outstanding.................................. 7,234,100
=========
</TABLE>
Offering costs of $4,597,500 incurred in connection with the Fund's offering
of common shares have been charged to paid-in capital in excess of par of the
common shares.
The Fund may classify or reclassify any unissued common shares into one or
more series of preferred shares. As of October 15, 1999, there were no preferred
shares issued or outstanding.
B-36
<PAGE>
APPENDIX A
FORM OF
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
STATEMENT OF PREFERENCES OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("PREFERRED SHARES")
<PAGE>
TABLE OF CONTENTS
-----------------
Definitions.................................................................. 3
Part I....................................................................... 19
1. Number of Authorized Shares........................................ 19
2. Dividends.......................................................... 19
3. Gross-up Payments.................................................. 24
4. Designation of Special Rate Periods................................ 24
5. Voting Rights...................................................... 27
6. 1940 Act Preferred Shares Asset Coverage........................... 31
7. Preferred Shares Basic Maintenance Amount.......................... 31
8. Reserved........................................................... 33
9. Restrictions on Dividends and Other Distributions.................. 33
10. Rating Agency Restrictions......................................... 35
11. Redemption......................................................... 36
12. Liquidation Rights................................................. 40
13. Miscellaneous...................................................... 41
Part II...................................................................... 43
1. Orders............................................................. 43
2. Submission of Orders by Broker-Dealers to Auction Agent............ 45
3. Determination of Sufficient Clearing Bids, Winning Bid
Rate and Applicable Rate........................................... 45
4. Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares............................... 49
5. Notification of Allocations........................................ 52
6. Auction Agent...................................................... 53
7. Transfer of Preferred Shares....................................... 53
8. Global Certificate................................................. 53
Appendix A...................................................................A-1
AA-2
<PAGE>
The BLACKROCK STRATEGIC MUNICIPAL TRUST, a Delaware business trust
(the "Trust"), certifies that:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Trust by Article VI of the Trust's Agreement and Declaration of
Trust (which, as hereafter restated or amended from time to time is, together
with this Statement, herein called the "Declaration"), the Board of Trustees
has, by resolution, authorized the issuance of shares of the Trust's authorized
Preferred Shares liquidation preference $25,000 per share, having such
designation or designa tions as to series as is set forth in Section 1 of
Appendix A hereto and such number of shares per such series as is set forth in
Section 2 of Appendix A hereto.
Second: The preferences, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption, of the
shares of each series of Preferred Shares now or hereafter described in Section
1 of Appendix A hereto are as follows (each such series being referred to herein
as a series of Preferred Shares, and shares of all such series being referred to
herein individually as a Preferred Share and collectively as Preferred Shares).
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period
of shares of a series of Preferred Shares, shall mean (i) (A) in the case of any
Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper placed
on behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made available on
a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day next preceding such date; or (ii) in the event that the Federal
Reserve Bank of
AA-3
<PAGE>
New York does not make available any such rate, then the arithmetic average of
such rates, as quoted on a discount basis or otherwise, by the Commercial Paper
Dealers to the Auction Agent for the close of business on the Business Day next
preceding such date. If any Commercial Paper Dealer does not quote a rate
required to determine the "AA" Composite Commercial Paper Rate, the "AA"
Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining Commercial Paper Dealer or
Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Trust to provide such rate
or rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Trust does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
of this definition, the "interest equivalent" of a rate stated on a discount
basis (a "discount rate") for commercial paper of a given days' maturity shall
be equal to the quotient (rounded upwards to the next higher one-thousandth
(.001) of 1%) of (A) the discount rate divided by (B) the difference between (x)
1.00 and (y) a fraction, the numerator of which shall be the product of the
discount rate times the number of days in which such commercial paper matures
and the denominator of which shall be 360.
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Trust; provided, however, that no
Broker-Dealer controlled by, in control of or under common control with the
Trust shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation one
of the trustees, directors or executive officers of which is a trustee of the
Trust be deemed to be an Affiliate solely because such trustee, director or
executive officer is also a trustee of the Trust.
(d) "AGENT MEMBER" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
(e) RESERVED.
(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(h) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Trust
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for shares of a
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series of Preferred Shares so long as the Applicable Rate for shares of such
series is to be based on the results of an Auction.
(i) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees or the Executive Committee of the Board of
Trustees in accordance with Section 6 of Part II of this Statement.
(j) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(k) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.
(l) "AVAILABLE PREFERRED SHARES" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(m) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
Appen dix A hereto.
(n) "BENEFICIAL OWNER," with respect to shares of a series of Preferred
Shares, means a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of
such series.
(o) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(p) "BIDDER" and "BIDDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement; provided, however, that
neither the Trust nor any affiliate thereof shall be permitted to be a Bidder in
an Auction, except that any Broker-Dealer that is an affiliate of the Trust may
be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer
are not for its own account.
(q) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Trust or
any duly authorized committee thereof.
(r) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer in
Part II of this State ment, that is a member of, or a participant in, the
Securities Depository or is an affiliate of such member or participant, has been
selected by the Trust and has entered into a Broker-Dealer Agreement that
remains effective.
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(s) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Trust, the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the procedures specified in Part II of this Statement.
(t) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange
is open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.
(u) "CODE" means the Internal Revenue Code of 1986, as amended.
(v) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any other commercial paper dealer selected by the Trust as to
which Moody's shall not have objected or, in lieu of any thereof, their
respective affiliates or successors, if such entity is a commercial paper
dealer.
(w) "COMMON SHARES" shall mean the common shares of beneficial interest,
par value $.001 per share, of the Trust.
(x) "CURE DATE" shall mean the Preferred Shares Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(y) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
Preferred Shares, shall mean the date on which the Trust initially issued such
shares.
(z) "DECLARATION" shall have the meaning specified on the first page of
this Statement.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations rated
at least P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to a Moody's Eligible Asset that is not currently callable as of such
Valuation Date at the option of the issuer thereof, the quotient of the Market
Value thereof divided by the applicable Moody's Discount Factor, or (ii) with
respect to a Moody's Eligible Asset that is currently callable as of such
Valuation Date at the option of the issuer thereof, the quotient of (1) the
lesser of the Market Value or call price thereof, including any call premium,
divided by (2) the applicable Moody's Discount Factor.
(cc) RESERVED.
(dd) RESERVED.
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(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
Preferred Shares, shall mean any date on which dividends are payable on shares
of such series pursuant to the provisions of paragraph (d) of Section 2 of Part
I of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of Preferred
Shares, shall mean the period from and including the Date of Original Issue of
shares of such series to but excluding the initial Dividend Payment Date for
shares of such series and any period thereafter from and including one Dividend
Payment Date for shares of such series to but excluding the next succeeding
Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of Preferred
Shares, shall mean a Broker-Dealer (or any such other Person as may be permitted
by the Trust) that is listed on the records of the Auction Agent as a holder of
shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of Preferred
Shares, shall mean a failure by the Trust to pay to the Auction Agent, not later
than 12:00 noon, New York City time, (A) on the Business Day next preceding any
Dividend Payment Date for shares of such series, in funds available on such
Dividend Payment Date in The City of New York, New York, the full amount of any
dividend (whether or not earned or declared) to be paid on such Dividend Payment
Date on any share of such series or (B) on the Business Day next preceding any
redemption date in funds available on such redemption date for shares of such
series in The City of New York, New York, the Redemption Price to be paid on
such redemption date for any share of such series after notice of redemption is
mailed pursuant to paragraph (c) of Section 11 of Part I of this Statement;
provided, however, that the foregoing clause (B) shall not apply to the Trust's
failure to pay the Redemption Price in respect of Preferred Shares when the
related Notice of Redemption provides that redemption of such shares is subject
to one or more conditions precedent and any such condition precedent shall not
have been satisfied at the time or times and in the manner specified in such
Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
(jj) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of
Appen dix A hereto.
(kk) "HOLDER," with respect to shares of a series of Preferred Shares,
shall mean the registered holder of such shares as the same appears on the
record books of the Trust.
(ll) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(mm) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized accoun
tant, or firm of accountants, that is with respect to the Trust an independent
public accountant or
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firm of independent public accountants under the Securities Act of 1933, as
amended from time to time.
(nn) "INITIAL RATE PERIOD," with respect to shares of a series of Preferred
Shares, shall have the meaning specified with respect to shares of such series
in Section 5 of Appendix A hereto.
(oo) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
(pp) RESERVED.
(qq) "KENNY INDEX" shall have the meaning specified in the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."
(rr) "LATE CHARGE" shall have the meaning specified in subparagraph (e) (1)
(B) of Section 2 of Part I of this Statement.
(ss) "LIQUIDATION PREFERENCE," with respect to a given number of Preferred
Shares, means $25,000 times that number.
(tt) "MARKET VALUE" of any asset of the Trust shall be the market value
thereof determined by Kenny S&P Evaluation Services or any other pricing service
or services desig nated by the Board of Trustees of the Trust, provided that
the Trust obtains written assurance from Moody's that such designation will not
impair the rating then assigned by Moody's to the Preferred Shares (the "Pricing
Service"). Market Value of any asset shall include any interest accrued
thereon. The Pricing Service shall value portfolio securities at the lower of
the quoted bid price or the mean between the quoted bid and ask price or the
yield equivalent when quotations are not readily available. Securities for
which quotations are not readily available shall be valued at fair value as
determined by the Pricing Service using methods which include consideration of:
yields or prices of municipal obligations of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. The Pricing Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. If the Pricing
Service fails to provide the Market Value of any Municipal Obligation, such
Municipal Obligation shall be valued at the lower of two bid quotations (one of
which shall be in writing) obtained by the Trust from two dealers who are
members of the National Association of Securities Dealers, Inc. and are making a
market in such Municipal Obligations. Futures contracts and options are valued
at closing prices for such instruments established by the exchange or board of
trade on which they are traded, or if market quotations are not readily
available, are valued at fair value as determined by the Pricing Service or if
the Pricing Service is not able to value such instruments they shall be valued
at fair value on a consistent basis using methods determined in good faith by
the Board of Trustees.
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(uu) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be due if
the Trust were to make Taxable Allocations, with respect to any taxable year,
estimated based upon dividends paid and the amount of undistributed realized net
capital gains and other taxable income earned by the Trust, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
(vv) "MAXIMUM RATE," for shares of a series of Preferred Shares on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Trust pursuant to Section 4 of Part I of this
Statement, the product of (A) the Reference Rate on such Auction Date
for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or
had a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of
such series after such Special Rate Period, in which case the higher
of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference Rate
on such Auction Date for a Rate Period equal in length to the then-
ending Rate Period of shares of such series, if such then-ending Rate
Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was more than 364 Rate Period Days, and (y) the Reference Rate on such
Auction Date for a Rate Period equal in length to such Special Rate
Period of shares of such series, if such Special Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate Period, if
such Special Rate Period was more than 364 Rate Period Days and (2)
the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Trust pursuant to Section 4 of Part I of this Statement,
the product of (A) the highest of (1) the Reference Rate on such Auction
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Date for a Rate Period equal in length to the then-ending Rate Period
of shares of such series, if such then-ending Rate Period was 364 Rate
Period Days or fewer, or the Treasury Note Rate on such Auction Date
for a Rate Period equal in length to the then- ending Rate Period of
shares of such series, if such then-ending Rate Period was more than
364 Rate Period Days, (2) the Reference Rate on such Auction Date for
the Special Rate Period for which the Auction is being held if such
Special Rate Period is 364 Rate Period Days or fewer or the Treasury
Note Rate on such Auction Date for the Special Rate Period for which
the Auction is being held if such Special Rate Period is more than 364
Rate Period Days, and (3) the Reference Rate on such Auction Date for
Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.
(ww) RESERVED.
(xx) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7 Rate
Period Days.
(yy) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(zz) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in Section
4 of Appendix A hereto.
(aaa) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in Section
4 of Appendix A hereto.
(bbb) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 56 days thereafter.
(ccc) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If, as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatil ity Factor in
the case of any Rate Period described in (i) above in this definition instead
shall be determined by reference to the following table:
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FEDERAL TAX RATE INCREASE VOLATILITY FACTOR
------------------------- -----------------
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
(ddd) "MUNICIPAL OBLIGATIONS" shall mean any and all instruments that pay
interest or make other distributions that are exempt from regular Federal income
tax and in which the Trust may invest consistent with the investment policies
and restrictions contained in its registration statement on Form N-2 (333-
86589), ("Registration Statement"), as the same may be amended from time to
time.
(eee) "1940 ACT" shall mean the Investment Company Act of 1940, as amended
from time to time.
(fff) "1940 ACT CURE DATE," with respect to the failure by the Trust to
maintain the 1940 Act Preferred Shares Asset Coverage (as required by Section 6
of Part I of this Statement) as of the last Business Day of each month, shall
mean the last Business Day of the following month.
(ggg) "1940 ACT PREFERRED SHARES ASSET COVERAGE" shall mean asset coverage,
as defined in Section 18(h) of the 1940 Act, of at least 200% with respect to
all outstanding senior securities of the Trust which are shares of beneficial
interest including all outstanding Preferred Shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares or stock of a
closed-end investment company as a condition of declaring dividends on its
common shares or stock).
(hhh) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemp tion of Preferred Shares pursuant to paragraph (c) of Section 11 of Part
I of this Statement.
(iii) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to
a Special Rate Period of Preferred Shares pursuant to subparagraph (d)(i) of
Section 4 of Part I of this Statement.
(jjj) "ORDER" and "ORDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
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(kkk) RESERVED.
(lll) RESERVED.
(mmm) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of Preferred Shares, the number of shares of such series
theretofore issued by the Trust except, without duplication, (i) any shares of
such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Trust, (ii) any shares of such series as to
which the Trust or any Affiliate thereof shall be an Existing Holder and (iii)
any shares of such series represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Trust.
(nnn) RESERVED.
(ooo) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
(ppp) RESERVED.
(qqq) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
Preferred Shares, shall mean a customer of a Broker-Dealer that is not a
Beneficial Owner of shares of such series but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series.
(rrr) "POTENTIAL HOLDER," with respect to shares of a series of Preferred
Shares, shall mean a Broker-Dealer (or any such other person as may be permitted
by the Trust) that is not an Existing Holder of shares of such series or that is
an Existing Holder of shares of such series that wishes to become the Existing
Holder of additional shares of such series.
(sss) "PREFERRED SHARES" shall have the meaning set forth on the first page
of this Statement.
(ttt) "PREFERRED SHARES BASIC MAINTENANCE AMOUNT," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of Preferred Shares outstanding on such date multiplied by $25,000 (plus
the product of the number of shares of any other series of preferred shares
outstanding on such date multiplied by the liquidation preference of such
shares), plus any redemption premium applicable to the Preferred Shares (or
other preferred shares) then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates (whether
or not earned or declared) to (but not including) the first respective Dividend
Payment Dates for the Preferred Shares outstanding that follow such Valuation
Date (plus the aggregate amount of
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dividends, whether or not earned or declared, that will have accumulated in
respect of other outstanding preferred shares to, but not including, the first
respective dividend payment dates for such other shares that follow such
Valuation Date); (C) the aggregate amount of dividends that would accumulate on
shares of each series of the Preferred Shares outstanding from such first
respective Dividend Payment Date therefor through the 56th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Trust shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Trust shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such series
designating a Special Rate Period consisting of 56 Rate Period Days or more, the
Volatility Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend rate
or rates on any other preferred shares outstanding from such respective dividend
payment dates through the 56th day after such Valuation Date, as established by
or pursuant to the respective statements establishing and fixing the rights and
preferences of such other preferred shares) (except that (1) if such Valuation
Date occurs at a time when a Failure to Deposit (or, in the case of preferred
shares other than the Preferred Shares, a failure similar to a Failure to
Deposit) has occurred that has not been cured, the dividend for purposes of
calculation would accumulate at the current dividend rate then applicable to the
shares in respect of which such failure has occurred and (2) for those days
during the period described in this subparagraph (C) in respect of which the
Applicable Rate in effect immediately prior to such Dividend Payment Date will
remain in effect (or, in the case of preferred shares other than the Preferred
Shares, in respect of which the dividend rate or rates in effect immediately
prior to such respective dividend payment dates will remain in effect), the
dividend for purposes of calculation would accumulate at such Applicable Rate
(or other rate or rates, as the case may be) in respect of those days); (D) the
amount of anticipated expenses of the Trust for the 90 days subsequent to such
Valuation Date; (E) the amount of the Trust's Maximum Potential Gross-up Payment
Liability in respect of Preferred Shares (and similar amounts payable in respect
of other preferred shares pursuant to provisions similar to those contained in
Section 3 of Part I of this Statement) as of such Valuation Date; (F) the amount
of any indebtedness or obligations of the Trust senior in right of payment to
the Preferred Shares; and (G) any current liabilities as of such Valuation Date
to the extent not reflected in any of (i)(A) through (i)(F) (including, without
limitation, any payables for Municipal Obligations purchased as of such
Valuation Date and any liabilities incurred for the purpose of clearing
securities transactions) less (ii) the value (i.e., for purposes of current
Moody's guidelines, the face value of cash, short-term Municipal Obligations
rated MIG-1, VMIG-1 or P-1, and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such securities
mature on or prior
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to the date upon which any of (i)(A) through (i)(G) become payable, otherwise
the Moody's Discounted Value) of any of the Trust's assets irrevocably deposited
by the Trust for the payment of any of (i)(A) through (i)(G).
(uuu) "PREFERRED SHARES BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Trust to satisfy the Preferred Shares Basic Maintenance Amount
(as required by paragraph (a) of Section 7 of Part I of this Statement) as of a
given Valuation Date, shall mean the seventh Business Day following such
Valuation Date.
(vvv) "PREFERRED SHARES BASIC MAINTENANCE REPORT" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Trust which sets forth, as of the related Valuation Date, the
assets of the Trust, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the Preferred Shares Basic Maintenance Amount.
(www) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
March, June, September and December of each year, commencing on the date set
forth in Section 6 of Appendix A hereto.
(xxx) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
Appendix A hereto.
(yyy) "RATE PERIOD," with respect to shares of a series of Preferred
Shares, shall mean the Initial Rate Period of shares of such series and any
Subsequent Rate Period, including any Special Rate Period, of shares of such
series.
(zzz) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means the
number of days that would constitute such Rate Period or Dividend Period but for
the application of paragraph (d) of Section 2 of Part I of this Statement or
paragraph (b) of Section 4 of Part I of this Statement.
(aaaa) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean for purposes
of calculation of Moody's Eligible Assets as of any Valuation Date, no more than
the aggregate of the following: (i) the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date, and if the trades which
generated such receivables are (x) settled through clearing house firms with
respect to which the Trust has received prior written authorization from Moody's
or (y) with counterparties having a Moody's long-term debt rating of at least
Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations sold as of
or prior to such Valuation Date which generated receivables, if such receivables
are due within five business days of such Valuation Date but do not comply with
either of the conditions specified in (i) above.
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(bbbb) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.
(cccc) "REFERENCE RATE" shall mean (i) the higher of the Taxable Equivalent
of the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper
Rate in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case
of Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate
Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate
Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.
(dddd) "REGISTRATION STATEMENT" has the meaning specified in the definition
of "Municipal Obligations."
(eeee) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(ffff) RESERVED.
(gggg) RESERVED.
(hhhh) RESERVED.
(iiii) RESERVED.
(jjjj) RESERVED.
(kkkk) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
its successors and assigns or any other securities depository selected by the
Trust which agrees to follow the procedures required to be followed by such
securities depository in connection with the Preferred Shares.
(llll) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(mmmm) "SPECIAL RATE PERIOD," with respect to shares of a series of
Preferred Shares, shall have the meaning specified in paragraph (a) of Section 4
of Part I of this Statement.
(nnnn) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.
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(oooo) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Auction Agent as specified by the Auction
Agent from time to time.
(pppp) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(qqqq) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(rrrr) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(ssss) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(tttt) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
Preferred Shares, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding the
next Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
(uuuu) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co., Incorporated or their respective affiliates or
successors, if such entity is a commercial paper dealer; provided, however, that
none of such entities shall be a Commercial Paper Dealer.
(vvvv) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The First
Boston Company or Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.
(wwww) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(xxxx) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
of Part I of this Statement.
(yyyy) "TAXABLE INCOME" shall have the meaning specified in Section 12 of
Appendix A hereto.
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(zzzz) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on any
date for any Minimum Rate Period or Special Rate Period of 28 Rate Period Days
or fewer, shall mean 90% of the quotient of (A) the per annum rate expressed on
an interest equivalent basis equal to the Kenny S&P 30 day High Grade Index or
any successor index (the "Kenny Index") (provided, however, that any such
successor index must be approved by Moody's (if Moody's is then rating the
Preferred Shares)), made available for the Business Day immediately preceding
such date but in any event not later than 8:30 A.M., New York City time, on such
date by Kenny S&P Evaluation Services or any successor thereto, based upon 30-
day yield evaluations at par of short-term bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny S&P Evaluation Services or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57 (a)(5) of the Code, or successor provisions, for purposes of
the "alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater;
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by Kenny S&P Evaluation Services or any
successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income (in each
case expressed as a decimal), whichever is greater.
(aaaaa) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(bbbbb) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
(i) the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
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(ccccc) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or less but
more than 364 days.
(ddddd) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quota tions furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Trust to provide such rate or rates not being supplied
by any U.S. Government Securities Dealer or U.S. Government Securities Dealers,
as the case may be, or, if the Trust does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
(eeeee) "TRUST" shall mean the entity named on the first page of this
Statement, which is the issuer of the Preferred Shares.
(fffff) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc, Morgan
Guaranty Trust Company of New York and any other U.S. Government Securities
dealer selected by the Trust as to which Moody's shall not have objected or
their respective affiliates or successors, if such entity is a U.S. Government
securities dealer.
(ggggg) "VALUATION DATE" shall mean, for purposes of determining whether
the Trust is maintaining the Preferred Shares Basic Maintenance Amount, each
Business Day.
(hhhhh) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
Moody's Volatility Factor.
(iiiii) "VOTING PERIOD" shall have the meaning specified in paragraph (b)
of Section 5 of Part I of this Statement.
(jjjjj) "WINNING BID RATE" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
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Any additional definitions specifically set forth in Section 8 of Appendix
A hereto shall be incorporated herein and made part hereof by reference thereto.
PART I.
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of the Preferred
Shares shall be as set forth with respect to such series in Section 2 of
Appendix A hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of the Preferred Shares shall rank on
a parity with each other, with shares of any other series of the Preferred
Shares and with shares of any other series of preferred shares as to the payment
of dividends by the Trust.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of any series of Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Trustees, out of funds legally available therefor in accordance with the
Declaration and applicable law, cumulative cash dividends at the Applicable Rate
for shares of such series, determined as set forth in paragraph (e) of this
Section 2, and no more (except to the extent set forth in Section 3 of this Part
I), payable on the Dividend Payment Dates with respect to shares of such series
determined pursuant to paragraph (d) of this Section 2. Holders of Preferred
Shares shall not be entitled to any dividend, whether payable in cash, property
or shares, in excess of full cumulative dividends, as herein provided, on
Preferred Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Shares which
may be in arrears, and, except to the extent set forth in subparagraph (e)(i) of
this Section 2, no additional sum of money shall be payable in respect of any
such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on any
series of Preferred Shares shall accumulate at the Applicable Rate for shares of
such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of Preferred Shares shall be as set
forth with respect to shares of such series in Section 9 of Appendix A hereto;
provided, however, that:
(i) if the day on which dividends would otherwise be payable on
shares of such series is not a Business Day, then such dividends shall be
payable on such shares on the first Business Day that falls after such day;
and
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(ii) notwithstanding Section 9 of Appendix A hereto, the Trust in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of Preferred Shares
consisting of more than 28 Rate Period Days; provided, however, that
such dates shall be set forth in the Notice of Special Rate Period
relating to such Special Rate Period, as delivered to the Auction
Agent, which Notice of Special Rate Period shall be filed with the
Secretary of the Trust; and further provided that (1) any such
Dividend Payment Date shall be a Business Day and (2) the last
Dividend Payment in respect of such Special Rate Period shall be the
Business Day immediately following the last day thereof, as such last
day is determined in accordance with paragraph (b) of Section 4 of
this Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.
(i) DIVIDEND RATES. The dividend rate on Preferred Shares of any
series during the period from and after the Date of Original Issue of
shares of such series to and including the last day of the Initial Rate
Period of shares of such series shall be equal to the rate per annum set
forth with respect to shares of such series under "Designation" in Section
1 of Appendix A hereto. For each Subsequent Rate Period of shares of such
series thereafter, the dividend rate on shares of such series shall be
equal to the rate per annum that results from an Auction for shares of such
series on the Auction Date next preceding such Subsequent Rate Period;
provided, however, that if:
(A) an Auction for any such Subsequent Rate Period is not
held for any reason other than as described below, the dividend
rate on shares of such series for such Subsequent Rate Period
will be the Maximum Rate for shares of such series on the Auction
Date therefor;
(B) any Failure to Deposit shall have occurred with respect
to shares of such series during any Rate Period thereof (other
than any Special Rate Period consisting of more than 364 Rate
Period Days or any Rate Period succeeding any Special Rate Period
consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), but, prior
to 12:00 Noon, New York City time, on the third Business Day next
succeeding the date on which such Failure to Deposit occurred,
such Failure to Deposit shall have been cured in accordance
with paragraph (f) of this Section 2 and the Trust shall have
paid to the Auction Agent a late charge ("Late Charge") equal to
the sum of (1) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the full amount of
dividends with respect to any Dividend Period of the shares of
such series, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such
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Failure to Deposit occurs on the Dividend Payment Date for such
Divi dend Period by (y) a fraction, the numerator of which shall
be the number of days for which such Failure to Deposit has not
been cured in accordance with paragraph (f) of this Section 2
(including the day such Failure to Deposit occurs and excluding
the day such Failure to Deposit is cured) and the denominator of
which shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the outstanding shares of
such series and (2) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the Redemption Price
of the shares, if any, of such series for which Notice of
Redemption has been mailed by the Trust pursuant to paragraph (c)
of Section 11 of this Part I, an amount computed by multiplying
(x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the redemption date by (y) a
fraction, the numerator of which shall be the number of days for
which such Failure to Deposit is not cured in accordance with
paragraph (f) of this Section 2 (including the day such Failure
to Deposit occurs and excluding the day such Failure to Deposit
is cured) and the denominator of which shall be 360, and applying
the rate obtained against the aggregate Liquidation Preference of
the outstanding shares of such series to be redeemed, no Auction
will be held in respect of shares of such series for the
Subsequent Rate Period thereof and the dividend rate for shares
of such series for such Subsequent Rate Period will be the
Maximum Rate for shares of such series on the Auction Date for
such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect
to shares of such series during any Rate Period thereof (other
than any Special Rate Period consisting of more than 364 Rate
Period Days or any Rate Period succeeding any Special Rate Period
consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), and, prior
to 12:00 Noon, New York City time, on the third Business Day next
succeeding the date on which such Failure to Deposit occurred,
such Failure to Deposit shall not have been cured in accordance
with paragraph (f) of this Section 2 or the Trust shall not have
paid the applicable Late Charge to the Auction Agent, no Auction
will be held in respect of shares of such series for the first
Subsequent Rate Period thereof thereafter (or for any Rate Period
thereof thereafter to and including the Rate Period during
which (1) such Failure to Deposit is cured in accordance with
paragraph (f) of this Section 2 and (2) the Trust pays the
applicable Late Charge to the Auction Agent (the condition set
forth in this clause (2) to apply only in the event Moody's is
rating such shares at the time the Trust cures such Failure to
Deposit), in each case no later than 12:00 Noon, New York City
time, on the fourth Business Day prior to the
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end of such Rate Period), and the dividend rate for shares of
such series for each such Subsequent Rate Period shall be a rate
per annum equal to the Maximum Rate for shares of such series on
the Auction Date for such Subsequent Rate Period (but with the
prevailing rating for shares of such series, for purposes of
determining such Maximum Rate, being deemed to be "Below
"ba3"/BB"); or
(D) any Failure to Deposit shall have occurred with respect
to shares of such series during a Special Rate Period thereof
consisting of more than 364 Rate Period Days, or during any Rate
Period thereof succeeding any Special Rate Period consisting of
more than 364 Rate Period Days during which a Failure to Deposit
occurred that has not been cured, and, prior to 12:00 Noon, New
York City time, on the fourth Business Day preceding the Auction
Date for the Rate Period subsequent to such Rate Period, such
Failure to Deposit shall not have been cured in accordance with
paragraph (f) of this Section 2 or, in the event Moody's is then
rating such shares, the Trust shall not have paid the applicable
Late Charge to the Auction Agent (such Late Charge, for purposes
of this subparagraph (D), to be calculated by using, as the
Reference Rate, the Reference Rate applicable to a Rate Period
(x) consisting of more than 182 Rate Period Days but fewer than
365 Rate Period Days and (y) commencing on the date on which
the Rate Period during which Failure to Deposit occurs
commenced), no Auction will be held in respect of shares of such
series for such Subsequent Rate Period (or for any Rate Period
thereof thereafter to and including the Rate Period during which
(1) such Failure to Deposit is cured in accordance with paragraph
(f) of this Section 2 and (2) the Trust pays the applicable Late
Charge to the Auction Agent (the condition set forth in this
clause (2) to apply only in the event Moody's is rating such
shares at the time the Trust cures such Failure to Deposit), in
each case no later than 12:00 Noon, New York City time, on the
fourth Business Day prior to the end of such Rate Period), and
the dividend rate for shares of such series for each such
Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for
such Subsequent Rate Period (but with the prevailing rating for
shares of such series, for purposes of determining such Maximum
Rate, being deemed to be "Below "ba3"/BB") (the rate per annum at
which dividends are payable on shares of a series of Preferred
Shares for any Rate Period thereof being herein referred to as
the "Applicable Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share
payable on shares of a series of Preferred Shares on any date on which
dividends shall be payable on shares of such series shall be computed by
multiplying the Applicable
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Rate for shares of such series in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been
paid by a fraction, the numerator of which shall be the number of days
in such Dividend Period or Dividend Periods or part thereof and the
denominator of which shall be 365 if such Dividend Period consists of
7 Rate Period Days and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of Preferred Shares shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Trust to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Trust shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Trust pursuant to paragraph (c) of
Section 11 of Part I of this Statement; provided, however, that the foregoing
clause (B) shall not apply to the Trust's failure to pay the Redemption Price
in respect of Preferred Shares when the related Redemption Notice provides that
redemption of such shares is subject to one or more conditions precedent and any
such condition precedent shall not have been satisfied at the time or times and
in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY TRUST TO AUCTION AGENT. The Trust shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series of
Preferred Shares, an aggregate amount of funds available on the next Business
Day in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for the payment of dividends (or for the payment of
any Late Charge) shall be held in trust for the payment of such dividends (and
any such Late Charge) by the Auction Agent for the benefit of the Holders
specified in paragraph (i) of this Section 2. Any moneys paid to the Auction
Agent in accordance with the foregoing but not applied by the Auction Agent to
the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Trust at the end of 90 days from the date on
which such moneys were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on Preferred Shares shall be
paid on the Dividend Payment Date therefor to the Holders thereof as their names
appear on the record books of the Trust on the Business Day next preceding such
Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS.
Any dividend payment made on Preferred Shares shall first be credited
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against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the record books of the Trust on such date, not
exceeding 15 days preceding the payment date thereof, as may be fixed by the
Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
Preferred Shares shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Trust, to the extent permitted by, and for
purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of Preferred Shares shall be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available therefor in
accordance with the Declaration and applicable law, dividends in an amount equal
to the aggregate Gross-up Payments as follows:
(a) TAXABLE ALLOCATION WITHOUT NOTICE. If, but only if, the Trust
allocates any net capital gain or other income taxable for Federal income tax
purposes to a dividend paid on Preferred Shares without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II of this
Statement (such allocation being referred to herein as a "Taxable Allocation"),
whether or not by reason of the fact that such allocation is made retroactively
as a result of the redemption of all or a portion of the outstanding Preferred
Shares or the liquidation of the Trust, the Trust shall, during the Trust's
fiscal year in which the Taxable Allocation was made or within 90 days after the
end of such fiscal year, provide notice thereof to the Auction Agent and direct
the Trust's dividend disbursing agent to send such notice and a Gross-up Payment
to each Holder of such shares that was entitled to such dividend payment during
such fiscal year at such Holder's address as the same appears or last appeared
on the record books of the Trust.
(b) RESERVED.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Trust shall
not be required to make Gross-up Payments with respect to any net capital gains
or other taxable income determined by the Internal Revenue Service to be
allocable in a manner different from that allocated by the Trust.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Trust, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of Preferred Shares as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if
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(A) notice thereof shall have been given in accordance with paragraph (c) and
subparagraph (d)(i) of this Section 4, (B) an Auction for shares of such series
shall have been held on the Auction Date immediately preceding the first day of
such proposed Special Rate Period and Sufficient Clearing Bids for shares of
such series shall have existed in such Auction, and (C) if any Notice of
Redemption shall have been mailed by the Trust pursuant to paragraph (c) of
Section 11 of this Part I with respect to any shares of such series, the
Redemption Price with respect to such shares shall have been deposited with the
Auction Agent. In the event the Trust wishes to designate any succeeding
Subsequent Rate Period for shares of a series of Preferred Shares as a Special
Rate Period consisting of more than 28 Rate Period Days, the Trust shall notify
Moody's (if Moody's is then rating such series) in advance of the commencement
of such Subsequent Rate Period that the Trust wishes to designate such
Subsequent Rate Period as a Special Rate Period and shall provide Moody's (if
Moody's is then rating such series) with such documents as it may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Trust
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not a Wednesday that is a Business Day in the case of a series of Preferred
Shares designated as "Series [ ] Preferred Shares" in Section 1 of Appendix A
hereto, then the Trust shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending on the first [Monday]
that is followed by a [Tuesday] that is a Business Day preceding what would
other wise be such last day, in the case of Series [ ] Preferred Shares.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Trust proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Preferred Shares as a Special Rate Period pursuant to paragraph (a) of this
Section 4, not less than 20 (or such lesser number of days as may be agreed to
from time to time by the Auction Agent) nor more than 30 days prior to the date
the Trust proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum Rate
Period), notice shall be (i) published or caused to be published by the Trust in
a newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Trust by
first-class mail, postage prepaid, to the Holders of shares of such series.
Each such notice shall state (A) that the Trust may exercise its option to
designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Trust
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed to
by the Auction Agent) notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Trust
shall specify the Special Rate Period designated, or (y) its determination not
to exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate
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Period of shares of a series of Preferred Shares as to which notice has been
given as set forth in paragraph (c) of this Section 4 (or such later time or
date, or both, as may be agreed to by the Auction Agent), the Trust shall
deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Trust has deter mined to designate the next succeeding Rate Period of
shares of such series as a Special Rate Period, specifying the same and the
first day thereof, (B) the Auction Date immediately prior to the first day
of such Special Rate Period, (C) that such Special Rate Period shall not
commence if (1) an Auction for shares of such series shall not be held on
such Auction Date for any reason or (2) an Auction for shares of such
series shall be held on such Auction Date but Sufficient Clearing Bids for
shares of such series shall not exist in such Auction, (D) the scheduled
Dividend Payment Dates for shares of such series during such Special Rate
Period and (E) the Special Redemption Provisions, if any, applicable to
shares of such series in respect of such Special Rate Period, such notice
to be accompanied by a Preferred Shares Basic Maintenance Report showing
that, as of the third Business Day next preceding such proposed Special
Rate Period, Moody's Eligible Assets (if Moody's is then rating such
series) have an aggregate Discounted Value at least equal to the Preferred
Shares Basic Maintenance Amount as of such Business Day (assuming for
purposes of the foregoing calculation that (a) the Maximum Rate is the
Maximum Rate on such Business Day as if such Business Day were the Auction
Date for the proposed Special Rate Period, and (b) the Moody's Discount
Factors applicable to Moody's Eligible Assets are determined by reference
to the first Exposure Period longer than the Exposure Period then
applicable to the Trust, as described in the definition of Moody's Discount
Factor herein); or
(ii) a notice stating that the Trust has determined not to exercise
its option to desig nate a Special Rate Period of shares of such series and
that the next succeeding Rate Period of shares of such series shall be a
Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Trust fails
to deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a Preferred Shares Basic Maintenance Report to the effect set
forth in such subparagraph (if Moody's is then rating the series in question))
with respect to any designation of any proposed Special Rate Period to the
Auction Agent by 11:00 A.M., New York City time, on the second Business Day next
preceding the first day of such proposed Special Rate Period (or by such later
time or date, or both, as may be agreed to by the Auction Agent), the Trust
shall be deemed to have delivered a notice to the Auction Agent with respect to
such Special Rate Period to the effect set forth in subparagraph (d)(ii) of this
Section 4. In the event the Trust delivers to the Auction Agent a notice
described in subparagraph (d)(i) of this Section 4, it shall file a copy of such
notice with the Secretary of the Trust, and the contents of such notice shall be
binding on the Trust. In the event the Trust delivers to the Auction Agent a
notice described in subparagraph (d)(ii) of this
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Section 4, the Trust will provide Moody's (if Moody's is then rating the series
in question) a copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF PREFERRED SHARES. Except as otherwise provided
in the Declaration or as otherwise required by law, (i) each Holder of Preferred
Shares shall be entitled to one vote for each share of Preferred Shares held by
such Holder on each matter submitted to a vote of shareholders of the Trust, and
(ii) the holders of outstanding preferred shares, including each share of the
Preferred Shares, and of Common Shares shall vote together as a single class;
provided, however, that, at any meeting of the shareholders of the Trust held
for the election of trustees, the holders of outstanding preferred shares,
including the Preferred Shares, represented in person or by proxy at said
meeting, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of shares of beneficial interest of the Trust, to
elect two trustees of the Trust, each Preferred Share entitling the holder
thereof to one vote. Subject to paragraph (b) of this Section 5, the holders of
outstanding Common Shares and Preferred Shares voting together as a single
class, shall elect the balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES.
(i) VOTING PERIOD. Except as otherwise provided in the Declaration
or as otherwise required by law, during any period in which any one or more
of the conditions described in subparagraphs (A) or (B) of this
subparagraph (b)(i) shall exist (such period being referred to herein as a
"Voting Period"), the number of trustees constituting the Board of Trustees
shall be automatically increased by the smallest number that, when added to
the two trustees elected exclusively by the holders of preferred shares,
including the Preferred Shares, would constitute a majority of the Board of
Trustees as so increased by such smallest number, and the holders of
preferred shares, including the Preferred Shares, shall be entitled, voting
as a class on a one-vote-per-share basis (to the exclusion of the holders
of all other securities and classes of shares of beneficial interest of the
Trust), to elect such smallest number of additional trustees, together with
the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding Preferred Shares, equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for
the payment of such accumulated dividends; or
(B) if at any time holders of preferred shares, including the
Preferred Shares, are entitled under the 1940 Act to elect a majority
of the trustees of the Trust.
Upon the termination of a Voting Period, the voting rights described
in this
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subparagraph (b)(i) shall cease, subject always, however, to the
revesting of such voting rights in the Holders upon the further
occurrence of any of the events described in this subparagraph
(b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the
accrual of any right of the holders of preferred shares, including the
Preferred Shares, to elect additional trustees as de scribed in subparagraph
(b)(i) of this Section 5, the Trust shall notify the Auction Agent and the
Auction Agent shall call a special meeting of such holders, by mailing a
notice of such special meeting to such holders, such meeting to be held not
less than 10 nor more than 20 days after the date of mailing of such notice.
If the Trust fails to send such notice to the Auction Agent or if the
Auction Agent does not call such a special meeting, it may be called by any
such holder on like notice. The record date for determining the holders
entitled to notice of and to vote at such special meeting shall be the close
of business on the fifth Business Day preceding the day on which such notice
is mailed. At any such special meeting and at each meeting of holders of
preferred shares, including the Preferred Shares, held during a Voting
Period at which trustees are to be elected, such holders, voting together as
a class (to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Trust), shall be entitled to elect
the number of trustees prescribed in subparagraph (b)(i) of this Section 5
on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of office
of all persons who are trustees of the Trust at the time of a special
meeting of Holders and holders of other preferred shares to elect trustees
shall continue, notwithstanding the election at such meeting by the Holders
and such other holders of the number of trustees that they are entitled to
elect, and the persons so elected by the Holders and such other holders,
together with the two incumbent trustees elected by the Holders and such
other holders of preferred shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON
TERMINATION OF VOTING PERIOD. Simultaneously with the termination of a
Voting Period, the terms of office of the additional trustees elected by the
Holders and holders of other Preferred Shares pursuant to subparagraph
(b)(i) of this Section 5 shall terminate, the remaining trustees shall
constitute the trustees of the Trust and the voting rights of the Holders
and such other holders to elect additional trustees pursuant to subparagraph
(b)(i) of this Section 5 shall cease, subject to the provisions of the last
sentence of subparagraph (b)(i) of this Section 5.
(c) HOLDERS OF PREFERRED SHARES TO VOTE ON CERTAIN OTHER MATTERS.
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(i) INCREASES IN CAPITALIZATION. So long as any Preferred Shares are
outstanding, the Trust shall not, without the affirmative vote or consent
of the Holders of at least a majority of the Preferred Shares outstanding
at the time, in person or by proxy, either in writing or at a meeting,
voting as a separate class: (a) authorize, create or issue any class or
series of shares ranking prior to or on a parity with the Preferred Shares
with respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, or
authorize, create or issue additional shares of any series of Preferred
Shares (except that, notwithstanding the foregoing, but subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of
Trustees, without the vote or consent of the Holders of Preferred Shares,
may from time to time authorize and create, and the Trust may from time to
time issue, additional shares of any series of Preferred Shares or classes
or series of other preferred shares ranking on a parity with Preferred
Shares with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the
Trust; provided, however, that if Moody's is not then rating the Preferred
Shares, the aggregate liquidation preference of all preferred shares of the
Trust outstanding after any such issuance, exclusive of accumulated and
unpaid dividends, may not exceed the amount set forth in Section 10 of
Appendix A hereto) or (b) amend, alter or repeal the provisions of the
Declaration or this Statement, whether by merger, consolidation or
otherwise, so as to adversely affect any preference, right or power of such
Preferred Shares or the Holders thereof; provided, how ever, that (i) none
of the actions permitted by the exception to (a) above will be deemed to
affect such preferences, rights or powers, (ii) a division of Preferred
Shares will be deemed to affect such preferences, rights or powers only if
the terms of such division adversely affect the Holders of Preferred Shares
and (iii) the authorization, creation and issuance of classes or series of
shares ranking junior to the Preferred Shares with respect to the payment
of dividends and the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Trust, will be deemed to affect such
preferences, rights or powers only if Moody's is then rating the Preferred
Shares and such issuance would, at the time thereof, cause the Trust not to
satisfy the 1940 Act Preferred Shares Asset Cover age or the Preferred
Shares Basic Maintenance Amount. So long as any shares of the Preferred
Shares are outstanding, the Trust shall not, without the affirmative vote
or consent of the Holders of at least 66 2/3% of the Preferred Shares out
standing at the time, in person or by proxy, either in writing or at a
meeting, voting as a separate class, file a voluntary application for
relief under Federal bankruptcy law or any similar application under state
law for so long as the Trust is solvent and does not foresee becoming
insolvent. If any action set forth above would adversely affect the rights
of one or more series (the "Affected Series") of Preferred Shares in a
manner different from any other series of Preferred Shares, the Trust will
not approve any such action without the affirmative vote or consent
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of the Holders of at least a majority of the shares of each such
Affected Series outstanding at the time, in person or by proxy, either
in writing or at a meeting (each such Affected Series voting as a
separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in
the Declara tion, (A) the affirmative vote of the Holders of at least a
majority of the Preferred Shares outstanding at the time, voting as a
separate class, shall be required to approve any conversion of the Trust
from a closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding Preferred Shares,"
voting as a separate class, shall be required to approve any plan of
reorganization (as such term is used in the 1940 Act) adversely affecting
such shares. The affirmative vote of the holders of a "majority of the
outstanding Preferred Shares," voting as a separate class, shall be
required to approve any action not described in the first sentence of this
Section 5(c)(ii) requiring a vote of security holders of the Trust under
Section 13(a) of the 1940 Act. For purposes of the foregoing, "majority of
the outstanding Preferred Shares" means (i) 67% or more of such shares
present at a meeting, if the Holders of more than 50% of such shares are
present or represented by proxy, or (ii) more than 50% of such shares,
whichever is less. In the event a vote of Holders of Preferred Shares is
required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Trust shall, not later than ten Business Days prior to the date on which
such vote is to be taken, notify Moody's (if Moody's is then rating the
Preferred Shares) that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken. The Trust shall, not
later than ten Business Days after the date on which such vote is taken,
notify Moody's (if Moody's is then rating the Preferred Shares) of the
results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Trust,
may from time to time amend, alter or repeal any provision of this Statement if
such amendment, alteration or repeal would not adversely affect the preferences,
rights or powers of the Preferred Shares or the Holders thereof; provided,
however, that the Board of Trustees receives written confirmation from Moody's
(such confirmation being required to be obtained only in the event Moody's is
rating the Preferred Shares) that any such amendment, alteration or repeal would
not impair the ratings then assigned by Moody's to Preferred Shares. No amend
ment, alteration or repeal of any or all of the following definitions or any
provision of this Statement viewed by Moody's as a predicate for any such
definition will be deemed to affect the preferences, rights or powers of the
Preferred Shares or the Holders thereof: Deposit Securities, Discounted Value,
Receivables for Municipal Obligations Sold, Moody's Discount Factor, Moody's
Eligible Asset, Moody's Exposure Period and Moody's Volatility Factor.
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of Preferred Shares shall not have any
relative rights or preferences or other special rights other than those
specifically set forth herein.
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(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of Preferred
Shares shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR TRUST'S FAILURE TO PAY DIVIDENDS.
In the event that the Trust fails to pay any dividends on the Preferred Shares,
the exclusive remedy of the Holders shall be the right to vote for trustees
pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by this
Statement, by the other provisions of the Declaration, by statute or otherwise,
no Holder shall be entitled to vote any Preferred Share and no Preferred Share
shall be deemed to be "outstanding" for the purpose of voting or determining the
number of shares required to constitute a quorum if, prior to or concurrently
with the time of determination of shares entitled to vote or shares deemed
outstand ing for quorum purposes, as the case may be, the requisite Notice of
Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No Preferred Share held by the Trust or any affiliate
of the Trust (except for shares held by a Broker-Dealer that is an affiliate of
the Trust for the account of its customers) shall have any voting rights or be
deemed to be outstanding for voting or other purposes.
6. 1940 ACT PREFERRED SHARES ASSET COVERAGE.
The Trust shall maintain, as of the last Business Day of each month in
which any Preferred Shares are outstanding, the 1940 Act Preferred Shares Asset
Coverage.
7. PREFERRED SHARES BASIC MAINTENANCE AMOUNT.
(a) So long as Preferred Shares are outstanding, the Trust shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date Moody's Eligible Assets having an aggregate
Discounted Value equal to or greater than the Preferred Shares Basic Maintenance
Amount (if Moody's is then rating the Preferred Shares).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Trust fails to satisfy the Preferred Shares
Basic Maintenance Amount, and on the third Business Day after the Preferred
Shares Basic Maintenance Cure Date with respect to such Valuation Date, the
Trust shall complete and deliver to Moody's and the Auction Agent (if Moody's is
then rating the Preferred Shares) a Preferred Shares Basic Maintenance Report as
of the date of such failure or such Preferred Shares Basic Maintenance Cure
Date, as the case may be, which will be deemed to have been delivered to the
Auction Agent if the Auction Agent receives a copy or telecopy, telex or other
electronic transcription thereof and on the same day the Trust mails to the
Auction Agent for delivery on the next
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Business Day the full Preferred Shares Basic Maintenance Report. The Trust shall
also deliver a Preferred Shares Basic Maintenance Report to (i) the Auction
Agent (if Moody's is then rating the Preferred Shares) as of (A) the fifteenth
day of each month (or, if such day is not a Business Day, the next succeeding
Business Day) and (B) the last Business Day of each month and (ii) Moody's (if
Moody's is then rating the Preferred Shares) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day. A failure by
the Trust to deliver a Preferred Shares Basic Maintenance Report pursuant to the
preceding sentence shall be deemed to be delivery of a Preferred Shares Basic
Maintenance Report indicating the Discounted Value for all assets of the Trust
is less than the Preferred Shares Basic Maintenance Amount, as of the relevant
Valuation Date.
(c) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7 relating to a Quarterly Valuation Date, the Trust shall cause the Independent
Accountant to confirm in writing to Moody's and the Auction Agent (if Moody's is
then rating the Preferred Shares) (i) the mathemat ical accuracy of the
calculations reflected in such Report (and in any other Preferred Shares Basic
Maintenance Report, randomly selected by the Independent Accountant, that was
prepared by the Trust during the quarter ending on such Quarterly Valuation
Date), (ii) that, in such Report (and in such randomly selected Report), the
Trust determined in accordance with this Statement whether the Trust had, at
such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), Moody's Eligible Assets (if Moody's is then rating
the Preferred Shares) of an aggregate Discounted Value at least equal to the
Preferred Shares Basic Mainte nance Amount (such confirmation being herein
called the "Accountant's Confirmation"), (iii) that, in such Report (and in such
randomly selected Report), the Trust determined whether the Trust had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with this Statement, Moody's Eligible Assets of
an aggregate Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount, (iv) with respect to the S&P ratings on Municipal
Obligations, the issuer name, issue size and coupon rate listed in such Report,
that the Independent Accountant has sought to verify by reference to Bloomberg
Financial Services or another independent source approved in writing by Moody's,
and the Independent Accountant shall provide a listing in its letter of any
differences, (v) with respect to the Moody's ratings on Municipal Obligations,
the issuer name, issue size and coupon rate listed in such Report, that the
Independent Accountant has sought to verify by reference to Bloomberg Financial
Services or another independent source approved in writing by Moody's, and the
Independent Accountant shall provide a listing in its letter of any differences,
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculat ing the Market Value) provided by the custodian of the
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's, that the
Trust has satisfied the requirements of Section 13 of Appendix A to this
Statement (such information is herein called the "Accountant's Confirmation").
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(d) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7 relating to any Valuation Date on which the Trust failed to satisfy the
Preferred Shares Basic Maintenance Amount, and relating to the Preferred Shares
Basic Maintenance Cure Date with respect to such failure to satisfy the
Preferred Shares Basic Maintenance Amount, the Trust shall cause the Independent
Accountant to provide to Moody's and the Auction Agent (if Moody's is then
rating the Preferred Shares) an Accountant's Confirmation as to such Preferred
Shares Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c)
or (d) of this Section 7 shows that an error was made in the Preferred Shares
Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all Moody's Eligible Assets (if
Moody's is then rating the Preferred Shares), as the case may be, of the Trust
was determined by the Independent Accountant, the calculation or determination
made by such Independent Accountant shall be final and conclusive and shall be
binding on the Trust, and the Trust shall accordingly amend and deliver the
Preferred Shares Basic Maintenance Report to Moody's and the Auction Agent (if
Moody's is then rating the Preferred Shares) promptly following receipt by the
Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any Preferred Shares, the Trust shall
complete and deliver to Moody's (if Moody's is then rating the Preferred Shares)
a Preferred Shares Basic Maintenance Report as of the close of business on such
Date of Original Issue.
(g) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Trust shall have redeemed Common Shares or (ii) the ratio
of the Discounted Value of Moody's Eligible Assets to the Preferred Shares Basic
Maintenance Amount is less than or equal to 105%, the Trust shall complete and
deliver to Moody's (if Moody's is then rating the Preferred Shares) a Preferred
Shares Basic Maintenance Report as of the date of either such event or (iii)
whenever requested by Moody's.
8. RESERVED
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON SHARES OTHER THAN THE PREFERRED SHARES. Except as set
forth in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of shares of beneficial
interest of the Trust ranking, as to the payment of dividends, on a parity with
the Preferred Shares for any period unless full cumulative dividends have been
or contemporaneously are declared and paid on the shares of each series of the
Preferred Shares through its most recent Dividend Payment Date. When dividends
are not paid in full upon the shares of each series of the Preferred Shares
through its
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most recent Dividend Payment Date or upon the shares of any other class or
series of shares of beneficial interest of the Trust ranking on a parity as to
the payment of dividends with the Preferred Shares through their most recent
respective dividend payment dates, all dividends declared upon the Preferred
Shares and any other such class or series of shares of beneficial interest
ranking on a parity as to the payment of dividends with Preferred Shares shall
be declared pro rata so that the amount of dividends declared per share on
Preferred Shares and such other class or series of shares of beneficial interest
shall in all cases bear to each other the same ratio that accumulated dividends
per share on the Trust and such other class or series of shares of beneficial
interest bear to each other (for purposes of this sentence, the amount of
dividends declared per share of Preferred Shares shall be based on the
Applicable Rate for such share for the Dividend Periods during which dividends
were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES UNDER
THE 1940 ACT. The Board of Trustees shall not declare any dividend (except a
dividend payable in Common Shares), or declare any other distribution, upon the
Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (or such other asset coverage as may in the future be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are
shares or stock of a closed-end investment company as a condition of declaring
dividends on its common shares or stock) after deducting the amount of such
dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long
as any Preferred Shares are outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the
Trust shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the Preferred Shares as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Shares or any other shares of the Trust
ranking junior to or on a parity with the Preferred Shares as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Trust ranking junior to the
Preferred Shares as to the payment of dividends and the distribution of assets
upon dissolution, liquidation or winding up), or any such parity shares (except
by conversion into or exchange for shares of the Trust ranking junior to or on a
parity with Preferred Shares as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up), unless (i) full
cumulative dividends on shares of each series of Preferred Shares through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Trust has redeemed the full number of Preferred Shares
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Trust shall
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not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or in options,
warrants or rights to subscribe for or purchase, Common Shares or other shares,
if any, ranking junior to Preferred Shares as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up) in
respect of Common Shares or any other shares of the Trust ranking junior to
Preferred Shares as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the
Trust ranking junior to Preferred Shares as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless
immediately after such transaction the Discounted Value of Moody's Eligible
Assets (if Moody's is then rating the Preferred Shares) would at least equal the
Preferred Shares Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any Preferred Shares are outstanding and Moody's is rating
such shares, the Trust will not, unless it has received written confirmation
from Moody's that any such action would not impair the rating then assigned by
such rating agency to such shares, engage in any one or more of the following
transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Trust may, without obtaining the written
confirmation described above, borrow money for the purpose of clearing
securities transactions if (i) the Preferred Shares Basic Maintenance Amount
would continue to be satisfied after giving effect to such borrowing and (ii)
such borrowing (A) is privately arranged with a bank or other person and is
evidenced by a promissory note or other evidence of indebtedness that is not
intended to be publicly distributed or (B) is for "temporary purposes," is
evidenced by a promissory note or other evidence of indebtedness and is in an
amount not exceeding 5 per centum of the value of the total assets of the Trust
at the time of the borrowing; for purposes of the foregoing, "tempo rary
purpose" means that the borrowing is to be repaid within sixty days and is not
to be extended or renewed;
(c) issue additional shares of any series of Preferred Shares or any class
or series of shares ranking prior to or on a parity with Preferred Shares with
respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the Trust, or reissue any Preferred
Shares previously purchased or redeemed by the Trust;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
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(g) change the pricing service (currently Muller Data Corporation)
referred to in the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) Subject to the provisions of subparagraph (v) of this
paragraph (a), Preferred Shares of any series may be redeemed, at the
option of the Trust, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series,
out of funds legally available therefor, at a redemption price per share
equal to the sum of $25,000 plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; provided, however, that (1)
shares of a series of Preferred Shares may not be redeemed in part if after
such partial redemption fewer than 300 shares of such series remain
outstanding; (2) unless otherwise provided in Section 11 of Appendix A
hereto, shares of a series of Preferred Shares are redeemable by the Trust
during the Initial Rate Period thereof only on the second Business Day next
preceding the last Dividend Payment Date for such Initial Rate Period; and
(3) subject to subparagraph (ii) of this paragraph (a), the Notice of
Special Rate Period relating to a Special Rate Period of shares of a series
of Preferred Shares, as delivered to the Auction Agent and filed with the
Secretary of the Trust, may provide that shares of such series shall not be
redeemable during the whole or any part of such Special Rate Period (except
as provided in subparagraph (iv) of this paragraph a)) or shall be redeem
able during the whole or any part of such Special Rate Period only upon
payment of such redemption premium or premiums as shall be specified
therein ("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a
series of Preferred Shares for a Special Rate Period thereof may contain
Special Redemption Provisions only if the Trust's Board of Trustees, after
consultation with the Broker-Dealer or Broker-Dealers for such Special Rate
Period of shares of such series, determines that such Special Redemption
Provisions are in the best interest of the Trust.
(iii) If fewer than all of the outstanding shares of a series of
Preferred Shares are to be redeemed pursuant to subparagraph (i) of this
paragraph (a), the number of shares of such series to be redeemed shall be
determined by the Board of Trustees, and such shares shall be redeemed pro
rata from the Holders of shares of such series in proportion to the number
of shares of such series held by such Holders.
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(iv) Subject to the provisions of subparagraph (v) of this
paragraph (a), shares of any series of Preferred Shares may be redeemed, at
the option of the Trust, as a whole but not in part, out of funds legally
available therefor, on the first day following any Dividend Period thereof
included in a Rate Period consisting of more than 364 Rate Period Days if,
on the date of determination of the Applicable Rate for shares of such
series for such Rate Period, such Applicable Rate equaled or exceeded on
such date of determination the Treasury Note Rate for such Rate Period, at
a redemption price per share equal to the sum of $25,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption.
(v) The Trust may not on any date mail a Notice of Redemption
pursuant to para graph (c) of this Section 11 in respect of a redemption
contemplated to be effected pursuant to this paragraph (a) unless on such
date (a) the Trust has available Deposit Securities with maturity or tender
dates not later than the day preceding the applicable redemption date and
having a value not less than the amount (including any applicable premium)
due to Holders of Preferred Shares by reason of the redemption of such
shares on such redemption date and (b) the Discounted Value of Moody's
Eligible Assets (if Moody's is then rating the Preferred Shares) at least
equals the Preferred Shares Basic Maintenance Amount, and would at least
equal the Preferred Shares Basic Maintenance Amount immediately subsequent
to such redemption if such redemption were to occur on such date. For
purposes of determining in clause (b) of the preceding sentence whether the
Discounted Value of Moody's Eligible Assets at least equals the Preferred
Shares Basic Maintenance Amount, the Moody's Discount Factors applicable to
Moody's Eligible Assets shall be determined by reference to the first
Exposure Period longer than the Exposure Period then applicable to the
Trust, as described in the definition of Moody's Discount Factor herein.
(b) MANDATORY REDEMPTION. The Trust shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the Preferred Shares, if the Trust
fails to have either Moody's Eligible Assets with a Discounted Value greater
than or equal to the Preferred Shares Basic Maintenance Amount or fails to
maintain the 1940 Act Preferred Shares Asset Coverage, in accordance with the
requirements of the rating agency or agencies then rating the Preferred Shares,
and such failure is not cured on or before the Preferred Shares Basic
Maintenance Cure Date or the 1940 Act Cure Date, as the case may be. The number
of Preferred Shares to be redeemed shall be equal to the lesser of (i) the
minimum number of Preferred Shares, together with all other preferred shares
subject to redemption or retirement, the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the Cure Date, would
have resulted in the Trust's having Moody's Eligible Assets with a Discounted
Value greater than or equal to the Preferred Shares
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Basic Maintenance Amount or maintaining the 1940 Act Preferred Shares Asset
Coverage, as the case may be, on such Cure Date (provided, however, that if
there is no such minimum number of Preferred Shares and other preferred shares
the redemption or retirement of which would have had such result, all Preferred
Shares and other Preferred Shares then outstanding shall be redeemed), and (ii)
the maximum number of Preferred Shares, together with all other Preferred Shares
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor in accordance with the Declaration and
applicable law. In determining the Preferred Shares required to be redeemed in
accordance with the foregoing, the Trust shall allocate the number required to
be redeemed to satisfy the Preferred Shares Basic Maintenance Amount or the 1940
Act Preferred Shares Asset Coverage, as the case may be, pro rata among
Preferred Shares and other preferred shares (and, then, pro rata among each
series of Preferred Shares) subject to redemption or retirement. The Trust shall
effect such redemption on the date fixed by the Trust therefor, which date shall
not be earlier than 20 days nor later than 40 days after such Cure Date, except
that if the Trust does not have funds legally available for the redemption of
all of the required number of the Preferred Shares and other preferred shares
which are subject to redemption or retirement or the Trust otherwise is unable
to effect such redemption on or prior to 40 days after such Cure Date, the Trust
shall redeem those Preferred Shares and other preferred shares which it was
unable to redeem on the earliest practicable date on which it is able to effect
such redemption. If fewer than all of the outstanding shares of a series of
Preferred Shares are to be redeemed pursuant to this paragraph (b), the number
of shares of such series to be redeemed shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Trust shall determine or be required to
redeem shares of a series of Preferred Shares pursuant to paragraph (a) or (b)
of this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
record books of the Trust on the record date established by the Board of
Trustees. Such Notice of Redemption shall be so mailed not less than 20 nor more
than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of Preferred
Shares to be redeemed and the series thereof; (iii) the CUSIP number for shares
of such series; (iv) the Redemption Price; (v) the place or places where the
certificate(s) for such shares (properly endorsed or assigned for transfer, if
the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of Preferred Shares
held by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Trust may provide in any Notice of Redemption relating to
a redemption contemplated to be effected pursuant to paragraph (a) of this
Section 11 that such redemption is subject to one or more conditions precedent
and that the Trust shall not be required to effect such redemption unless each
such condition shall
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have been satisfied at the time or times and in the manner specified in such
Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of Preferred Shares (whether or not earned or declared) are
in arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Trust shall not
purchase or otherwise acquire any shares of such series; provided, however, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem
Preferred Shares shall be deemed to exist at any time after the date specified
for redemption in a Notice of Redemption when the Trust shall have failed, for
any reason whatsoever, to deposit in trust with the Auction Agent the Redemption
Price with respect to any shares for which such Notice of Redemption has been
mailed; provided, however, that the foregoing shall not apply in the case of the
Trust's failure to deposit in trust with the Auction Agent the Redemption Price
with respect to any shares where (1) the Notice of Redemption relating to such
redemption provided that such redemption was subject to one or more conditions
precedent and (2) any such condition precedent shall not have been satisfied at
the time or times and in the manner specified in such Notice of Redemption.
Notwithstanding the fact that the Trust may not have redeemed Preferred Shares
for which a Notice of Redemption has been mailed, dividends may be declared and
paid on Preferred Shares and shall include those Preferred Shares for which a
Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for payment of the Redemption Price of Preferred
Shares called for redemption shall be held in trust by the Auction Agent for the
benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the Preferred Shares that are the subject of such notice,
dividends on such shares shall cease to accumulate and such shares shall no
longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as
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provided in subparagraph (e)(i) of Section 2 of this Part I and in Section 3 of
this Part I. Upon surrender in accordance with the Notice of Redemption of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Trustees shall so require and the Notice of Redemption
shall so state), the Redemption Price shall be paid by the Auction Agent to the
Holders of Preferred Shares subject to redemption. In the case that fewer than
all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued, representing the unredeemed shares, without cost to
the Holder thereof. The Trust shall be entitled to receive from the Auction
Agent, promptly after the date fixed for redemption, any cash deposited with the
Auction Agent in excess of (i) the aggregate Redemption Price of the Preferred
Shares called for redemption on such date and (ii) all other amounts to which
Holders of Preferred Shares called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Trust, after which time
the Holders of Preferred Shares so called for redemption may look only to the
Trust for payment of the Redemption Price and all other amounts to which they
may be entitled. The Trust shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant
to this Section 11, the Trust shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and any applicable Delaware law, but shall effect no redemption except in
accordance with the 1940 Act and any applicable Delaware law.
(i) ONLY WHOLE PREFERRED SHARES MAY BE REDEEMED. In the case of any
redemption pursuant to this Section 11, only whole Preferred Shares shall be
redeemed, and in the event that any provision of the Declaration would require
redemption of a fractional share, the Auction Agent shall be authorized to round
up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of Preferred Shares shall rank on a
parity with each other, with shares of any other series of preferred shares and
with shares of any other series of Preferred Shares as to the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Trust.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Trust, whether voluntary or involuntary, the
Holders of Preferred Shares then outstanding shall be entitled to receive and to
be paid out of the assets of the Trust available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Shares or on any other class of shares of the Trust ranking junior to the
Preferred Shares upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Prefer ence with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final distribution in
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same day funds, together with any payments required to be made pursuant to
Section 3 of this Part I in connection with the liquidation of the Trust. After
the payment to the Holders of the Preferred Shares of the full preferential
amounts provided for in this paragraph (b), the Holders of Preferred Shares as
such shall have no right or claim to any of the remaining assets of the Trust.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Trust
available for distribution to the Holders of Preferred Shares upon any
dissolution, liquidation, or winding up of the affairs of the Trust, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to paragraph (b) of this Section 12, no
such distribution shall be made on account of any shares of any other class or
series of preferred shares ranking on a parity with the Preferred Shares with
respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the Preferred Shares, ratably, in proportion to the full distributable amounts
for which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
Preferred Shares with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Trust, after payment shall have
been made in full to the Holders of the Preferred Shares as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of shares ranking junior to the Preferred Shares with respect
to the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the Holders of the Preferred Shares shall not be
entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all
or substantially all the property or business of the Trust, nor the merger or
consolidation of the Trust into or with any business trust or corporation nor
the merger or consolidation of any business trust or corporation into or with
the Trust shall be a dissolution, liquidation or winding up, whether voluntary
or involuntary, for the purposes of this Section 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Trustees
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amend ments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this Statement without
shareholder approval or (2) add additional series of Preferred Shares or
additional shares of a series of Preferred Shares (and terms relating thereto)
to the series and
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Preferred Shares theretofore described thereon. Each such additional series and
all such additional shares shall be governed by the terms of this Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of Preferred Shares shall
be issued.
(d) STATUS OF PREFERRED SHARES REDEEMED, EXCHANGED OR OTHER WISE ACQUIRED
BY THE TRUST. Preferred Shares which are redeemed, exchanged or otherwise
acquired by the Trust shall return to the status of authorized and unissued
preferred shares without designation as to series.
(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of Preferred
Shares prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified in
the By-Laws of the Trust or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
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PART II.
1. ORDERS.
(a) Prior to the Submission Deadline on each Auction Date for shares of a
series of Preferred Shares:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable
Rate for shares of such series for the next succeeding Rate
Period of such shares;
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
offers to sell if the Applicable Rate for shares of such series
for the next succeeding Rate Period of shares of such series
shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of
such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Beneficial Owners (by telephone or other wise), including
Persons that are not Beneficial Owners, on such lists to determine the
number of shares, if any, of such series which each such Potential
Beneficial Owner offers to purchase if the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of such
series shall not be less than the rate per annum specified by such
Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i) (A), (i) (B), (i) (C) or
(ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the
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Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively
as "Hold Orders"; an Order containing the information referred to in clause
(i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and
collectively as "Bids"; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order"
and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of Preferred Shares subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such
series determined on such Auction Date shall be less than the
rate specified therein;
(B) such number or a lesser number of Outstanding shares of
such series to be determined as set forth in clause (iv) of
paragraph (a) of Section 4 of this Part II if the Applicable Rate
for shares of such series determined on such Auction Date shall
be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series
specified in such Bid if the rate specified therein shall be
higher than the Maximum Rate for shares of such series, or such
number or a lesser number of Outstanding shares of such series to
be determined as set forth in clause (iii) of paragraph (b) of
Section 4 of this Part II if the rate specified therein shall be
higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of
a series of Preferred Shares subject to an Auction on any Auction Date
shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (iii) of paragraph (b) of
Section 4 of this Part II if Sufficient Clearing Bids for shares
of such series do not exist; provided, however, that a Broker-
Dealer that is an Existing Holder with respect to shares of a
series of Preferred Shares shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in
the proviso to paragraph (c) of Section 2 of this Part II if (1)
such shares
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were transferred by the Beneficial Owner thereof without
compliance by such Beneficial Owner or its transferee Broker-
Dealer (or other transferee person, if permitted by the Trust)
with the provisions of Section 7 of this Part II or (2) such
Broker-Dealer has informed the Auction Agent pursuant to the
terms of its Broker-Dealer Agreement that, according to such
Broker-Dealer's records, such Broker-Dealer believes it is not
the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of shares
of a series of Preferred Shares subject to an Auction on any Auction
Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such
series determined on such Auction Date shall be higher than the
rate specified therein; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (v) of paragraph (a) of
Section 4 of this Part II if the Applicable Rate for shares of
such series determined on such Auction Date shall be equal to
the rate specified therein.
(C) No Order for any number of Preferred Shares other than whole shares
shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders for Preferred Shares
of a series subject to an Auction on such Auction Date obtained by such Broker-
Dealer, designating itself (unless otherwise permitted by the Trust) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-
Dealer unless otherwise permitted by the Trust);
(ii) the aggregate number of shares of such series that are the subject of
such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares of such
series:
(A) the number of shares, if any, of such series subject to
any Hold Order of such Existing Holder;
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(B) the number of shares, if any, of such series subject to
any Bid of such Existing Holder and the rate specified in such
Bid; and
(C) the number of shares, if any, of such series subject to
any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding Preferred Shares
of a series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to
have been submitted by or on behalf of such Existing Holder covering the number
of Outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent; provided, however, that if an
Order or Orders covering all of the Outstanding shares of such series held by
any Existing Holder is not submitted to the Auction Agent prior to the
Submission Deadline for an Auction relating to a Special Rate Period consisting
of more than 28 Rate Period Days, the Auction Agent shall deem a Sell Order to
have been submitted by or on behalf of such Existing Holder covering the number
of outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
Preferred Shares of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered valid,
but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if
the number of shares of such series subject to such Hold Orders
exceeds the number of Outstanding shares of such series held by such
Existing Holder, the number of shares subject to each such Hold Order
shall be reduced pro rata to cover the number of Outstanding shares of
such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up to
and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares of such
series subject to any Hold Orders referred to in clause (i) above;
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(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and including
the amount of such excess, and the number of shares of such
series subject to each Bid with the same rate shall be reduced
pro rata to cover the number of shares of such series equal to
such excess;
(C) subject to subclauses (A) and (B), if more than one Bid
of an Existing Holder for shares of such series is submitted to
the Auction Agent with different rates, such Bids shall be
considered valid in the ascending order of their respective rates
up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids
considered not valid in whole or in part under this clause (ii)
shall be treated as the subject of a Bid for shares of such
series by or on behalf of a Potential Holder at the rate therein
specified; and
(iii) all Sell Orders for shares of such series shall be considered valid
up to and including the excess of the number of Outstanding shares of
such series held by such Existing Holder over the sum of shares of
such series subject to valid Hold Orders referred to in clause (i)
above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of Preferred
Shares is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE
RATE.
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Preferred Shares, the Auction Agent shall assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to
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individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
Order," as the case may be, or as a "Submitted Order" and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the
case may be, or as "Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over the
number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
Preferred Shares" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject
to Submitted Bids of Potential Holders specifying one or more
rates equal to or lower than the Maximum Rate for shares of such
series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject
to Submitted Bids of Existing Holders specifying one or more
rates higher than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject
to Submitted Sell Orders
(in the event such excess or such equality exists (other than because
the number of shares of such series in subclauses (B) and (C) above is
zero because all of the Outstanding shares of such series are subject
to Submitted Hold Orders), such Submitted Bids in subclause (A) above
being hereinafter referred to collectively as "Sufficient Clearing
Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate"
for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were accepted;
AA-48
<PAGE>
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in
subclause (B) above, would equal not less than the Available Preferred
Shares of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Trust of
the Maximum Rate for shares of the series of Preferred Shares for which an
Auction is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that
the Applicable Rate for all shares of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid
Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist
(other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), that the Applicable Rate for
all shares of such series for the next succeeding Rate Period
thereof shall be equal to the Maximum Rate for shares of such
series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of
such series for the next succeeding Rate Period thereof shall be
as set forth in Section 12 of Appendix A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES.
Existing Holders shall continue to hold the Preferred Shares that are
subject to Submitted Hold Orders, and, based on the determinations made pursuant
to paragraph (a) of Section 3 of this Part II, the Submitted Bids and Submitted
Sell Orders shall be accepted or rejected by the Auction Agent and the Auction
Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of Preferred Shares
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying
any rate that is higher than the Winning Bid Rate for shares of such
series shall be accepted,
AA-49
<PAGE>
thus requiring each such Existing Holder to sell the Preferred Shares
subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the Preferred Shares subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to
continue to hold the Preferred Shares subject to such Submitted Bid,
unless the number of Outstanding Preferred Shares subject to all such
Submitted Bids shall be greater than the number of Preferred Shares
("remaining shares") in the excess of the Available Preferred Shares
of such series over the number of Preferred Shares subject to
Submitted Bids described in clauses (ii) and (iii) of this paragraph
(a), in which event such Submitted Bid of such Existing Holder shall
be rejected in part, and such Existing Holder shall be entitled to
continue to hold Preferred Shares subject to such Submitted Bid, but
only in an amount equal to the number of Preferred Shares of such
series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding
Preferred Shares held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding Preferred Shares subject to such Submitted Bids
made by all such Existing Holders that specified a rate equal to the
Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the
number of shares of such series obtained by multiplying the number of
shares in the excess of the Available Preferred Shares of such series
over the number of Preferred Shares subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a
fraction, the numerator of which shall be the number of Outstanding
Preferred Shares subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding Preferred Shares
subject to such Submitted Bids made by all such Potential Holders that
specified a rate equal to the Winning Bid Rate for shares of such
series.
AA-50
<PAGE>
(b) If Sufficient Clearing Bids for shares of a series of Preferred Shares
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate
for shares of such series shall be rejected, thus entitling such
Existing Holders to continue to hold the Preferred Shares subject to
such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of
such series and the Submitted Sell Orders for shares of such series of
each Existing Holder shall be accepted, thus entitling each Existing
Holder that submitted or on whose behalf was submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such
series subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of shares of such
series obtained by multiplying the number of shares of such series
subject to Submitted Bids de scribed in clause (ii) of this paragraph
(b) by a fraction, the numerator of which shall be the number of
Outstanding shares of such series held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate number of Outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of Preferred Shares are
subject to Submit ted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of Preferred
Shares on any Auction Date, the Auction Agent shall, in such manner as it shall
determine in its sole discretion, round up or down the number of Preferred
Shares of such series to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date as a result of such procedures so that the
number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole Preferred Shares.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share
AA-51
<PAGE>
of a series of Preferred Shares on any Auction Date, the Auction Agent shall, in
such manner as it shall determine in its sole discretion, allocate Preferred
Shares of such series for purchase among Potential Holders so that only whole
shares of Preferred Shares of such series are purchased on such Auction Date as
a result of such procedures by any Potential Holder, even if such allocation
results in one or more Potential Holders not purchasing Preferred Shares of such
series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
Preferred Shares, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, Preferred Shares of such series.
Notwithstanding any provision of the Auction Procedures to the contrary, in the
event an Existing Holder or Beneficial Owner of a series of Preferred Shares
with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for
such shares that was accepted in whole or in part, or submitted or is deemed to
have submitted a Sell Order for such shares that was accepted in whole or in
part, fails to instruct its Agent Member to deliver such shares against payment
therefor, partial deliveries of Preferred Shares that have been made in respect
of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares
of such series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver Preferred Shares of any series
or to pay for Preferred Shares of any series sold or purchased pursuant to the
Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS.
Whenever the Trust intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on Preferred Shares, the
Trust may, but shall not be required to, notify the Auction Agent of the amount
to be so included not later than the Dividend Payment Date next preceding the
Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Trust, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its Beneficial Owners and Potential Beneficial Owners of Preferred
Shares believed by it to be interested in submitting an Order in the Auction to
be held on such Auction Date.
AA-52
<PAGE>
6. AUCTION AGENT.
For so long as any Preferred Shares are outstanding, the Auction Agent,
duly appointed by the Trust to so act, shall be in each case a commercial bank,
trust company or other financial institution independent of the Trust and its
affiliates (which however, may engage or have engaged in business transactions
with the Trust or its affiliates) and at no time shall the Trust or any of its
affiliates act as the Auction Agent in connection with the Auction Procedures.
If the Auction Agent resigns or for any reason its appointment is terminated
during any period that any Preferred Shares are outstanding, the Board of
Trustees shall use its best efforts promptly thereafter to appoint another
qualified commercial bank, trust company or financial institution to act as the
Auction Agent. The Auction Agent's registry of Existing Holders of a series of
Preferred Shares shall be conclusive and binding on the Broker-Dealers. A
Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on the Business
Day preceding an Auction for a series of Preferred Shares and 9:30 a.m. on the
Auction Date for such Auction to ascertain the number of shares of such series
in respect of which the Auction Agent has determined such Broker-Dealer to be an
Existing Holder. If such Broker-Dealer believes it is the Existing Holder of
fewer shares of such series than specified by the Auction Agent in response to
such Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent
of that belief. Such Broker-Dealer shall not, in its capacity as Existing
Holder of shares of such series, submit Orders in such Auction in respect of
shares of such series covering in the aggregate more than the number of shares
of such series specified by the Auction Agent in response to such Broker-
Dealer's inquiry.
7. TRANSFER OF PREFERRED SHARES.
Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing
Holder may sell, transfer or otherwise dispose of Preferred Shares only in whole
shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in
accordance with the procedures described in this Part II or to a Broker-Dealer;
provided, however, that (a) a sale, transfer or other disposition of Preferred
Shares from a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such shares to that Broker-Dealer or another
customer of that Broker-Dealer shall not be deemed to be a sale, transfer or
other disposition for purposes of this Section 7 if such Broker-Dealer remains
the Existing Holder of the shares so sold, transferred or disposed of
immediately after such sale, transfer or disposition and (b) in the case of all
transfers other than pursuant to Auctions, the Broker-Dealer (or other Person,
if permitted by the Trust) to whom such transfer is made shall advise the
Auction Agent of such transfer.
8. GLOBAL CERTIFICATE.
Prior to the commencement of a Voting Period, (i) all of the shares of a
series of Preferred Shares outstanding from time to time shall be represented by
one global certificate registered in the name of the Securities Depository or
its nominee and (ii) no registration of
AA-53
<PAGE>
transfer of shares of a series of Preferred Shares shall be made on the books of
the Trust to any Person other than the Securities Depository or its nominee.
IN WITNESS WHEREOF, THE BLACKROCK STRATEGIC MUNICIPAL TRUST, has caused
these presents to be signed on , 1999 in its name and on its behalf by its
President and attested by its [Assistant Secretary]. Said officers of the Trust
have executed this Statement as officers and not individually, and the
obligations and rights set forth in this Statement are not binding upon any such
officers, or the trustees or shareholders of the Trust, individually, but are
binding only upon the assets and property of the Trust.
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC
MUNICIPAL TRUST
By:
----------------------------------
Name:
Title:
- --------------------------------------------------------------------------------
ATTEST:
-----------------------
Name:
Title:
- --------------------------------------------------------------------------------
[ ], 1999
AA-54
<PAGE>
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES $25,000: A series of 3,720 Preferred Shares, par value $.001 per
share, liquidation preference per share, is hereby designated "Municipal Auction
Rate Cumulative Preferred Shares, Series W." Each of the [ ] shares of
Series W Preferred Shares issued on [ ], 1999 shall, for purposes
hereof, be deemed to have a Date of Original Issue of [ ], 1999; have
an Applicable Rate for its Initial Rate Period equal to [ ]% per annum; have an
initial Dividend Payment Date of [ ], 1999; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Agreement and Declaration of
Trust applicable to Preferred Shares of the Trust, as set forth in Part I and
Part II of this Statement. Any shares of Series W Preferred Shares issued
thereafter shall be issued on the first day of a Rate Period of the then
outstanding shares of Series W Preferred Shares, shall have, for such Rate
Period, an Applicable Rate equal to the Applicable Rate for shares of such
series established in the first Auction for shares of such series preceding the
date of such issuance; and shall have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Agreement and Declaration of Trust applicable to Preferred Shares
of the Trust, as set forth in Part I and Part II of this Statement. The Series W
Preferred Shares shall constitute a separate series of Preferred Shares of the
Trust, and each share of Series W Preferred Shares shall be identical except as
provided in Section 11 of Part I of this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series W Preferred
Shares is 3,720.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading
"Definitions" in this Statement, the following terms shall have the following
meanings for purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
AAA-1
<PAGE>
"GROSS-UP PAYMENT" means payment to a Holder of Preferred Shares of an
amount which, when taken together with the aggregate amount of Taxable
Allocations made to such Holder to which such Gross-up Payment relates,
would cause such Holder's dividends in dollars (after Federal income tax
consequences) from the aggregate of such Taxable Allocations and the
related Gross-up Payment to be at least equal to the dollar amount of the
dividends which would have been received by such Holder if the amount of
such aggregate Taxable Allocations had been excludable from the gross
income of such Holder. Such Gross-up Payment shall be calculated (i)
without consideration being given to the time value of money; (ii) assuming
that no Holder of Preferred Shares is subject to the Federal alternative
minimum tax with respect to dividends received from the Trust; and (iii)
assuming that each Taxable Allocation and each Gross- up Payment (except to
the extent such Gross-up Payment is designated as an exempt-interest
dividend under Section 852(b)(5) of the Code or successor provisions) would
be taxable in the hands of each Holder of Preferred Shares at the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or net capital gain, as applicable, or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income or net
capital gain, as applicable, which ever is greater, in effect at the time
such Gross-up Payment is made.
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of deter mining
the Discounted Value of any Moody's Eligible Asset, the percentage
determined by reference to the rating on such asset and the shortest
Exposure Period set forth opposite such rating that is the same length as
or is longer than the Moody's Exposure Period, in accordance with the table
set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
RATING CATEGORY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exposure Period AAA AA* A* BAA* Other** (V)MIG-1*** SP-1+**** UNRATED
- --------------- *****
- ---------------------------------------------------------------------------------------------------
7 weeks ..................... 151% 159% 166% 173% 187% 136% 148% 225%
- ---------------------------------------------------------------------------------------------------
8 weeks or less but greater 154 161 168 176 190 137 149 231
then seven weeks ............
- ---------------------------------------------------------------------------------------------------
9 weeks or less but greater 156 163 170 177 192 138 150 240
than eight weeks ............
- ---------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or
have a demand feature at par exercisable in 30 days and which do not
have a long-term rating.
AAA-2
<PAGE>
**** Municipal Obligations not rated by Moody's but rated SP-1+ by S&P,
which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating.
***** Municipal Obligations rated less than Baa3 by Moody's or less than BBB
by S&P or not rated by Moody's or S&P.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for short-
term Municipal Obligations will be 115%, so long as such Municipal Obligations
are rated at least MIG-1, VMIG-l or P-1 by Moody's and mature or have a demand
feature at par exercisable in 30 days or less or 125% as long as such Municipal
Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a
demand feature at par exercisable in 30 days or less and (ii) no Moody's
Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash,
(ii) does not have its Moody's rating, as applicable, suspended by Moody's,
and (iii) is part of an issue of Municipal Obligations of at least
$10,000,000. Municipal Obligations issued by any one issuer and rated BBB
or lower by S&P, Ba or B by Moody's or not rated by S&P and Moody's ("Other
Securities") may comprise no more than 4% of total Moody's Eligible Assets;
such Other Securi ties, if any, together with any Municipal Obligations
issued by the same issuer and rated Baa by Moody's or A by S&P, may
comprise no more than 6% of total Moody's Eligible Assets; such Other
Securities, Baa and A-rated Municipal Obligations, if any, together with
any Municipal Obligations issued by the same issuer and rated A by Moody's
or AA by S&P, may comprise no more than 10% of total Moody's Eligible
Assets; and such Baa, A and AA-rated Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and rated
Aa by Moody's or AAA by S&P, may comprise no more than 20% of total Moody's
Eligible Assets. For purposes of the foregoing sentence, any Municipal
Obligation backed by the guaranty, letter of credit or insurance issued by
a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating
on such Municipal Obligation. Other Securities issued by issuers located
within a single state or territory may comprise no more than 12% of total
Moody's Eligible Assets; such Other Securities, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Baa by Moody's or A by S&P, may comprise no more than
20% of total Moody's Eligible Assets; such Other Securities, Baa and A-
rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory
and rated A by Moody's or AA by S&P, may comprise no more than 40% of total
AAA-3
<PAGE>
Moody's Eligible Assets; and such Other Securities, Baa, A and AA-rated
Munici pal Obligations, if any, together with any Municipal Obligations
issued by issuers located within the same state or territory and rated Aa
by Moody's or AAA by S&P, may comprise no more than 60% of total Moody's
Eligible Assets. For purposes of applying the foregoing requirements, a
Municipal Obligation shall be deemed to be rated BBB by S&P if rated BBB-,
BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated without
including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be
considered to have a long-term rating of A. When the Trust sells a
Municipal Obligation and agrees to repurchase such Municipal Obligation at
a future date, such Municipal Obligation shall be valued at its Discounted
Value for purposes of determining Moody's Eligible Assets, and the amount
of the repurchase price of such Municipal Obligation shall be included as a
liability for purposes of calculating the Preferred Basic Maintenance
Amount. When the Trust purchases a Moody's Eligible Asset and agrees to
sell it at a future date, such Eligible Asset shall be valued at the amount
of cash to be received by the Trust upon such future date, provided that
the counterparty to the transaction has a long-term debt rating of at least
A2 from Moody's and the transaction has a term of no more than 30 days,
otherwise such Eligible Asset shall be valued at the Discounted Value of
such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material lien,
mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Trust
will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (c) Liens to secure payment for services rendered or cash
advanced to the Trust by BlackRock Advisors, Inc., BlackRock Financial
Management, Inc., State Street Bank and Trust or the Auction Agent and (d) Liens
by virtue of any repurchase agreement; or (iii) deposited irrevocably for the
payment of any liabilities for purposes of determining the Preferred Shares
Basic Maintenance Amount.
"RATE MULTIPLE," for shares of a series of Preferred Shares on any
Auction Date for shares of such series, shall mean the percentage, determined as
set forth in the columns below (depending on whether the trust has notified the
Auction Agent of its intent to allocate income taxable for Federal income tax
purposes to shares of such series prior to the Auction establishing the
Applicable Rate for shares of such series as provided in this statement) based
on the prevailing rating of shares of such series in effect at the close of
business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PREVAILING RATING APPLICABLE PERCENTAGE APPLICABLE PERCENTAGE
--NO NOTIFICATION NOTIFICATION
- ---------------------------------------------------- -------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
"aa3"/AA-- or higher 110% 150%
- --------------------------------------------------------------------------------
"a3"/A-- 125% 160%
- --------------------------------------------------------------------------------
"baa3"/BBB-- 150% 250%
- --------------------------------------------------------------------------------
</TABLE>
AAA-4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
APPLICABLE PERCENTAGE APPLICABLE PERCENTAGE
PREVAILING RATING --NO NOTIFICATION NOTIFICATION
ssssssss----------------- --------------------- ---------------------
- --------------------------------------------------------------------------------------------
<S> <C> <C>
"ba3"/BB-- 200% 275%
- --------------------------------------------------------------------------------------------
Below "ba3"/BB-- 250% 300%
- --------------------------------------------------------------------------------------------
</TABLE>
For purposes of this definition, the "prevailing rating" of shares of a
series of Preferred Shares shall be (i) "aa3"/AA-- or higher if such shares have
a rating of "aa3" or better by Moody's and AA-- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA-- or
higher, then "a3"/A-- if such shares have a rating of "a3" or better by Moody's
and A-- or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA-- or higher or "a3"/A--, then "baa3"/BBB-- if such
shares have a rating of "baa3" or better by Moody's and BBB-- or better by S&P
or the equivalent of such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below, (iv) if not "aa3"/AA-
- - or higher, "a3"/A-- or "baa3"/BBB--, then "ba3"/BB-- if such shares have a
rating of "ba3" or better by Moody's and BB-- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, and (v) if not "aa3"/AA-- or higher,
"a3"/A--, "baa3"/BBB--, or "ba3"/BB--, then Below "ba3"/BB--; provided, however,
that if such shares are rated by only one rating agency, the prevailing rating
will be determined without reference to the rating of any other rating agency.
The Trust shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for the Preferred Shares. If neither S&P nor Moody's
shall make such a rating available, the party set forth in Section 7 of Appendix
A or its successor shall select one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of the series of Preferred Shares set forth opposite such party's name in
Section 7 of Appendix A and the Trust shall take all reasonable action to enable
such rating agency to provide a rating for such shares.
SECTION 5. INITIAL RATE PERIODS.
The Initial Rate Period for shares of Series W Preferred Shares
shall be the period from and including the Date of Original Issue thereof to but
excluding [ ], 1999.
AAA-5
<PAGE>
SECTION 6. DATE FOR PURPOSES OF THE DEFINITION OF QUARTERLY VALUATION DATE
CONTAINED UNDER THE HEADING "DEFINITIONS" IN THIS STATEMENT.
December [31], 1999
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN
THIS STATEMENT.
<TABLE>
<CAPTION>
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PARTY: SERIES OF PREFERRED SHARES
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<S> <C>
Salomon Smith Barney Series W
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</TABLE>
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of
Part I of this Statement, dividends shall be payable on shares of: Series W
Preferred Shares, for the Initial Rate Period on [ ], [ ], 1999, and on each [ ]
thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF PART I
OF THIS STATEMENT.
$62,000,000
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (b)(iii) OF SECTION
3 OF PART II OF THIS STATEMENT.
For purposes of subparagraph (b)(iii) of Section 3 of Part II of
this Statement, the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be equal to the lesser of
the Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
Days) or the product of (A) (I) the "AA" Composite Commercial Paper Rate on such
Auction Date for such Rate Period, if such Rate Period consists of fewer than
183 Rate Period Days; (II) the Treasury Bill Rate on such Auction Date for such
Rate Period, if such Rate Period consists of more than 182 but fewer than 365
Rate Period Days; or (III) the Treasury Note Rate on such Auction Date for such
Rate Period, if such Rate Period is more than 364 Rate
AAA-6
<PAGE>
Period Days (the rate described in the foregoing clause (A)(I), (II) or (III),
as applicable, being referred to herein as the "Benchmark Rate") and (B) 1 minus
the maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income, whichever is greater; provided, however,
that if the Trust has notified the Auction Agent of its intent to allocate to
shares of such series in such Rate Period any net capital gains or other income
taxable for Federal income tax purposes ("Taxable Income"), the Applicable Rate
for shares of such series for such Rate Period will be (i) if the Taxable Yield
Rate (as defined below) is greater than the Bench mark Rate, then the Benchmark
Rate, or (ii) if the Taxable Yield Rate is less than or equal to the Benchmark
Rate, then the rate equal to the sum of (x) the lesser of the Kenny Index (if
such Rate Period consists of fewer than 183 Rate Period Days) or the product of
the Benchmark Rate multiplied by the factor set forth in the preceding clause
(B) and (y) the product of the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax applicable to ordinary income, whichever is
greater, multiplied by the Taxable Yield Rate. For purposes of the foregoing,
Taxable Yield Rate means the rate determined by (a) dividing the amount of
Taxable Income available for distribution per such Preferred Shares by the
number of days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360 (in
the case of any other Dividend Period), and (c) dividing the amount determined
in (b) above by $25,000.
SECTION 13. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS
For so long as any Preferred Shares are rated by Moody's, the Trust will
not buy or sell futures contracts, write, purchase or sell call options on
futures contracts or purchase put options on futures contracts or write call
options (except covered call options) on portfolio securities unless it receives
written confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the Preferred Shares by Moody's, except that
the Trust may purchase or sell exchange-traded futures contracts based on the
Bond Buyer Municipal Bond Index (the "Municipal Index") or United States
Treasury Bonds or Notes ("Treasury Bonds"), and purchase, write or sell
exchange-traded put options on such futures contracts and purchase, write or
sell exchange-traded call options on such futures contracts (collectively,
"Moody's Hedging Transactions"), subject to the following limitations:
(i) the Trust will not engage in any Moody's Hedging Transaction based on
the Municipal Index (other than transactions which terminate a
futures contract or option held by the Trust by the Trust's taking an
opposite position thereto ("Clos ing Transactions")) which would
cause the Trust at the time of such transaction to own or have sold
(A) outstanding futures contracts based on the Municipal Index
exceeding in number 10% of the average number of daily traded futures
AAA-7
<PAGE>
contracts based on the Municipal Index in the 30 days preceding the
time of effecting such transaction as reported by the Wall Street
Journal or (B) outstanding futures contracts based on the Municipal
Index having a Market Value exceeding 50% of the Market Value of all
Municipal Bonds constituting Moody's Eligible Assets owned by the
Trust (other than Moody's Eligible Assets already subject to a
Moody's Hedging Transaction);
(ii) the Trust will not engage in any Moody's Hedging Transaction based
on Treasury Bonds (other than Closing Transactions) which would
cause the Trust at the time of such transaction to own or have sold
(A) outstanding futures contracts based on Treasury Bonds having an
aggregate Market Value exceeding 20% of the aggre gate Market Value
of Moody's Eligible Assets owned by the Trust and rated Aa by
Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by
S&P) or (B) outstanding futures contracts based on Treasury Bonds
having an aggregate Market Value exceeding 40% of the aggregate
Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Trust (other than Moody's Eligible Assets
already subject to a Moody's Hedging Transaction) and rated Baa or A
by Moody's (or, if not rated by Moody's but rated by S&P, rated A or
AA by S&P (for purpose of the foregoing clauses (i) and (ii), the
Trust shall be deemed to own the number of futures contracts that
underlie any outstanding options written by the Trust);
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract based on the Municipal Index if the
amount of open interest in the Municipal Index as reported by The
Wall Street Journal is less than 5,000;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding futures contract by no later than the fifth Business Day
of the month in which such contracts expires and will engage in a
Closing Transaction to close out any outstanding option on a futures
contract by no later than the first Business Day of the month in
which such option expires;
(v) the Trust will engage in Moody's Hedging Transaction only with
respect to futures contracts or options thereon having the next
settlement date of the settle ment date immediately thereafter;
(vi) the Trust will not engage in options and futures transactions for
leveraging or speculative purposes and will not write any call
options or sell any futures contracts for the purpose of hedging the
anticipated purchase of an asset prior to completion of such
purchase; and
(vii) the Trust will not enter into an option of futures transaction
unless, after giving effect thereto, the Trust would continue to
have Moody's Eligible Assets with an aggregate Discounted Value
equal to or greater than the Preferred Shares Basic Maintenance
Amount.
AAA-8
<PAGE>
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the Preferred
Shares Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Trust is obligated to deliver or receive pursuant to an outstanding
futures contract or option shall be as follows: (i) assets subject to call
options written by the Trust which are either exchange-traded and "readily
reversible" or which expire within 49 days after the date as of which such
valuation is made shall be valued at the lesser of (a) Discounted Value and (b)
the exercise price of the call option written by the Trust; (ii) assets subject
to call options written by the Trust not meeting the requirements of clause (i)
of this sentence shall have no value; (iii) assets subject to put options
written by the Trust shall be valued at the lesser of (A) the exercise price and
(B) the Discounted Value of the subject security; (iv) futures contracts shall
be valued at the lesser of (A) settlement price and (B) the Discounted Value of
the subject security, provided that, if a contract matures within 49 days after
the date as of which such valuation is made, where the Trust is the seller the
contract may be valued at the settlement price and where the Trust is the buyer
the contract may be valued at the Discounted Value of the subject securities;
and (v) where delivery may be made to the Trust with any security of a class of
securities, the Trust shall assume that it will take delivery of the security
with the lowest Discounted Value.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the following amounts shall be subtracted from the
aggregate Discounted Value of the Moody's Eligible Assets held by the Trust: (i)
10% of the exercise price of a written call option; (ii) the exercise price of
any written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust writes call options on a futures contract and does not own the
underlying contract.
(c) For so long as any Preferred Shares are rated by Moody's, the Trust
will not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions that are permitted under Section 13(b)
of this Statement), except that the Trust may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitation:
(i) the Trust will maintain in a segregated account with its custodian
cash, cash equivalents or short-term, fixed-income securities rated P-1, MTG-1
or VMIG-1 by Moody's and maturing prior to the date of the Forward Commitment
with a Market Value that equals or exceeds the amount of the Trust's obligations
under any Forward Commitments to which it is from time to time a party or long-
term fixed income securities with a Discounted Value that equals or exceeds
AAA-9
<PAGE>
the amount of the Trust's obligations under any Forward Commitment to which it
is from time to time a party; and
(ii) the Trust will not enter into a Forward Commitment unless, after
giving effect thereto, the Trust would continue to have Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the Preferred Shares
Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the Discounted Value of all Forward Commitments to
which the Trust is a party and of all securities deliverable to the Trust
pursuant to such Forward Commitments shall be zero.
AAA-10
<PAGE>
APPENDIX B
Ratings of Investments
Standard & Poor's Corporation--A brief description of the applicable Standard &
Poor's Corporation ("S&P") rating symbols and their meanings (as published by
S&P) follows:
A S&P's issue credit rating is a current opinion of the creditworthiness of
an obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program. This assessment may take
into consideration obligors such as guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated.
The debt rating is not a recommendation to purchase, sell, or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the obligors or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. Credit ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
Long-Term Issue Credit Ratings
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
Investment Grade
AAA An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated "AA" differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories.
BB-1
<PAGE>
However, the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection parameters. However,
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.
Speculative Grade Rating
Obligations rated "BB", "B", "CCC", "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment
on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to meet its financial commitment on the
obligation.
CC An obligation rated "CC" is currently highly vulnerability to nonpayment.
C A subordinated debt or preferred stock obligation rated "C" is currently
highly vulnerable to nonpayment. The "C" rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action
taken, but payments on this obligation are being continued. A "C" also will
be assigned to a preferred stock issue in arrears on dividends or sinking
fund payments, but that is currently paying.
D An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar
action if payments are jeopardized.
BB-2
<PAGE>
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The "c" subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the long-
term credit rating of the issuer is reduced below an investment grade level
and/or the issuer's bonds are deemed taxable.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming
investments and cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Municipal Notes
An S&P note rating reflects the liquidity factors and market access risks unique
to notes. Notes due in three years or less will likely receive a note rating.
Notes maturing beyond three years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current
BB-3
<PAGE>
information furnished to S&P by the issuer or obtained by S&P from other sources
it considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances.
Commercial Paper
An S&P commercial paper rating is a current opinion of the likelihood of timely
payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as vulnerable and having only speculative
capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
A commercial rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
Moody's Investors Service, Inc.--A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as
published by Moody's) follows:
BB-4
<PAGE>
Corporate Long-Term Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged". 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 are generally 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 characteris
tics 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 thereby 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 represent 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.
BB-5
<PAGE>
Con(...) Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed,
or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa to Caa in the corporate finance sectors. The modifier 1
indicates that the issuer is in the higher end of its letter rating
category; the modifier 2 indicates a mid-range ranking; the modifier 3
indicates that the issuer is in the lower end of the letter ranking
category.
Short-Term Loans
MIG 1/VMIG 1 This designation denotes best quality. There is strong protection
by estab lished cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. Liquidity and cash
flow protection may be narrow and market access for refinancing
is likely to be less well-established.
S.G. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
Commercial Paper
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
ability will normally be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
BB-6
<PAGE>
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Fitch IBCA, Inc.--A brief description of the applicable Fitch IBCA, Inc.
("Fitch") ratings symbols and meanings (as published by Fitch) follows:
Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
Speculative Grade
BB-7
<PAGE>
BB Speculative. 'BB' ratings indicate that there is a possibility
of credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.
B Highly speculative. 'B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity
for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A 'CC' rating
indicates that default of some kind appears probable. 'C'
ratings signal imminent default.
DDD, DD, and D Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
'DDD' obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest.
'DD' indicates potential recoveries in the range of 50%-90%, and
'D' the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated 'DDD' have the highest
prospect for resumption of performance or continued operation
with or without a formal reorganization process. Entities rated
'DD' and 'D' are generally undergoing a formal reorganization or
liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated 'D' have a poor prospect for repaying all obligations.
Short-Term Credit Ratings
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 Highest credit quality. Indicates the best capacity for timely payment of
financial commit ments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.
BB-8
<PAGE>
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in
a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D Default. Denotes actual or imminent payment default.
Notes:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the 'AAA' long-term rating
category, to categories below 'CCC', or to short-term ratings other than 'F1'.
'NR' indicates that Fitch IBCA does not rate the issuer or issue in question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is
a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
BB-9
<PAGE>
APPENDIX C
GENERAL CHARACTERISTICS AND RISKS
OF HEDGING TRANSACTIONS
In order to manage the risk of its securities portfolio, including
management, or to enhance income or gain as described in the prospectus, the
Trust will engage in Additional Investment Management Techniques. The Trust will
engage in such activities in the Adviser's discretion, and may not necessarily
be engaging in such activities when movements in interest rates that could
affect the value of the assets of the Trust occur. The Trust's ability to pursue
certain of these strategies may be limited by applicable regulations of the
CFTC. Certain Additional Investment Management Techniques may give rise to
taxable income.
Put and Call Options on Securities and Indices
The Trust may purchase and sell put and call options on securities and
indices. A put option gives the purchaser of the option the right to sell and
the writer the obligation to buy the underlying security at the exercise price
during the option period. The Trust may also purchase and sell options on bond
indices ("index options"). 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 options gives the holder the
right to receive cash upon exercise of the option if the level of the bond 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 could protect the Trust's holdings in a security or a
number of securities 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 or index at the exercise price during
the option period or for a specified period prior to a fixed date. The purchase
of a call option on a security could 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. Listed options are issued by the Options
Clearing Corporation ("OCC") which guarantees the performance of the obligations
of the parties to such options.
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 on option exchanges.
CC-1
<PAGE>
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 United States 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.
Futures Contracts and Related Options
Characteristics. The Trust may sell financial futures contracts or purchase
put and call options on such futures as a hedge against anticipated interest
rate changes or other market movements. 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 securities
or commodities 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 generally in the future by regulatory action. An
outstanding futures contract is valued daily and the payment in case 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
CC-2
<PAGE>
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 and Options on Futures. The Trust's use of
futures and options on futures will in all cases be consistent with applicable
regulatory requirements and in particular the rules and regulations of the CFTC.
Under such regulations the Trust currently may enter into such transactions
without limit for bona fide hedging purposes, including risk management and
duration management and other portfolio strategies. The Trust may also engage in
transactions in futures contracts or related options for non-hedging purposes to
enhance income or gain provided that the Trust will not enter into a futures
contract or related option (except for closing transactions) for purposes other
than bona fide hedging, or risk management including duration management 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
liquidation value, i.e., net 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 equivalents will be maintained and
marked to market on a daily basis in an amount equal to the market value of the
contract. The Trust reserves the right to comply with such different standard as
may be established from time to time by CFTC rules and regulations with respect
to the purchase or sale of futures contracts or options thereon.
Segregation and Cover Requirements. Futures contracts, interest rate swaps,
caps, floors and collars, short sales, reverse repurchase agreements and dollar
rolls, and listed or OTC options on securities, indices and futures contracts
sold by the Trust are generally subject to segregation and coverage requirements
of either the CFTC or the SEC, with the result that, if the Trust does not hold
the security or futures contract underlying the instrument, 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 fluctuate as the obligations increase or decrease. The segregation
requirement can result in the Trust maintaining securities positions it would
otherwise liquidate, segregating assets at a time when it might be
disadvantageous to do so or otherwise restrict portfolio management.
Additional Investment Management Techniques present certain risks. With
respect to hedging and risk management, 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 position. The same is true for
such instruments entered into for income or gain. In addition, certain
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 without
incurring losses substantially greater than the initial deposit. Although the
contemplated use of these instruments predominantly for hedging should tend to
minimize the risk of loss due to a decline in the value of the 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 successfully
utilize Additional Investment Management Techniques will depend on the Adviser's
ability to predict pertinent market movements and sufficient correlations, which
cannot be assured. Finally, the daily 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
CC-3
<PAGE>
to the cost of the initial premium. Losses due to the use of Additional
Investment Management Techniques will reduce net asset value.
CC-4
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(1) Financial Statements:
---------------------
Part A - Financial Highlights, For the period August 25, 1999 through
October 15, 1999 (Unaudited).
Part B - Report of Independent Accountants.
Statement of Assets and Liabilities
(Audited).
Statement of Operations (Audited).
Portfolio of Investments, As of October 15, 1999 (Unaudited).
Statement of Assets and Liabilities, As of October 15, 1999
(Unaudited).
Statement of Operations, For the period August 25, 1999
through October 15, 1999 (Unaudited).
Statement of Changes in Net Investment Assets, For the period
August 25, 1999 through October 15, 1999 (Unaudited).
Financial Highlights, For the period August 25, 1999 through
October 15, 1999 (Unaudited).
(2) Exhibits:
---------
(a)(1) Agreement and Declaration of Trust.1
(a)(2) Form of Statement of Preferences of Municipal Auction Rate
Cumulative Preferred Shares.
(b) By-Laws.1
(c) Inapplicable.
(d) Form of Specimen Certificate
(e) Form of Automatic Dividend Reinvestment Plan.3
(f) Inapplicable.
(g)(1) Form of Investment Management Agreement.3
(g)(2) Form of Sub-Advisory Agreement.3
(h)(1) Form of Underwriting Agreement.
(h)(2) Form of Master Agreement Among Underwriters.3
(i) Inapplicable
(j) Form of Custodian Agreement.3
(k)(1) Form of Registrar, Transfer Agency and Service Agreement.3
(k)(2) Form of Auction Agency Agreement.
(k)(3) Form of Broker-Dealer Agreement.
(k)(4) Form of DTC Agreement.
(l) Opinion and Consent of Counsel to the Trust.*
(m) Inapplicable.
(n) Consent of Independent Public Accountants.
(o) Inapplicable.
(p) Initial Subscription Agreement.2
(q) Inapplicable.
(r) Inapplicable.
(s) Power of Attorney.4
- -----------
1 Incorporated by reference to the Trust's Registration Statement on Form N-2
(File Nos. 333-81331 and 811-09401), filed on June 22, 1999.
C-1
<PAGE>
2 Incorporated by reference to Pre-Effective Amendment No. 1 to the Trust's
Registration Statement on Form N-2 (File Nos. 333-81331 and 811-09401), filed
on July 29, 1999.
3 Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust's
Registration Statement on Form N-2 (File Nos. 333-81331 and 811-09401), filed
on August 19, 1999.
4 Incorporated by reference to the Trust's Registration Statement on Form N-2
(File Nos. 333- 86589 and 811-09401), filed on September 3, 1999.
* To be filed by Amendment.
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for the Trust's
Preferred Shares 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.................................. $ 17,236
Printing and engraving (other than certificates)... 45,000*
Accounting fees and expenses....................... 2,500*
Legal fees and expenses............................ 65,000*
Rating agency fees................................. 20,000*
Miscellaneous...................................... 10,000*
Total......................................... $159,736*
* Estimated.
Item 27. Persons Controlled by or under Common Control with the Registrant
Not Applicable
Item 28. Number of Holders of Shares
Number of
Title of class Record Holders
- -------------- --------------
Common Shares, $.001 83
Preferred Shares, $.001 0
Item 29. Indemnification
Article V of the Registrant's Agreement and Declaration of Trust provides as
follows:
C-2
<PAGE>
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
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 (i) 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, (ii) in the absence of such a
decision, by (1) a majority vote of a quorum of those trustees who are neither
"interested persons" (as defined in Section 2(a)(19) of the Investment Company
Act of 1940 Act) nor parties to the proceeding ("Disinterested Non-Party
Trustees"), that the indemnitee is entitled to indemnification hereunder, or (2)
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: (i)the indemnitee shall
provide adequate security for his undertaking, (ii) the Trust shall be insured
against losses arising by reason of any lawful advances, or (iii) 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.
C-3
<PAGE>
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 Investment Company Act of 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 Trust, pursuant
to the foregoing provisions or otherwise, the Trust has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue. Reference is made to Section 8 of the underwriting
agreement attached as Exhibit (h)(1).
Item 30. Business and Other Connections of Investment Adviser
Reference is made to the current Form ADV filed under the Investment
Advisors Act of 1940 incorporated herein by reference for each of BlackRock
Advisors, Inc. and BlackRock Financial Management, Inc.
Item 31. Location of Accounts and Records
The Registrant's accounts, books and other documents are currently located
at the offices of the Registrant, co BlackRock Advisors, Inc., 345 Park Avenue,
New York, New York 10154 and at the offices of State Street Bank and Trust
Company, the Registrant's Custodian, Transfer Agent and Dividend Disbursing
Agent, 225 Franklin Street, Boston, Massachusetts 02110.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(1) The Registrant hereby undertakes to suspend the offering of its units
until it amends its prospectus if (a) 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
(b) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
(2) Not Applicable
(3) Not applicable
(4) Not applicable
(5) (a) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted form the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant under Rule 497 (h)
under the Securities Act of 1933 shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
C-4
<PAGE>
(b) For the purpose of determining any liability under the Securities
Act of 1933, 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.
(6) The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery within two business days of receipt
of a written or oral request, any statement of additional information.
C-5
<PAGE>
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 25th day
of October 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
25th day of October 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 Clayburn LaForce, Jr.*
- -------------------------------- Trustee
James Clayburn LaForce, Jr.
/s/ Walter F. Mondale*
- ------------------------- Trustee
Walter F. Mondale
/s/ Ralph L. Schlosstein*
- ------------------------- Trustee and President
Ralph L. Schlosstein (Principal Executive Officer)
/s/ Henry Gabbay*
- ------------------------- Treasurer (Principal
Henry Gabbay Financial and Accounting Officer)
By: /s/ Karen H. Sabath
______________________
Karen H. Sabath
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
-----------------
(a)(1) Agreement and Declaration of Trust.1
(a)(2) Form of Statement of Preferences of Municipal Auction Rate Cumulative
Preferred Shares.
(b) By-Laws.1
(c) Inapplicable.
(d) Form of Specimen Certificate.
(e) Form of Automatic Dividend Reinvestment Plan.1
(f) Inapplicable.
(g)(1) Form of Investment Management Agreement.1
(g)(2) Form of Sub-Advisory Agreement.1
(h)(1) Form of Underwriting Agreement.
(h)(2) Form of Master Agreement Among Underwriters.1
(i) Inapplicable.
(j) Form of Custodian Agreement.1
(k)(1) Form of Registrar, Transfer Agency and Service Agreement.1
(k)(2) Form of Auction Agency Agreement.
(k)(3) Form of Broker-Dealer Agreement.
(k)(4) Form of DTC Agreement.
(l) Opinion and Consent of Counsel to the Trust.*
(m) Inapplicable.
(n) Consent of Independent Public Accountants.
(o) Inapplicable.
(p) Initial Subscription Agreement.1
(q) Inapplicable.
(r) Inapplicable.
(s) Power of Attorney.1
- --------
1 Incorporated herein by Reference.
* To be filed by Amendment.
<PAGE>
The BLACKROCK STRATEGIC MUNICIPAL TRUST, a Delaware business trust
(the "Trust"), certifies that:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Trust by Article VI of the Trust's Agreement and Declaration of
Trust (which, as hereafter restated or amended from time to time is, together
with this Statement, herein called the "Declaration"), the Board of Trustees
has, by resolution, authorized the issuance of shares of the Trust's authorized
Preferred Shares liquidation preference $25,000 per share, having such
designation or designa tions as to series as is set forth in Section 1 of
Appendix A hereto and such number of shares per such series as is set forth in
Section 2 of Appendix A hereto.
Second: The preferences, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption, of the
shares of each series of Preferred Shares now or hereafter described in Section
1 of Appendix A hereto are as follows (each such series being referred to herein
as a series of Preferred Shares, and shares of all such series being referred to
herein individually as a Preferred Share and collectively as Preferred Shares).
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period
of shares of a series of Preferred Shares, shall mean (i) (A) in the case of any
Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper placed
on behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made available on
a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day next preceding such date; or (ii) in the event that the Federal
Reserve Bank of
AA-3
<PAGE>
New York does not make available any such rate, then the arithmetic average of
such rates, as quoted on a discount basis or otherwise, by the Commercial Paper
Dealers to the Auction Agent for the close of business on the Business Day next
preceding such date. If any Commercial Paper Dealer does not quote a rate
required to determine the "AA" Composite Commercial Paper Rate, the "AA"
Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining Commercial Paper Dealer or
Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Trust to provide such rate
or rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Trust does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
of this definition, the "interest equivalent" of a rate stated on a discount
basis (a "discount rate") for commercial paper of a given days' maturity shall
be equal to the quotient (rounded upwards to the next higher one-thousandth
(.001) of 1%) of (A) the discount rate divided by (B) the difference between (x)
1.00 and (y) a fraction, the numerator of which shall be the product of the
discount rate times the number of days in which such commercial paper matures
and the denominator of which shall be 360.
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Trust; provided, however, that no
Broker-Dealer controlled by, in control of or under common control with the
Trust shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation one
of the trustees, directors or executive officers of which is a trustee of the
Trust be deemed to be an Affiliate solely because such trustee, director or
executive officer is also a trustee of the Trust.
(d) "AGENT MEMBER" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
(e) RESERVED.
(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(h) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Trust
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for shares of a
AA-4
<PAGE>
series of Preferred Shares so long as the Applicable Rate for shares of such
series is to be based on the results of an Auction.
(i) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees or the Executive Committee of the Board of
Trustees in accordance with Section 6 of Part II of this Statement.
(j) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(k) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.
(l) "AVAILABLE PREFERRED SHARES" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(m) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
Appen dix A hereto.
(n) "BENEFICIAL OWNER," with respect to shares of a series of Preferred
Shares, means a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of
such series.
(o) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(p) "BIDDER" and "BIDDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement; provided, however, that
neither the Trust nor any affiliate thereof shall be permitted to be a Bidder in
an Auction, except that any Broker-Dealer that is an affiliate of the Trust may
be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer
are not for its own account.
(q) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Trust or
any duly authorized committee thereof.
(r) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer in
Part II of this State ment, that is a member of, or a participant in, the
Securities Depository or is an affiliate of such member or participant, has been
selected by the Trust and has entered into a Broker-Dealer Agreement that
remains effective.
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(s) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Trust, the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the procedures specified in Part II of this Statement.
(t) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange
is open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.
(u) "CODE" means the Internal Revenue Code of 1986, as amended.
(v) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any other commercial paper dealer selected by the Trust as to
which Moody's shall not have objected or, in lieu of any thereof, their
respective affiliates or successors, if such entity is a commercial paper
dealer.
(w) "COMMON SHARES" shall mean the common shares of beneficial interest,
par value $.001 per share, of the Trust.
(x) "CURE DATE" shall mean the Preferred Shares Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(y) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
Preferred Shares, shall mean the date on which the Trust initially issued such
shares.
(z) "DECLARATION" shall have the meaning specified on the first page of
this Statement.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations rated
at least P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to a Moody's Eligible Asset that is not currently callable as of such
Valuation Date at the option of the issuer thereof, the quotient of the Market
Value thereof divided by the applicable Moody's Discount Factor, or (ii) with
respect to a Moody's Eligible Asset that is currently callable as of such
Valuation Date at the option of the issuer thereof, the quotient of (1) the
lesser of the Market Value or call price thereof, including any call premium,
divided by (2) the applicable Moody's Discount Factor.
(cc) RESERVED.
(dd) RESERVED.
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(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
Preferred Shares, shall mean any date on which dividends are payable on shares
of such series pursuant to the provisions of paragraph (d) of Section 2 of Part
I of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of Preferred
Shares, shall mean the period from and including the Date of Original Issue of
shares of such series to but excluding the initial Dividend Payment Date for
shares of such series and any period thereafter from and including one Dividend
Payment Date for shares of such series to but excluding the next succeeding
Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of Preferred
Shares, shall mean a Broker-Dealer (or any such other Person as may be permitted
by the Trust) that is listed on the records of the Auction Agent as a holder of
shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of Preferred
Shares, shall mean a failure by the Trust to pay to the Auction Agent, not later
than 12:00 noon, New York City time, (A) on the Business Day next preceding any
Dividend Payment Date for shares of such series, in funds available on such
Dividend Payment Date in The City of New York, New York, the full amount of any
dividend (whether or not earned or declared) to be paid on such Dividend Payment
Date on any share of such series or (B) on the Business Day next preceding any
redemption date in funds available on such redemption date for shares of such
series in The City of New York, New York, the Redemption Price to be paid on
such redemption date for any share of such series after notice of redemption is
mailed pursuant to paragraph (c) of Section 11 of Part I of this Statement;
provided, however, that the foregoing clause (B) shall not apply to the Trust's
failure to pay the Redemption Price in respect of Preferred Shares when the
related Notice of Redemption provides that redemption of such shares is subject
to one or more conditions precedent and any such condition precedent shall not
have been satisfied at the time or times and in the manner specified in such
Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
(jj) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of
Appen dix A hereto.
(kk) "HOLDER," with respect to shares of a series of Preferred Shares,
shall mean the registered holder of such shares as the same appears on the
record books of the Trust.
(ll) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(mm) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized accoun
tant, or firm of accountants, that is with respect to the Trust an independent
public accountant or
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firm of independent public accountants under the Securities Act of 1933, as
amended from time to time.
(nn) "INITIAL RATE PERIOD," with respect to shares of a series of Preferred
Shares, shall have the meaning specified with respect to shares of such series
in Section 5 of Appendix A hereto.
(oo) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
(pp) RESERVED.
(qq) "KENNY INDEX" shall have the meaning specified in the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."
(rr) "LATE CHARGE" shall have the meaning specified in subparagraph (e) (1)
(B) of Section 2 of Part I of this Statement.
(ss) "LIQUIDATION PREFERENCE," with respect to a given number of Preferred
Shares, means $25,000 times that number.
(tt) "MARKET VALUE" of any asset of the Trust shall be the market value
thereof determined by Kenny S&P Evaluation Services or any other pricing service
or services desig nated by the Board of Trustees of the Trust, provided that
the Trust obtains written assurance from Moody's that such designation will not
impair the rating then assigned by Moody's to the Preferred Shares (the "Pricing
Service"). Market Value of any asset shall include any interest accrued
thereon. The Pricing Service shall value portfolio securities at the lower of
the quoted bid price or the mean between the quoted bid and ask price or the
yield equivalent when quotations are not readily available. Securities for
which quotations are not readily available shall be valued at fair value as
determined by the Pricing Service using methods which include consideration of:
yields or prices of municipal obligations of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. The Pricing Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. If the Pricing
Service fails to provide the Market Value of any Municipal Obligation, such
Municipal Obligation shall be valued at the lower of two bid quotations (one of
which shall be in writing) obtained by the Trust from two dealers who are
members of the National Association of Securities Dealers, Inc. and are making a
market in such Municipal Obligations. Futures contracts and options are valued
at closing prices for such instruments established by the exchange or board of
trade on which they are traded, or if market quotations are not readily
available, are valued at fair value as determined by the Pricing Service or if
the Pricing Service is not able to value such instruments they shall be valued
at fair value on a consistent basis using methods determined in good faith by
the Board of Trustees.
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(uu) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be due if
the Trust were to make Taxable Allocations, with respect to any taxable year,
estimated based upon dividends paid and the amount of undistributed realized net
capital gains and other taxable income earned by the Trust, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
(vv) "MAXIMUM RATE," for shares of a series of Preferred Shares on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Trust pursuant to Section 4 of Part I of this
Statement, the product of (A) the Reference Rate on such Auction Date
for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or
had a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of
such series after such Special Rate Period, in which case the higher
of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference Rate
on such Auction Date for a Rate Period equal in length to the then-
ending Rate Period of shares of such series, if such then-ending Rate
Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was more than 364 Rate Period Days, and (y) the Reference Rate on such
Auction Date for a Rate Period equal in length to such Special Rate
Period of shares of such series, if such Special Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate Period, if
such Special Rate Period was more than 364 Rate Period Days and (2)
the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Trust pursuant to Section 4 of Part I of this Statement,
the product of (A) the highest of (1) the Reference Rate on such Auction
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Date for a Rate Period equal in length to the then-ending Rate Period
of shares of such series, if such then-ending Rate Period was 364 Rate
Period Days or fewer, or the Treasury Note Rate on such Auction Date
for a Rate Period equal in length to the then- ending Rate Period of
shares of such series, if such then-ending Rate Period was more than
364 Rate Period Days, (2) the Reference Rate on such Auction Date for
the Special Rate Period for which the Auction is being held if such
Special Rate Period is 364 Rate Period Days or fewer or the Treasury
Note Rate on such Auction Date for the Special Rate Period for which
the Auction is being held if such Special Rate Period is more than 364
Rate Period Days, and (3) the Reference Rate on such Auction Date for
Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.
(ww) RESERVED.
(xx) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7 Rate
Period Days.
(yy) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(zz) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in Section
4 of Appendix A hereto.
(aaa) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in Section
4 of Appendix A hereto.
(bbb) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 56 days thereafter.
(ccc) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If, as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatil ity Factor in
the case of any Rate Period described in (i) above in this definition instead
shall be determined by reference to the following table:
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FEDERAL TAX RATE INCREASE VOLATILITY FACTOR
------------------------- -----------------
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
(ddd) "MUNICIPAL OBLIGATIONS" shall mean any and all instruments that pay
interest or make other distributions that are exempt from regular Federal income
tax and in which the Trust may invest consistent with the investment policies
and restrictions contained in its registration statement on Form N-2 (333-
86589), ("Registration Statement"), as the same may be amended from time to
time.
(eee) "1940 ACT" shall mean the Investment Company Act of 1940, as amended
from time to time.
(fff) "1940 ACT CURE DATE," with respect to the failure by the Trust to
maintain the 1940 Act Preferred Shares Asset Coverage (as required by Section 6
of Part I of this Statement) as of the last Business Day of each month, shall
mean the last Business Day of the following month.
(ggg) "1940 ACT PREFERRED SHARES ASSET COVERAGE" shall mean asset coverage,
as defined in Section 18(h) of the 1940 Act, of at least 200% with respect to
all outstanding senior securities of the Trust which are shares of beneficial
interest including all outstanding Preferred Shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares or stock of a
closed-end investment company as a condition of declaring dividends on its
common shares or stock).
(hhh) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemp tion of Preferred Shares pursuant to paragraph (c) of Section 11 of Part
I of this Statement.
(iii) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to
a Special Rate Period of Preferred Shares pursuant to subparagraph (d)(i) of
Section 4 of Part I of this Statement.
(jjj) "ORDER" and "ORDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
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(kkk) RESERVED.
(lll) RESERVED.
(mmm) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of Preferred Shares, the number of shares of such series
theretofore issued by the Trust except, without duplication, (i) any shares of
such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Trust, (ii) any shares of such series as to
which the Trust or any Affiliate thereof shall be an Existing Holder and (iii)
any shares of such series represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Trust.
(nnn) RESERVED.
(ooo) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
(ppp) RESERVED.
(qqq) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
Preferred Shares, shall mean a customer of a Broker-Dealer that is not a
Beneficial Owner of shares of such series but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series.
(rrr) "POTENTIAL HOLDER," with respect to shares of a series of Preferred
Shares, shall mean a Broker-Dealer (or any such other person as may be permitted
by the Trust) that is not an Existing Holder of shares of such series or that is
an Existing Holder of shares of such series that wishes to become the Existing
Holder of additional shares of such series.
(sss) "PREFERRED SHARES" shall have the meaning set forth on the first page
of this Statement.
(ttt) "PREFERRED SHARES BASIC MAINTENANCE AMOUNT," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of Preferred Shares outstanding on such date multiplied by $25,000 (plus
the product of the number of shares of any other series of preferred shares
outstanding on such date multiplied by the liquidation preference of such
shares), plus any redemption premium applicable to the Preferred Shares (or
other preferred shares) then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates (whether
or not earned or declared) to (but not including) the first respective Dividend
Payment Dates for the Preferred Shares outstanding that follow such Valuation
Date (plus the aggregate amount of
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dividends, whether or not earned or declared, that will have accumulated in
respect of other outstanding preferred shares to, but not including, the first
respective dividend payment dates for such other shares that follow such
Valuation Date); (C) the aggregate amount of dividends that would accumulate on
shares of each series of the Preferred Shares outstanding from such first
respective Dividend Payment Date therefor through the 56th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Trust shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Trust shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such series
designating a Special Rate Period consisting of 56 Rate Period Days or more, the
Volatility Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend rate
or rates on any other preferred shares outstanding from such respective dividend
payment dates through the 56th day after such Valuation Date, as established by
or pursuant to the respective statements establishing and fixing the rights and
preferences of such other preferred shares) (except that (1) if such Valuation
Date occurs at a time when a Failure to Deposit (or, in the case of preferred
shares other than the Preferred Shares, a failure similar to a Failure to
Deposit) has occurred that has not been cured, the dividend for purposes of
calculation would accumulate at the current dividend rate then applicable to the
shares in respect of which such failure has occurred and (2) for those days
during the period described in this subparagraph (C) in respect of which the
Applicable Rate in effect immediately prior to such Dividend Payment Date will
remain in effect (or, in the case of preferred shares other than the Preferred
Shares, in respect of which the dividend rate or rates in effect immediately
prior to such respective dividend payment dates will remain in effect), the
dividend for purposes of calculation would accumulate at such Applicable Rate
(or other rate or rates, as the case may be) in respect of those days); (D) the
amount of anticipated expenses of the Trust for the 90 days subsequent to such
Valuation Date; (E) the amount of the Trust's Maximum Potential Gross-up Payment
Liability in respect of Preferred Shares (and similar amounts payable in respect
of other preferred shares pursuant to provisions similar to those contained in
Section 3 of Part I of this Statement) as of such Valuation Date; (F) the amount
of any indebtedness or obligations of the Trust senior in right of payment to
the Preferred Shares; and (G) any current liabilities as of such Valuation Date
to the extent not reflected in any of (i)(A) through (i)(F) (including, without
limitation, any payables for Municipal Obligations purchased as of such
Valuation Date and any liabilities incurred for the purpose of clearing
securities transactions) less (ii) the value (i.e., for purposes of current
Moody's guidelines, the face value of cash, short-term Municipal Obligations
rated MIG-1, VMIG-1 or P-1, and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such securities
mature on or prior
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to the date upon which any of (i)(A) through (i)(G) become payable, otherwise
the Moody's Discounted Value) of any of the Trust's assets irrevocably deposited
by the Trust for the payment of any of (i)(A) through (i)(G).
(uuu) "PREFERRED SHARES BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Trust to satisfy the Preferred Shares Basic Maintenance Amount
(as required by paragraph (a) of Section 7 of Part I of this Statement) as of a
given Valuation Date, shall mean the seventh Business Day following such
Valuation Date.
(vvv) "PREFERRED SHARES BASIC MAINTENANCE REPORT" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Trust which sets forth, as of the related Valuation Date, the
assets of the Trust, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the Preferred Shares Basic Maintenance Amount.
(www) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
March, June, September and December of each year, commencing on the date set
forth in Section 6 of Appendix A hereto.
(xxx) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
Appendix A hereto.
(yyy) "RATE PERIOD," with respect to shares of a series of Preferred
Shares, shall mean the Initial Rate Period of shares of such series and any
Subsequent Rate Period, including any Special Rate Period, of shares of such
series.
(zzz) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means the
number of days that would constitute such Rate Period or Dividend Period but for
the application of paragraph (d) of Section 2 of Part I of this Statement or
paragraph (b) of Section 4 of Part I of this Statement.
(aaaa) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean for purposes
of calculation of Moody's Eligible Assets as of any Valuation Date, no more than
the aggregate of the following: (i) the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date, and if the trades which
generated such receivables are (x) settled through clearing house firms with
respect to which the Trust has received prior written authorization from Moody's
or (y) with counterparties having a Moody's long-term debt rating of at least
Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations sold as of
or prior to such Valuation Date which generated receivables, if such receivables
are due within five business days of such Valuation Date but do not comply with
either of the conditions specified in (i) above.
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(bbbb) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.
(cccc) "REFERENCE RATE" shall mean (i) the higher of the Taxable Equivalent
of the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper
Rate in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case
of Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate
Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate
Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.
(dddd) "REGISTRATION STATEMENT" has the meaning specified in the definition
of "Municipal Obligations."
(eeee) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(ffff) RESERVED.
(gggg) RESERVED.
(hhhh) RESERVED.
(iiii) RESERVED.
(jjjj) RESERVED.
(kkkk) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
its successors and assigns or any other securities depository selected by the
Trust which agrees to follow the procedures required to be followed by such
securities depository in connection with the Preferred Shares.
(llll) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(mmmm) "SPECIAL RATE PERIOD," with respect to shares of a series of
Preferred Shares, shall have the meaning specified in paragraph (a) of Section 4
of Part I of this Statement.
(nnnn) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.
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(oooo) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Auction Agent as specified by the Auction
Agent from time to time.
(pppp) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(qqqq) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(rrrr) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(ssss) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(tttt) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
Preferred Shares, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding the
next Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
(uuuu) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co., Incorporated or their respective affiliates or
successors, if such entity is a commercial paper dealer; provided, however, that
none of such entities shall be a Commercial Paper Dealer.
(vvvv) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The First
Boston Company or Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.
(wwww) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(xxxx) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
of Part I of this Statement.
(yyyy) "TAXABLE INCOME" shall have the meaning specified in Section 12 of
Appendix A hereto.
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(zzzz) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on any
date for any Minimum Rate Period or Special Rate Period of 28 Rate Period Days
or fewer, shall mean 90% of the quotient of (A) the per annum rate expressed on
an interest equivalent basis equal to the Kenny S&P 30 day High Grade Index or
any successor index (the "Kenny Index") (provided, however, that any such
successor index must be approved by Moody's (if Moody's is then rating the
Preferred Shares)), made available for the Business Day immediately preceding
such date but in any event not later than 8:30 A.M., New York City time, on such
date by Kenny S&P Evaluation Services or any successor thereto, based upon 30-
day yield evaluations at par of short-term bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny S&P Evaluation Services or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57 (a)(5) of the Code, or successor provisions, for purposes of
the "alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater;
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by Kenny S&P Evaluation Services or any
successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income (in each
case expressed as a decimal), whichever is greater.
(aaaaa) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(bbbbb) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
(i) the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
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(ccccc) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or less but
more than 364 days.
(ddddd) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quota tions furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Trust to provide such rate or rates not being supplied
by any U.S. Government Securities Dealer or U.S. Government Securities Dealers,
as the case may be, or, if the Trust does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
(eeeee) "TRUST" shall mean the entity named on the first page of this
Statement, which is the issuer of the Preferred Shares.
(fffff) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc, Morgan
Guaranty Trust Company of New York and any other U.S. Government Securities
dealer selected by the Trust as to which Moody's shall not have objected or
their respective affiliates or successors, if such entity is a U.S. Government
securities dealer.
(ggggg) "VALUATION DATE" shall mean, for purposes of determining whether
the Trust is maintaining the Preferred Shares Basic Maintenance Amount, each
Business Day.
(hhhhh) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
Moody's Volatility Factor.
(iiiii) "VOTING PERIOD" shall have the meaning specified in paragraph (b)
of Section 5 of Part I of this Statement.
(jjjjj) "WINNING BID RATE" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
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Any additional definitions specifically set forth in Section 8 of Appendix
A hereto shall be incorporated herein and made part hereof by reference thereto.
PART I.
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of the Preferred
Shares shall be as set forth with respect to such series in Section 2 of
Appendix A hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of the Preferred Shares shall rank on
a parity with each other, with shares of any other series of the Preferred
Shares and with shares of any other series of preferred shares as to the payment
of dividends by the Trust.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of any series of Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Trustees, out of funds legally available therefor in accordance with the
Declaration and applicable law, cumulative cash dividends at the Applicable Rate
for shares of such series, determined as set forth in paragraph (e) of this
Section 2, and no more (except to the extent set forth in Section 3 of this Part
I), payable on the Dividend Payment Dates with respect to shares of such series
determined pursuant to paragraph (d) of this Section 2. Holders of Preferred
Shares shall not be entitled to any dividend, whether payable in cash, property
or shares, in excess of full cumulative dividends, as herein provided, on
Preferred Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Shares which
may be in arrears, and, except to the extent set forth in subparagraph (e)(i) of
this Section 2, no additional sum of money shall be payable in respect of any
such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on any
series of Preferred Shares shall accumulate at the Applicable Rate for shares of
such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of Preferred Shares shall be as set
forth with respect to shares of such series in Section 9 of Appendix A hereto;
provided, however, that:
(i) if the day on which dividends would otherwise be payable on
shares of such series is not a Business Day, then such dividends shall be
payable on such shares on the first Business Day that falls after such day;
and
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(ii) notwithstanding Section 9 of Appendix A hereto, the Trust in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of Preferred Shares
consisting of more than 28 Rate Period Days; provided, however, that
such dates shall be set forth in the Notice of Special Rate Period
relating to such Special Rate Period, as delivered to the Auction
Agent, which Notice of Special Rate Period shall be filed with the
Secretary of the Trust; and further provided that (1) any such
Dividend Payment Date shall be a Business Day and (2) the last
Dividend Payment in respect of such Special Rate Period shall be the
Business Day immediately following the last day thereof, as such last
day is determined in accordance with paragraph (b) of Section 4 of
this Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.
(i) DIVIDEND RATES. The dividend rate on Preferred Shares of any
series during the period from and after the Date of Original Issue of
shares of such series to and including the last day of the Initial Rate
Period of shares of such series shall be equal to the rate per annum set
forth with respect to shares of such series under "Designation" in Section
1 of Appendix A hereto. For each Subsequent Rate Period of shares of such
series thereafter, the dividend rate on shares of such series shall be
equal to the rate per annum that results from an Auction for shares of such
series on the Auction Date next preceding such Subsequent Rate Period;
provided, however, that if:
(A) an Auction for any such Subsequent Rate Period is not
held for any reason other than as described below, the dividend
rate on shares of such series for such Subsequent Rate Period
will be the Maximum Rate for shares of such series on the Auction
Date therefor;
(B) any Failure to Deposit shall have occurred with respect
to shares of such series during any Rate Period thereof (other
than any Special Rate Period consisting of more than 364 Rate
Period Days or any Rate Period succeeding any Special Rate Period
consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), but, prior
to 12:00 Noon, New York City time, on the third Business Day next
succeeding the date on which such Failure to Deposit occurred,
such Failure to Deposit shall have been cured in accordance
with paragraph (f) of this Section 2 and the Trust shall have
paid to the Auction Agent a late charge ("Late Charge") equal to
the sum of (1) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the full amount of
dividends with respect to any Dividend Period of the shares of
such series, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such
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Failure to Deposit occurs on the Dividend Payment Date for such
Divi dend Period by (y) a fraction, the numerator of which shall
be the number of days for which such Failure to Deposit has not
been cured in accordance with paragraph (f) of this Section 2
(including the day such Failure to Deposit occurs and excluding
the day such Failure to Deposit is cured) and the denominator of
which shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the outstanding shares of
such series and (2) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the Redemption Price
of the shares, if any, of such series for which Notice of
Redemption has been mailed by the Trust pursuant to paragraph (c)
of Section 11 of this Part I, an amount computed by multiplying
(x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the redemption date by (y) a
fraction, the numerator of which shall be the number of days for
which such Failure to Deposit is not cured in accordance with
paragraph (f) of this Section 2 (including the day such Failure
to Deposit occurs and excluding the day such Failure to Deposit
is cured) and the denominator of which shall be 360, and applying
the rate obtained against the aggregate Liquidation Preference of
the outstanding shares of such series to be redeemed, no Auction
will be held in respect of shares of such series for the
Subsequent Rate Period thereof and the dividend rate for shares
of such series for such Subsequent Rate Period will be the
Maximum Rate for shares of such series on the Auction Date for
such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect
to shares of such series during any Rate Period thereof (other
than any Special Rate Period consisting of more than 364 Rate
Period Days or any Rate Period succeeding any Special Rate Period
consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), and, prior
to 12:00 Noon, New York City time, on the third Business Day next
succeeding the date on which such Failure to Deposit occurred,
such Failure to Deposit shall not have been cured in accordance
with paragraph (f) of this Section 2 or the Trust shall not have
paid the applicable Late Charge to the Auction Agent, no Auction
will be held in respect of shares of such series for the first
Subsequent Rate Period thereof thereafter (or for any Rate Period
thereof thereafter to and including the Rate Period during
which (1) such Failure to Deposit is cured in accordance with
paragraph (f) of this Section 2 and (2) the Trust pays the
applicable Late Charge to the Auction Agent (the condition set
forth in this clause (2) to apply only in the event Moody's is
rating such shares at the time the Trust cures such Failure to
Deposit), in each case no later than 12:00 Noon, New York City
time, on the fourth Business Day prior to the
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end of such Rate Period), and the dividend rate for shares of
such series for each such Subsequent Rate Period shall be a rate
per annum equal to the Maximum Rate for shares of such series on
the Auction Date for such Subsequent Rate Period (but with the
prevailing rating for shares of such series, for purposes of
determining such Maximum Rate, being deemed to be "Below
"ba3"/BB"); or
(D) any Failure to Deposit shall have occurred with respect
to shares of such series during a Special Rate Period thereof
consisting of more than 364 Rate Period Days, or during any Rate
Period thereof succeeding any Special Rate Period consisting of
more than 364 Rate Period Days during which a Failure to Deposit
occurred that has not been cured, and, prior to 12:00 Noon, New
York City time, on the fourth Business Day preceding the Auction
Date for the Rate Period subsequent to such Rate Period, such
Failure to Deposit shall not have been cured in accordance with
paragraph (f) of this Section 2 or, in the event Moody's is then
rating such shares, the Trust shall not have paid the applicable
Late Charge to the Auction Agent (such Late Charge, for purposes
of this subparagraph (D), to be calculated by using, as the
Reference Rate, the Reference Rate applicable to a Rate Period
(x) consisting of more than 182 Rate Period Days but fewer than
365 Rate Period Days and (y) commencing on the date on which
the Rate Period during which Failure to Deposit occurs
commenced), no Auction will be held in respect of shares of such
series for such Subsequent Rate Period (or for any Rate Period
thereof thereafter to and including the Rate Period during which
(1) such Failure to Deposit is cured in accordance with paragraph
(f) of this Section 2 and (2) the Trust pays the applicable Late
Charge to the Auction Agent (the condition set forth in this
clause (2) to apply only in the event Moody's is rating such
shares at the time the Trust cures such Failure to Deposit), in
each case no later than 12:00 Noon, New York City time, on the
fourth Business Day prior to the end of such Rate Period), and
the dividend rate for shares of such series for each such
Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for
such Subsequent Rate Period (but with the prevailing rating for
shares of such series, for purposes of determining such Maximum
Rate, being deemed to be "Below "ba3"/BB") (the rate per annum at
which dividends are payable on shares of a series of Preferred
Shares for any Rate Period thereof being herein referred to as
the "Applicable Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share
payable on shares of a series of Preferred Shares on any date on which
dividends shall be payable on shares of such series shall be computed by
multiplying the Applicable
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Rate for shares of such series in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been
paid by a fraction, the numerator of which shall be the number of days
in such Dividend Period or Dividend Periods or part thereof and the
denominator of which shall be 365 if such Dividend Period consists of
7 Rate Period Days and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of Preferred Shares shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Trust to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Trust shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Trust pursuant to paragraph (c) of
Section 11 of Part I of this Statement; provided, however, that the foregoing
clause (B) shall not apply to the Trust's failure to pay the Redemption Price
in respect of Preferred Shares when the related Redemption Notice provides that
redemption of such shares is subject to one or more conditions precedent and any
such condition precedent shall not have been satisfied at the time or times and
in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY TRUST TO AUCTION AGENT. The Trust shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series of
Preferred Shares, an aggregate amount of funds available on the next Business
Day in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for the payment of dividends (or for the payment of
any Late Charge) shall be held in trust for the payment of such dividends (and
any such Late Charge) by the Auction Agent for the benefit of the Holders
specified in paragraph (i) of this Section 2. Any moneys paid to the Auction
Agent in accordance with the foregoing but not applied by the Auction Agent to
the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Trust at the end of 90 days from the date on
which such moneys were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on Preferred Shares shall be
paid on the Dividend Payment Date therefor to the Holders thereof as their names
appear on the record books of the Trust on the Business Day next preceding such
Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS.
Any dividend payment made on Preferred Shares shall first be credited
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against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the record books of the Trust on such date, not
exceeding 15 days preceding the payment date thereof, as may be fixed by the
Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
Preferred Shares shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Trust, to the extent permitted by, and for
purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of Preferred Shares shall be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available therefor in
accordance with the Declaration and applicable law, dividends in an amount equal
to the aggregate Gross-up Payments as follows:
(a) TAXABLE ALLOCATION WITHOUT NOTICE. If, but only if, the Trust
allocates any net capital gain or other income taxable for Federal income tax
purposes to a dividend paid on Preferred Shares without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II of this
Statement (such allocation being referred to herein as a "Taxable Allocation"),
whether or not by reason of the fact that such allocation is made retroactively
as a result of the redemption of all or a portion of the outstanding Preferred
Shares or the liquidation of the Trust, the Trust shall, during the Trust's
fiscal year in which the Taxable Allocation was made or within 90 days after the
end of such fiscal year, provide notice thereof to the Auction Agent and direct
the Trust's dividend disbursing agent to send such notice and a Gross-up Payment
to each Holder of such shares that was entitled to such dividend payment during
such fiscal year at such Holder's address as the same appears or last appeared
on the record books of the Trust.
(b) RESERVED.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Trust shall
not be required to make Gross-up Payments with respect to any net capital gains
or other taxable income determined by the Internal Revenue Service to be
allocable in a manner different from that allocated by the Trust.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Trust, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of Preferred Shares as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if
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(A) notice thereof shall have been given in accordance with paragraph (c) and
subparagraph (d)(i) of this Section 4, (B) an Auction for shares of such series
shall have been held on the Auction Date immediately preceding the first day of
such proposed Special Rate Period and Sufficient Clearing Bids for shares of
such series shall have existed in such Auction, and (C) if any Notice of
Redemption shall have been mailed by the Trust pursuant to paragraph (c) of
Section 11 of this Part I with respect to any shares of such series, the
Redemption Price with respect to such shares shall have been deposited with the
Auction Agent. In the event the Trust wishes to designate any succeeding
Subsequent Rate Period for shares of a series of Preferred Shares as a Special
Rate Period consisting of more than 28 Rate Period Days, the Trust shall notify
Moody's (if Moody's is then rating such series) in advance of the commencement
of such Subsequent Rate Period that the Trust wishes to designate such
Subsequent Rate Period as a Special Rate Period and shall provide Moody's (if
Moody's is then rating such series) with such documents as it may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Trust
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not a Wednesday that is a Business Day in the case of a series of Preferred
Shares designated as "Series [ ] Preferred Shares" in Section 1 of Appendix A
hereto, then the Trust shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending on the first [Monday]
that is followed by a [Tuesday] that is a Business Day preceding what would
other wise be such last day, in the case of Series [ ] Preferred Shares.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Trust proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Preferred Shares as a Special Rate Period pursuant to paragraph (a) of this
Section 4, not less than 20 (or such lesser number of days as may be agreed to
from time to time by the Auction Agent) nor more than 30 days prior to the date
the Trust proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum Rate
Period), notice shall be (i) published or caused to be published by the Trust in
a newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Trust by
first-class mail, postage prepaid, to the Holders of shares of such series.
Each such notice shall state (A) that the Trust may exercise its option to
designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Trust
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed to
by the Auction Agent) notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Trust
shall specify the Special Rate Period designated, or (y) its determination not
to exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate
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Period of shares of a series of Preferred Shares as to which notice has been
given as set forth in paragraph (c) of this Section 4 (or such later time or
date, or both, as may be agreed to by the Auction Agent), the Trust shall
deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Trust has deter mined to designate the next succeeding Rate Period of
shares of such series as a Special Rate Period, specifying the same and the
first day thereof, (B) the Auction Date immediately prior to the first day
of such Special Rate Period, (C) that such Special Rate Period shall not
commence if (1) an Auction for shares of such series shall not be held on
such Auction Date for any reason or (2) an Auction for shares of such
series shall be held on such Auction Date but Sufficient Clearing Bids for
shares of such series shall not exist in such Auction, (D) the scheduled
Dividend Payment Dates for shares of such series during such Special Rate
Period and (E) the Special Redemption Provisions, if any, applicable to
shares of such series in respect of such Special Rate Period, such notice
to be accompanied by a Preferred Shares Basic Maintenance Report showing
that, as of the third Business Day next preceding such proposed Special
Rate Period, Moody's Eligible Assets (if Moody's is then rating such
series) have an aggregate Discounted Value at least equal to the Preferred
Shares Basic Maintenance Amount as of such Business Day (assuming for
purposes of the foregoing calculation that (a) the Maximum Rate is the
Maximum Rate on such Business Day as if such Business Day were the Auction
Date for the proposed Special Rate Period, and (b) the Moody's Discount
Factors applicable to Moody's Eligible Assets are determined by reference
to the first Exposure Period longer than the Exposure Period then
applicable to the Trust, as described in the definition of Moody's Discount
Factor herein); or
(ii) a notice stating that the Trust has determined not to exercise
its option to desig nate a Special Rate Period of shares of such series and
that the next succeeding Rate Period of shares of such series shall be a
Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Trust fails
to deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a Preferred Shares Basic Maintenance Report to the effect set
forth in such subparagraph (if Moody's is then rating the series in question))
with respect to any designation of any proposed Special Rate Period to the
Auction Agent by 11:00 A.M., New York City time, on the second Business Day next
preceding the first day of such proposed Special Rate Period (or by such later
time or date, or both, as may be agreed to by the Auction Agent), the Trust
shall be deemed to have delivered a notice to the Auction Agent with respect to
such Special Rate Period to the effect set forth in subparagraph (d)(ii) of this
Section 4. In the event the Trust delivers to the Auction Agent a notice
described in subparagraph (d)(i) of this Section 4, it shall file a copy of such
notice with the Secretary of the Trust, and the contents of such notice shall be
binding on the Trust. In the event the Trust delivers to the Auction Agent a
notice described in subparagraph (d)(ii) of this
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Section 4, the Trust will provide Moody's (if Moody's is then rating the series
in question) a copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF PREFERRED SHARES. Except as otherwise provided
in the Declaration or as otherwise required by law, (i) each Holder of Preferred
Shares shall be entitled to one vote for each share of Preferred Shares held by
such Holder on each matter submitted to a vote of shareholders of the Trust, and
(ii) the holders of outstanding preferred shares, including each share of the
Preferred Shares, and of Common Shares shall vote together as a single class;
provided, however, that, at any meeting of the shareholders of the Trust held
for the election of trustees, the holders of outstanding preferred shares,
including the Preferred Shares, represented in person or by proxy at said
meeting, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of shares of beneficial interest of the Trust, to
elect two trustees of the Trust, each Preferred Share entitling the holder
thereof to one vote. Subject to paragraph (b) of this Section 5, the holders of
outstanding Common Shares and Preferred Shares voting together as a single
class, shall elect the balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES.
(i) VOTING PERIOD. Except as otherwise provided in the Declaration
or as otherwise required by law, during any period in which any one or more
of the conditions described in subparagraphs (A) or (B) of this
subparagraph (b)(i) shall exist (such period being referred to herein as a
"Voting Period"), the number of trustees constituting the Board of Trustees
shall be automatically increased by the smallest number that, when added to
the two trustees elected exclusively by the holders of preferred shares,
including the Preferred Shares, would constitute a majority of the Board of
Trustees as so increased by such smallest number, and the holders of
preferred shares, including the Preferred Shares, shall be entitled, voting
as a class on a one-vote-per-share basis (to the exclusion of the holders
of all other securities and classes of shares of beneficial interest of the
Trust), to elect such smallest number of additional trustees, together with
the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding Preferred Shares, equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for
the payment of such accumulated dividends; or
(B) if at any time holders of preferred shares, including the
Preferred Shares, are entitled under the 1940 Act to elect a majority
of the trustees of the Trust.
Upon the termination of a Voting Period, the voting rights described
in this
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subparagraph (b)(i) shall cease, subject always, however, to the
revesting of such voting rights in the Holders upon the further
occurrence of any of the events described in this subparagraph
(b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the
accrual of any right of the holders of preferred shares, including the
Preferred Shares, to elect additional trustees as de scribed in subparagraph
(b)(i) of this Section 5, the Trust shall notify the Auction Agent and the
Auction Agent shall call a special meeting of such holders, by mailing a
notice of such special meeting to such holders, such meeting to be held not
less than 10 nor more than 20 days after the date of mailing of such notice.
If the Trust fails to send such notice to the Auction Agent or if the
Auction Agent does not call such a special meeting, it may be called by any
such holder on like notice. The record date for determining the holders
entitled to notice of and to vote at such special meeting shall be the close
of business on the fifth Business Day preceding the day on which such notice
is mailed. At any such special meeting and at each meeting of holders of
preferred shares, including the Preferred Shares, held during a Voting
Period at which trustees are to be elected, such holders, voting together as
a class (to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Trust), shall be entitled to elect
the number of trustees prescribed in subparagraph (b)(i) of this Section 5
on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of office
of all persons who are trustees of the Trust at the time of a special
meeting of Holders and holders of other preferred shares to elect trustees
shall continue, notwithstanding the election at such meeting by the Holders
and such other holders of the number of trustees that they are entitled to
elect, and the persons so elected by the Holders and such other holders,
together with the two incumbent trustees elected by the Holders and such
other holders of preferred shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON
TERMINATION OF VOTING PERIOD. Simultaneously with the termination of a
Voting Period, the terms of office of the additional trustees elected by the
Holders and holders of other Preferred Shares pursuant to subparagraph
(b)(i) of this Section 5 shall terminate, the remaining trustees shall
constitute the trustees of the Trust and the voting rights of the Holders
and such other holders to elect additional trustees pursuant to subparagraph
(b)(i) of this Section 5 shall cease, subject to the provisions of the last
sentence of subparagraph (b)(i) of this Section 5.
(c) HOLDERS OF PREFERRED SHARES TO VOTE ON CERTAIN OTHER MATTERS.
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(i) INCREASES IN CAPITALIZATION. So long as any Preferred Shares are
outstanding, the Trust shall not, without the affirmative vote or consent
of the Holders of at least a majority of the Preferred Shares outstanding
at the time, in person or by proxy, either in writing or at a meeting,
voting as a separate class: (a) authorize, create or issue any class or
series of shares ranking prior to or on a parity with the Preferred Shares
with respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, or
authorize, create or issue additional shares of any series of Preferred
Shares (except that, notwithstanding the foregoing, but subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of
Trustees, without the vote or consent of the Holders of Preferred Shares,
may from time to time authorize and create, and the Trust may from time to
time issue, additional shares of any series of Preferred Shares or classes
or series of other preferred shares ranking on a parity with Preferred
Shares with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the
Trust; provided, however, that if Moody's is not then rating the Preferred
Shares, the aggregate liquidation preference of all preferred shares of the
Trust outstanding after any such issuance, exclusive of accumulated and
unpaid dividends, may not exceed the amount set forth in Section 10 of
Appendix A hereto) or (b) amend, alter or repeal the provisions of the
Declaration or this Statement, whether by merger, consolidation or
otherwise, so as to adversely affect any preference, right or power of such
Preferred Shares or the Holders thereof; provided, how ever, that (i) none
of the actions permitted by the exception to (a) above will be deemed to
affect such preferences, rights or powers, (ii) a division of Preferred
Shares will be deemed to affect such preferences, rights or powers only if
the terms of such division adversely affect the Holders of Preferred Shares
and (iii) the authorization, creation and issuance of classes or series of
shares ranking junior to the Preferred Shares with respect to the payment
of dividends and the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Trust, will be deemed to affect such
preferences, rights or powers only if Moody's is then rating the Preferred
Shares and such issuance would, at the time thereof, cause the Trust not to
satisfy the 1940 Act Preferred Shares Asset Cover age or the Preferred
Shares Basic Maintenance Amount. So long as any shares of the Preferred
Shares are outstanding, the Trust shall not, without the affirmative vote
or consent of the Holders of at least 66 2/3% of the Preferred Shares out
standing at the time, in person or by proxy, either in writing or at a
meeting, voting as a separate class, file a voluntary application for
relief under Federal bankruptcy law or any similar application under state
law for so long as the Trust is solvent and does not foresee becoming
insolvent. If any action set forth above would adversely affect the rights
of one or more series (the "Affected Series") of Preferred Shares in a
manner different from any other series of Preferred Shares, the Trust will
not approve any such action without the affirmative vote or consent
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of the Holders of at least a majority of the shares of each such
Affected Series outstanding at the time, in person or by proxy, either
in writing or at a meeting (each such Affected Series voting as a
separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in
the Declara tion, (A) the affirmative vote of the Holders of at least a
majority of the Preferred Shares outstanding at the time, voting as a
separate class, shall be required to approve any conversion of the Trust
from a closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding Preferred Shares,"
voting as a separate class, shall be required to approve any plan of
reorganization (as such term is used in the 1940 Act) adversely affecting
such shares. The affirmative vote of the holders of a "majority of the
outstanding Preferred Shares," voting as a separate class, shall be
required to approve any action not described in the first sentence of this
Section 5(c)(ii) requiring a vote of security holders of the Trust under
Section 13(a) of the 1940 Act. For purposes of the foregoing, "majority of
the outstanding Preferred Shares" means (i) 67% or more of such shares
present at a meeting, if the Holders of more than 50% of such shares are
present or represented by proxy, or (ii) more than 50% of such shares,
whichever is less. In the event a vote of Holders of Preferred Shares is
required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Trust shall, not later than ten Business Days prior to the date on which
such vote is to be taken, notify Moody's (if Moody's is then rating the
Preferred Shares) that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken. The Trust shall, not
later than ten Business Days after the date on which such vote is taken,
notify Moody's (if Moody's is then rating the Preferred Shares) of the
results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Trust,
may from time to time amend, alter or repeal any provision of this Statement if
such amendment, alteration or repeal would not adversely affect the preferences,
rights or powers of the Preferred Shares or the Holders thereof; provided,
however, that the Board of Trustees receives written confirmation from Moody's
(such confirmation being required to be obtained only in the event Moody's is
rating the Preferred Shares) that any such amendment, alteration or repeal would
not impair the ratings then assigned by Moody's to Preferred Shares. No amend
ment, alteration or repeal of any or all of the following definitions or any
provision of this Statement viewed by Moody's as a predicate for any such
definition will be deemed to affect the preferences, rights or powers of the
Preferred Shares or the Holders thereof: Deposit Securities, Discounted Value,
Receivables for Municipal Obligations Sold, Moody's Discount Factor, Moody's
Eligible Asset, Moody's Exposure Period and Moody's Volatility Factor.
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of Preferred Shares shall not have any
relative rights or preferences or other special rights other than those
specifically set forth herein.
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(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of Preferred
Shares shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR TRUST'S FAILURE TO PAY DIVIDENDS.
In the event that the Trust fails to pay any dividends on the Preferred Shares,
the exclusive remedy of the Holders shall be the right to vote for trustees
pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by this
Statement, by the other provisions of the Declaration, by statute or otherwise,
no Holder shall be entitled to vote any Preferred Share and no Preferred Share
shall be deemed to be "outstanding" for the purpose of voting or determining the
number of shares required to constitute a quorum if, prior to or concurrently
with the time of determination of shares entitled to vote or shares deemed
outstand ing for quorum purposes, as the case may be, the requisite Notice of
Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No Preferred Share held by the Trust or any affiliate
of the Trust (except for shares held by a Broker-Dealer that is an affiliate of
the Trust for the account of its customers) shall have any voting rights or be
deemed to be outstanding for voting or other purposes.
6. 1940 ACT PREFERRED SHARES ASSET COVERAGE.
The Trust shall maintain, as of the last Business Day of each month in
which any Preferred Shares are outstanding, the 1940 Act Preferred Shares Asset
Coverage.
7. PREFERRED SHARES BASIC MAINTENANCE AMOUNT.
(a) So long as Preferred Shares are outstanding, the Trust shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date Moody's Eligible Assets having an aggregate
Discounted Value equal to or greater than the Preferred Shares Basic Maintenance
Amount (if Moody's is then rating the Preferred Shares).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Trust fails to satisfy the Preferred Shares
Basic Maintenance Amount, and on the third Business Day after the Preferred
Shares Basic Maintenance Cure Date with respect to such Valuation Date, the
Trust shall complete and deliver to Moody's and the Auction Agent (if Moody's is
then rating the Preferred Shares) a Preferred Shares Basic Maintenance Report as
of the date of such failure or such Preferred Shares Basic Maintenance Cure
Date, as the case may be, which will be deemed to have been delivered to the
Auction Agent if the Auction Agent receives a copy or telecopy, telex or other
electronic transcription thereof and on the same day the Trust mails to the
Auction Agent for delivery on the next
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Business Day the full Preferred Shares Basic Maintenance Report. The Trust shall
also deliver a Preferred Shares Basic Maintenance Report to (i) the Auction
Agent (if Moody's is then rating the Preferred Shares) as of (A) the fifteenth
day of each month (or, if such day is not a Business Day, the next succeeding
Business Day) and (B) the last Business Day of each month and (ii) Moody's (if
Moody's is then rating the Preferred Shares) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day. A failure by
the Trust to deliver a Preferred Shares Basic Maintenance Report pursuant to the
preceding sentence shall be deemed to be delivery of a Preferred Shares Basic
Maintenance Report indicating the Discounted Value for all assets of the Trust
is less than the Preferred Shares Basic Maintenance Amount, as of the relevant
Valuation Date.
(c) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7 relating to a Quarterly Valuation Date, the Trust shall cause the Independent
Accountant to confirm in writing to Moody's and the Auction Agent (if Moody's is
then rating the Preferred Shares) (i) the mathemat ical accuracy of the
calculations reflected in such Report (and in any other Preferred Shares Basic
Maintenance Report, randomly selected by the Independent Accountant, that was
prepared by the Trust during the quarter ending on such Quarterly Valuation
Date), (ii) that, in such Report (and in such randomly selected Report), the
Trust determined in accordance with this Statement whether the Trust had, at
such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), Moody's Eligible Assets (if Moody's is then rating
the Preferred Shares) of an aggregate Discounted Value at least equal to the
Preferred Shares Basic Mainte nance Amount (such confirmation being herein
called the "Accountant's Confirmation"), (iii) that, in such Report (and in such
randomly selected Report), the Trust determined whether the Trust had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with this Statement, Moody's Eligible Assets of
an aggregate Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount, (iv) with respect to the S&P ratings on Municipal
Obligations, the issuer name, issue size and coupon rate listed in such Report,
that the Independent Accountant has sought to verify by reference to Bloomberg
Financial Services or another independent source approved in writing by Moody's,
and the Independent Accountant shall provide a listing in its letter of any
differences, (v) with respect to the Moody's ratings on Municipal Obligations,
the issuer name, issue size and coupon rate listed in such Report, that the
Independent Accountant has sought to verify by reference to Bloomberg Financial
Services or another independent source approved in writing by Moody's, and the
Independent Accountant shall provide a listing in its letter of any differences,
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculat ing the Market Value) provided by the custodian of the
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's, that the
Trust has satisfied the requirements of Section 13 of Appendix A to this
Statement (such information is herein called the "Accountant's Confirmation").
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(d) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7 relating to any Valuation Date on which the Trust failed to satisfy the
Preferred Shares Basic Maintenance Amount, and relating to the Preferred Shares
Basic Maintenance Cure Date with respect to such failure to satisfy the
Preferred Shares Basic Maintenance Amount, the Trust shall cause the Independent
Accountant to provide to Moody's and the Auction Agent (if Moody's is then
rating the Preferred Shares) an Accountant's Confirmation as to such Preferred
Shares Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c)
or (d) of this Section 7 shows that an error was made in the Preferred Shares
Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all Moody's Eligible Assets (if
Moody's is then rating the Preferred Shares), as the case may be, of the Trust
was determined by the Independent Accountant, the calculation or determination
made by such Independent Accountant shall be final and conclusive and shall be
binding on the Trust, and the Trust shall accordingly amend and deliver the
Preferred Shares Basic Maintenance Report to Moody's and the Auction Agent (if
Moody's is then rating the Preferred Shares) promptly following receipt by the
Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any Preferred Shares, the Trust shall
complete and deliver to Moody's (if Moody's is then rating the Preferred Shares)
a Preferred Shares Basic Maintenance Report as of the close of business on such
Date of Original Issue.
(g) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Trust shall have redeemed Common Shares or (ii) the ratio
of the Discounted Value of Moody's Eligible Assets to the Preferred Shares Basic
Maintenance Amount is less than or equal to 105%, the Trust shall complete and
deliver to Moody's (if Moody's is then rating the Preferred Shares) a Preferred
Shares Basic Maintenance Report as of the date of either such event or (iii)
whenever requested by Moody's.
8. RESERVED
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON SHARES OTHER THAN THE PREFERRED SHARES. Except as set
forth in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of shares of beneficial
interest of the Trust ranking, as to the payment of dividends, on a parity with
the Preferred Shares for any period unless full cumulative dividends have been
or contemporaneously are declared and paid on the shares of each series of the
Preferred Shares through its most recent Dividend Payment Date. When dividends
are not paid in full upon the shares of each series of the Preferred Shares
through its
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most recent Dividend Payment Date or upon the shares of any other class or
series of shares of beneficial interest of the Trust ranking on a parity as to
the payment of dividends with the Preferred Shares through their most recent
respective dividend payment dates, all dividends declared upon the Preferred
Shares and any other such class or series of shares of beneficial interest
ranking on a parity as to the payment of dividends with Preferred Shares shall
be declared pro rata so that the amount of dividends declared per share on
Preferred Shares and such other class or series of shares of beneficial interest
shall in all cases bear to each other the same ratio that accumulated dividends
per share on the Trust and such other class or series of shares of beneficial
interest bear to each other (for purposes of this sentence, the amount of
dividends declared per share of Preferred Shares shall be based on the
Applicable Rate for such share for the Dividend Periods during which dividends
were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES UNDER
THE 1940 ACT. The Board of Trustees shall not declare any dividend (except a
dividend payable in Common Shares), or declare any other distribution, upon the
Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (or such other asset coverage as may in the future be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are
shares or stock of a closed-end investment company as a condition of declaring
dividends on its common shares or stock) after deducting the amount of such
dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long
as any Preferred Shares are outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the
Trust shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the Preferred Shares as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Shares or any other shares of the Trust
ranking junior to or on a parity with the Preferred Shares as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Trust ranking junior to the
Preferred Shares as to the payment of dividends and the distribution of assets
upon dissolution, liquidation or winding up), or any such parity shares (except
by conversion into or exchange for shares of the Trust ranking junior to or on a
parity with Preferred Shares as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up), unless (i) full
cumulative dividends on shares of each series of Preferred Shares through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Trust has redeemed the full number of Preferred Shares
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Trust shall
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not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or in options,
warrants or rights to subscribe for or purchase, Common Shares or other shares,
if any, ranking junior to Preferred Shares as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up) in
respect of Common Shares or any other shares of the Trust ranking junior to
Preferred Shares as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the
Trust ranking junior to Preferred Shares as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless
immediately after such transaction the Discounted Value of Moody's Eligible
Assets (if Moody's is then rating the Preferred Shares) would at least equal the
Preferred Shares Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any Preferred Shares are outstanding and Moody's is rating
such shares, the Trust will not, unless it has received written confirmation
from Moody's that any such action would not impair the rating then assigned by
such rating agency to such shares, engage in any one or more of the following
transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Trust may, without obtaining the written
confirmation described above, borrow money for the purpose of clearing
securities transactions if (i) the Preferred Shares Basic Maintenance Amount
would continue to be satisfied after giving effect to such borrowing and (ii)
such borrowing (A) is privately arranged with a bank or other person and is
evidenced by a promissory note or other evidence of indebtedness that is not
intended to be publicly distributed or (B) is for "temporary purposes," is
evidenced by a promissory note or other evidence of indebtedness and is in an
amount not exceeding 5 per centum of the value of the total assets of the Trust
at the time of the borrowing; for purposes of the foregoing, "tempo rary
purpose" means that the borrowing is to be repaid within sixty days and is not
to be extended or renewed;
(c) issue additional shares of any series of Preferred Shares or any class
or series of shares ranking prior to or on a parity with Preferred Shares with
respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the Trust, or reissue any Preferred
Shares previously purchased or redeemed by the Trust;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
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(g) change the pricing service (currently Muller Data Corporation)
referred to in the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) Subject to the provisions of subparagraph (v) of this
paragraph (a), Preferred Shares of any series may be redeemed, at the
option of the Trust, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series,
out of funds legally available therefor, at a redemption price per share
equal to the sum of $25,000 plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; provided, however, that (1)
shares of a series of Preferred Shares may not be redeemed in part if after
such partial redemption fewer than 300 shares of such series remain
outstanding; (2) unless otherwise provided in Section 11 of Appendix A
hereto, shares of a series of Preferred Shares are redeemable by the Trust
during the Initial Rate Period thereof only on the second Business Day next
preceding the last Dividend Payment Date for such Initial Rate Period; and
(3) subject to subparagraph (ii) of this paragraph (a), the Notice of
Special Rate Period relating to a Special Rate Period of shares of a series
of Preferred Shares, as delivered to the Auction Agent and filed with the
Secretary of the Trust, may provide that shares of such series shall not be
redeemable during the whole or any part of such Special Rate Period (except
as provided in subparagraph (iv) of this paragraph a)) or shall be redeem
able during the whole or any part of such Special Rate Period only upon
payment of such redemption premium or premiums as shall be specified
therein ("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a
series of Preferred Shares for a Special Rate Period thereof may contain
Special Redemption Provisions only if the Trust's Board of Trustees, after
consultation with the Broker-Dealer or Broker-Dealers for such Special Rate
Period of shares of such series, determines that such Special Redemption
Provisions are in the best interest of the Trust.
(iii) If fewer than all of the outstanding shares of a series of
Preferred Shares are to be redeemed pursuant to subparagraph (i) of this
paragraph (a), the number of shares of such series to be redeemed shall be
determined by the Board of Trustees, and such shares shall be redeemed pro
rata from the Holders of shares of such series in proportion to the number
of shares of such series held by such Holders.
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(iv) Subject to the provisions of subparagraph (v) of this
paragraph (a), shares of any series of Preferred Shares may be redeemed, at
the option of the Trust, as a whole but not in part, out of funds legally
available therefor, on the first day following any Dividend Period thereof
included in a Rate Period consisting of more than 364 Rate Period Days if,
on the date of determination of the Applicable Rate for shares of such
series for such Rate Period, such Applicable Rate equaled or exceeded on
such date of determination the Treasury Note Rate for such Rate Period, at
a redemption price per share equal to the sum of $25,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption.
(v) The Trust may not on any date mail a Notice of Redemption
pursuant to para graph (c) of this Section 11 in respect of a redemption
contemplated to be effected pursuant to this paragraph (a) unless on such
date (a) the Trust has available Deposit Securities with maturity or tender
dates not later than the day preceding the applicable redemption date and
having a value not less than the amount (including any applicable premium)
due to Holders of Preferred Shares by reason of the redemption of such
shares on such redemption date and (b) the Discounted Value of Moody's
Eligible Assets (if Moody's is then rating the Preferred Shares) at least
equals the Preferred Shares Basic Maintenance Amount, and would at least
equal the Preferred Shares Basic Maintenance Amount immediately subsequent
to such redemption if such redemption were to occur on such date. For
purposes of determining in clause (b) of the preceding sentence whether the
Discounted Value of Moody's Eligible Assets at least equals the Preferred
Shares Basic Maintenance Amount, the Moody's Discount Factors applicable to
Moody's Eligible Assets shall be determined by reference to the first
Exposure Period longer than the Exposure Period then applicable to the
Trust, as described in the definition of Moody's Discount Factor herein.
(b) MANDATORY REDEMPTION. The Trust shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the Preferred Shares, if the Trust
fails to have either Moody's Eligible Assets with a Discounted Value greater
than or equal to the Preferred Shares Basic Maintenance Amount or fails to
maintain the 1940 Act Preferred Shares Asset Coverage, in accordance with the
requirements of the rating agency or agencies then rating the Preferred Shares,
and such failure is not cured on or before the Preferred Shares Basic
Maintenance Cure Date or the 1940 Act Cure Date, as the case may be. The number
of Preferred Shares to be redeemed shall be equal to the lesser of (i) the
minimum number of Preferred Shares, together with all other preferred shares
subject to redemption or retirement, the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the Cure Date, would
have resulted in the Trust's having Moody's Eligible Assets with a Discounted
Value greater than or equal to the Preferred Shares
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Basic Maintenance Amount or maintaining the 1940 Act Preferred Shares Asset
Coverage, as the case may be, on such Cure Date (provided, however, that if
there is no such minimum number of Preferred Shares and other preferred shares
the redemption or retirement of which would have had such result, all Preferred
Shares and other Preferred Shares then outstanding shall be redeemed), and (ii)
the maximum number of Preferred Shares, together with all other Preferred Shares
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor in accordance with the Declaration and
applicable law. In determining the Preferred Shares required to be redeemed in
accordance with the foregoing, the Trust shall allocate the number required to
be redeemed to satisfy the Preferred Shares Basic Maintenance Amount or the 1940
Act Preferred Shares Asset Coverage, as the case may be, pro rata among
Preferred Shares and other preferred shares (and, then, pro rata among each
series of Preferred Shares) subject to redemption or retirement. The Trust shall
effect such redemption on the date fixed by the Trust therefor, which date shall
not be earlier than 20 days nor later than 40 days after such Cure Date, except
that if the Trust does not have funds legally available for the redemption of
all of the required number of the Preferred Shares and other preferred shares
which are subject to redemption or retirement or the Trust otherwise is unable
to effect such redemption on or prior to 40 days after such Cure Date, the Trust
shall redeem those Preferred Shares and other preferred shares which it was
unable to redeem on the earliest practicable date on which it is able to effect
such redemption. If fewer than all of the outstanding shares of a series of
Preferred Shares are to be redeemed pursuant to this paragraph (b), the number
of shares of such series to be redeemed shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Trust shall determine or be required to
redeem shares of a series of Preferred Shares pursuant to paragraph (a) or (b)
of this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
record books of the Trust on the record date established by the Board of
Trustees. Such Notice of Redemption shall be so mailed not less than 20 nor more
than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of Preferred
Shares to be redeemed and the series thereof; (iii) the CUSIP number for shares
of such series; (iv) the Redemption Price; (v) the place or places where the
certificate(s) for such shares (properly endorsed or assigned for transfer, if
the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of Preferred Shares
held by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Trust may provide in any Notice of Redemption relating to
a redemption contemplated to be effected pursuant to paragraph (a) of this
Section 11 that such redemption is subject to one or more conditions precedent
and that the Trust shall not be required to effect such redemption unless each
such condition shall
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have been satisfied at the time or times and in the manner specified in such
Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of Preferred Shares (whether or not earned or declared) are
in arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Trust shall not
purchase or otherwise acquire any shares of such series; provided, however, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem
Preferred Shares shall be deemed to exist at any time after the date specified
for redemption in a Notice of Redemption when the Trust shall have failed, for
any reason whatsoever, to deposit in trust with the Auction Agent the Redemption
Price with respect to any shares for which such Notice of Redemption has been
mailed; provided, however, that the foregoing shall not apply in the case of the
Trust's failure to deposit in trust with the Auction Agent the Redemption Price
with respect to any shares where (1) the Notice of Redemption relating to such
redemption provided that such redemption was subject to one or more conditions
precedent and (2) any such condition precedent shall not have been satisfied at
the time or times and in the manner specified in such Notice of Redemption.
Notwithstanding the fact that the Trust may not have redeemed Preferred Shares
for which a Notice of Redemption has been mailed, dividends may be declared and
paid on Preferred Shares and shall include those Preferred Shares for which a
Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for payment of the Redemption Price of Preferred
Shares called for redemption shall be held in trust by the Auction Agent for the
benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the Preferred Shares that are the subject of such notice,
dividends on such shares shall cease to accumulate and such shares shall no
longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as
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provided in subparagraph (e)(i) of Section 2 of this Part I and in Section 3 of
this Part I. Upon surrender in accordance with the Notice of Redemption of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Trustees shall so require and the Notice of Redemption
shall so state), the Redemption Price shall be paid by the Auction Agent to the
Holders of Preferred Shares subject to redemption. In the case that fewer than
all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued, representing the unredeemed shares, without cost to
the Holder thereof. The Trust shall be entitled to receive from the Auction
Agent, promptly after the date fixed for redemption, any cash deposited with the
Auction Agent in excess of (i) the aggregate Redemption Price of the Preferred
Shares called for redemption on such date and (ii) all other amounts to which
Holders of Preferred Shares called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Trust, after which time
the Holders of Preferred Shares so called for redemption may look only to the
Trust for payment of the Redemption Price and all other amounts to which they
may be entitled. The Trust shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant
to this Section 11, the Trust shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and any applicable Delaware law, but shall effect no redemption except in
accordance with the 1940 Act and any applicable Delaware law.
(i) ONLY WHOLE PREFERRED SHARES MAY BE REDEEMED. In the case of any
redemption pursuant to this Section 11, only whole Preferred Shares shall be
redeemed, and in the event that any provision of the Declaration would require
redemption of a fractional share, the Auction Agent shall be authorized to round
up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of Preferred Shares shall rank on a
parity with each other, with shares of any other series of preferred shares and
with shares of any other series of Preferred Shares as to the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Trust.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Trust, whether voluntary or involuntary, the
Holders of Preferred Shares then outstanding shall be entitled to receive and to
be paid out of the assets of the Trust available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Shares or on any other class of shares of the Trust ranking junior to the
Preferred Shares upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Prefer ence with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final distribution in
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same day funds, together with any payments required to be made pursuant to
Section 3 of this Part I in connection with the liquidation of the Trust. After
the payment to the Holders of the Preferred Shares of the full preferential
amounts provided for in this paragraph (b), the Holders of Preferred Shares as
such shall have no right or claim to any of the remaining assets of the Trust.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Trust
available for distribution to the Holders of Preferred Shares upon any
dissolution, liquidation, or winding up of the affairs of the Trust, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to paragraph (b) of this Section 12, no
such distribution shall be made on account of any shares of any other class or
series of preferred shares ranking on a parity with the Preferred Shares with
respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the Preferred Shares, ratably, in proportion to the full distributable amounts
for which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
Preferred Shares with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Trust, after payment shall have
been made in full to the Holders of the Preferred Shares as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of shares ranking junior to the Preferred Shares with respect
to the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the Holders of the Preferred Shares shall not be
entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all
or substantially all the property or business of the Trust, nor the merger or
consolidation of the Trust into or with any business trust or corporation nor
the merger or consolidation of any business trust or corporation into or with
the Trust shall be a dissolution, liquidation or winding up, whether voluntary
or involuntary, for the purposes of this Section 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Trustees
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amend ments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this Statement without
shareholder approval or (2) add additional series of Preferred Shares or
additional shares of a series of Preferred Shares (and terms relating thereto)
to the series and
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Preferred Shares theretofore described thereon. Each such additional series and
all such additional shares shall be governed by the terms of this Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of Preferred Shares shall
be issued.
(d) STATUS OF PREFERRED SHARES REDEEMED, EXCHANGED OR OTHER WISE ACQUIRED
BY THE TRUST. Preferred Shares which are redeemed, exchanged or otherwise
acquired by the Trust shall return to the status of authorized and unissued
preferred shares without designation as to series.
(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of Preferred
Shares prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified in
the By-Laws of the Trust or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
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PART II.
1. ORDERS.
(a) Prior to the Submission Deadline on each Auction Date for shares of a
series of Preferred Shares:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable
Rate for shares of such series for the next succeeding Rate
Period of such shares;
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
offers to sell if the Applicable Rate for shares of such series
for the next succeeding Rate Period of shares of such series
shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of
such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Beneficial Owners (by telephone or other wise), including
Persons that are not Beneficial Owners, on such lists to determine the
number of shares, if any, of such series which each such Potential
Beneficial Owner offers to purchase if the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of such
series shall not be less than the rate per annum specified by such
Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i) (A), (i) (B), (i) (C) or
(ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the
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Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively
as "Hold Orders"; an Order containing the information referred to in clause
(i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and
collectively as "Bids"; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order"
and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of Preferred Shares subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such
series determined on such Auction Date shall be less than the
rate specified therein;
(B) such number or a lesser number of Outstanding shares of
such series to be determined as set forth in clause (iv) of
paragraph (a) of Section 4 of this Part II if the Applicable Rate
for shares of such series determined on such Auction Date shall
be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series
specified in such Bid if the rate specified therein shall be
higher than the Maximum Rate for shares of such series, or such
number or a lesser number of Outstanding shares of such series to
be determined as set forth in clause (iii) of paragraph (b) of
Section 4 of this Part II if the rate specified therein shall be
higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of
a series of Preferred Shares subject to an Auction on any Auction Date
shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (iii) of paragraph (b) of
Section 4 of this Part II if Sufficient Clearing Bids for shares
of such series do not exist; provided, however, that a Broker-
Dealer that is an Existing Holder with respect to shares of a
series of Preferred Shares shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in
the proviso to paragraph (c) of Section 2 of this Part II if (1)
such shares
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were transferred by the Beneficial Owner thereof without
compliance by such Beneficial Owner or its transferee Broker-
Dealer (or other transferee person, if permitted by the Trust)
with the provisions of Section 7 of this Part II or (2) such
Broker-Dealer has informed the Auction Agent pursuant to the
terms of its Broker-Dealer Agreement that, according to such
Broker-Dealer's records, such Broker-Dealer believes it is not
the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of shares
of a series of Preferred Shares subject to an Auction on any Auction
Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such
series determined on such Auction Date shall be higher than the
rate specified therein; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (v) of paragraph (a) of
Section 4 of this Part II if the Applicable Rate for shares of
such series determined on such Auction Date shall be equal to
the rate specified therein.
(C) No Order for any number of Preferred Shares other than whole shares
shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders for Preferred Shares
of a series subject to an Auction on such Auction Date obtained by such Broker-
Dealer, designating itself (unless otherwise permitted by the Trust) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-
Dealer unless otherwise permitted by the Trust);
(ii) the aggregate number of shares of such series that are the subject of
such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares of such
series:
(A) the number of shares, if any, of such series subject to
any Hold Order of such Existing Holder;
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(B) the number of shares, if any, of such series subject to
any Bid of such Existing Holder and the rate specified in such
Bid; and
(C) the number of shares, if any, of such series subject to
any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding Preferred Shares
of a series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to
have been submitted by or on behalf of such Existing Holder covering the number
of Outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent; provided, however, that if an
Order or Orders covering all of the Outstanding shares of such series held by
any Existing Holder is not submitted to the Auction Agent prior to the
Submission Deadline for an Auction relating to a Special Rate Period consisting
of more than 28 Rate Period Days, the Auction Agent shall deem a Sell Order to
have been submitted by or on behalf of such Existing Holder covering the number
of outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
Preferred Shares of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered valid,
but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if
the number of shares of such series subject to such Hold Orders
exceeds the number of Outstanding shares of such series held by such
Existing Holder, the number of shares subject to each such Hold Order
shall be reduced pro rata to cover the number of Outstanding shares of
such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up to
and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares of such
series subject to any Hold Orders referred to in clause (i) above;
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(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and including
the amount of such excess, and the number of shares of such
series subject to each Bid with the same rate shall be reduced
pro rata to cover the number of shares of such series equal to
such excess;
(C) subject to subclauses (A) and (B), if more than one Bid
of an Existing Holder for shares of such series is submitted to
the Auction Agent with different rates, such Bids shall be
considered valid in the ascending order of their respective rates
up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids
considered not valid in whole or in part under this clause (ii)
shall be treated as the subject of a Bid for shares of such
series by or on behalf of a Potential Holder at the rate therein
specified; and
(iii) all Sell Orders for shares of such series shall be considered valid
up to and including the excess of the number of Outstanding shares of
such series held by such Existing Holder over the sum of shares of
such series subject to valid Hold Orders referred to in clause (i)
above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of Preferred
Shares is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE
RATE.
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Preferred Shares, the Auction Agent shall assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to
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individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
Order," as the case may be, or as a "Submitted Order" and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the
case may be, or as "Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over the
number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
Preferred Shares" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject
to Submitted Bids of Potential Holders specifying one or more
rates equal to or lower than the Maximum Rate for shares of such
series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject
to Submitted Bids of Existing Holders specifying one or more
rates higher than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject
to Submitted Sell Orders
(in the event such excess or such equality exists (other than because
the number of shares of such series in subclauses (B) and (C) above is
zero because all of the Outstanding shares of such series are subject
to Submitted Hold Orders), such Submitted Bids in subclause (A) above
being hereinafter referred to collectively as "Sufficient Clearing
Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate"
for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were accepted;
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would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in
subclause (B) above, would equal not less than the Available Preferred
Shares of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Trust of
the Maximum Rate for shares of the series of Preferred Shares for which an
Auction is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that
the Applicable Rate for all shares of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid
Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist
(other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), that the Applicable Rate for
all shares of such series for the next succeeding Rate Period
thereof shall be equal to the Maximum Rate for shares of such
series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of
such series for the next succeeding Rate Period thereof shall be
as set forth in Section 12 of Appendix A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES.
Existing Holders shall continue to hold the Preferred Shares that are
subject to Submitted Hold Orders, and, based on the determinations made pursuant
to paragraph (a) of Section 3 of this Part II, the Submitted Bids and Submitted
Sell Orders shall be accepted or rejected by the Auction Agent and the Auction
Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of Preferred Shares
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying
any rate that is higher than the Winning Bid Rate for shares of such
series shall be accepted,
AA-49
<PAGE>
thus requiring each such Existing Holder to sell the Preferred Shares
subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the Preferred Shares subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to
continue to hold the Preferred Shares subject to such Submitted Bid,
unless the number of Outstanding Preferred Shares subject to all such
Submitted Bids shall be greater than the number of Preferred Shares
("remaining shares") in the excess of the Available Preferred Shares
of such series over the number of Preferred Shares subject to
Submitted Bids described in clauses (ii) and (iii) of this paragraph
(a), in which event such Submitted Bid of such Existing Holder shall
be rejected in part, and such Existing Holder shall be entitled to
continue to hold Preferred Shares subject to such Submitted Bid, but
only in an amount equal to the number of Preferred Shares of such
series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding
Preferred Shares held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding Preferred Shares subject to such Submitted Bids
made by all such Existing Holders that specified a rate equal to the
Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the
number of shares of such series obtained by multiplying the number of
shares in the excess of the Available Preferred Shares of such series
over the number of Preferred Shares subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a
fraction, the numerator of which shall be the number of Outstanding
Preferred Shares subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding Preferred Shares
subject to such Submitted Bids made by all such Potential Holders that
specified a rate equal to the Winning Bid Rate for shares of such
series.
AA-50
<PAGE>
(b) If Sufficient Clearing Bids for shares of a series of Preferred Shares
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate
for shares of such series shall be rejected, thus entitling such
Existing Holders to continue to hold the Preferred Shares subject to
such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of
such series and the Submitted Sell Orders for shares of such series of
each Existing Holder shall be accepted, thus entitling each Existing
Holder that submitted or on whose behalf was submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such
series subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of shares of such
series obtained by multiplying the number of shares of such series
subject to Submitted Bids de scribed in clause (ii) of this paragraph
(b) by a fraction, the numerator of which shall be the number of
Outstanding shares of such series held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate number of Outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of Preferred Shares are
subject to Submit ted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of Preferred
Shares on any Auction Date, the Auction Agent shall, in such manner as it shall
determine in its sole discretion, round up or down the number of Preferred
Shares of such series to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date as a result of such procedures so that the
number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole Preferred Shares.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share
AA-51
<PAGE>
of a series of Preferred Shares on any Auction Date, the Auction Agent shall, in
such manner as it shall determine in its sole discretion, allocate Preferred
Shares of such series for purchase among Potential Holders so that only whole
shares of Preferred Shares of such series are purchased on such Auction Date as
a result of such procedures by any Potential Holder, even if such allocation
results in one or more Potential Holders not purchasing Preferred Shares of such
series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
Preferred Shares, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, Preferred Shares of such series.
Notwithstanding any provision of the Auction Procedures to the contrary, in the
event an Existing Holder or Beneficial Owner of a series of Preferred Shares
with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for
such shares that was accepted in whole or in part, or submitted or is deemed to
have submitted a Sell Order for such shares that was accepted in whole or in
part, fails to instruct its Agent Member to deliver such shares against payment
therefor, partial deliveries of Preferred Shares that have been made in respect
of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares
of such series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver Preferred Shares of any series
or to pay for Preferred Shares of any series sold or purchased pursuant to the
Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS.
Whenever the Trust intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on Preferred Shares, the
Trust may, but shall not be required to, notify the Auction Agent of the amount
to be so included not later than the Dividend Payment Date next preceding the
Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Trust, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its Beneficial Owners and Potential Beneficial Owners of Preferred
Shares believed by it to be interested in submitting an Order in the Auction to
be held on such Auction Date.
AA-52
<PAGE>
6. AUCTION AGENT.
For so long as any Preferred Shares are outstanding, the Auction Agent,
duly appointed by the Trust to so act, shall be in each case a commercial bank,
trust company or other financial institution independent of the Trust and its
affiliates (which however, may engage or have engaged in business transactions
with the Trust or its affiliates) and at no time shall the Trust or any of its
affiliates act as the Auction Agent in connection with the Auction Procedures.
If the Auction Agent resigns or for any reason its appointment is terminated
during any period that any Preferred Shares are outstanding, the Board of
Trustees shall use its best efforts promptly thereafter to appoint another
qualified commercial bank, trust company or financial institution to act as the
Auction Agent. The Auction Agent's registry of Existing Holders of a series of
Preferred Shares shall be conclusive and binding on the Broker-Dealers. A
Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on the Business
Day preceding an Auction for a series of Preferred Shares and 9:30 a.m. on the
Auction Date for such Auction to ascertain the number of shares of such series
in respect of which the Auction Agent has determined such Broker-Dealer to be an
Existing Holder. If such Broker-Dealer believes it is the Existing Holder of
fewer shares of such series than specified by the Auction Agent in response to
such Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent
of that belief. Such Broker-Dealer shall not, in its capacity as Existing
Holder of shares of such series, submit Orders in such Auction in respect of
shares of such series covering in the aggregate more than the number of shares
of such series specified by the Auction Agent in response to such Broker-
Dealer's inquiry.
7. TRANSFER OF PREFERRED SHARES.
Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing
Holder may sell, transfer or otherwise dispose of Preferred Shares only in whole
shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in
accordance with the procedures described in this Part II or to a Broker-Dealer;
provided, however, that (a) a sale, transfer or other disposition of Preferred
Shares from a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such shares to that Broker-Dealer or another
customer of that Broker-Dealer shall not be deemed to be a sale, transfer or
other disposition for purposes of this Section 7 if such Broker-Dealer remains
the Existing Holder of the shares so sold, transferred or disposed of
immediately after such sale, transfer or disposition and (b) in the case of all
transfers other than pursuant to Auctions, the Broker-Dealer (or other Person,
if permitted by the Trust) to whom such transfer is made shall advise the
Auction Agent of such transfer.
8. GLOBAL CERTIFICATE.
Prior to the commencement of a Voting Period, (i) all of the shares of a
series of Preferred Shares outstanding from time to time shall be represented by
one global certificate registered in the name of the Securities Depository or
its nominee and (ii) no registration of
AA-53
<PAGE>
transfer of shares of a series of Preferred Shares shall be made on the books of
the Trust to any Person other than the Securities Depository or its nominee.
IN WITNESS WHEREOF, THE BLACKROCK STRATEGIC MUNICIPAL TRUST, has caused
these presents to be signed on , 1999 in its name and on its behalf by its
President and attested by its [Assistant Secretary]. Said officers of the Trust
have executed this Statement as officers and not individually, and the
obligations and rights set forth in this Statement are not binding upon any such
officers, or the trustees or shareholders of the Trust, individually, but are
binding only upon the assets and property of the Trust.
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC
MUNICIPAL TRUST
By:
----------------------------------
Name:
Title:
- --------------------------------------------------------------------------------
ATTEST:
-----------------------
Name:
Title:
- --------------------------------------------------------------------------------
[ ], 1999
AA-54
<PAGE>
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES $25,000: A series of 3,720 Preferred Shares, par value $.001 per
share, liquidation preference per share, is hereby designated "Municipal Auction
Rate Cumulative Preferred Shares, Series W." Each of the [ ] shares of
Series W Preferred Shares issued on [ ], 1999 shall, for purposes
hereof, be deemed to have a Date of Original Issue of [ ], 1999; have
an Applicable Rate for its Initial Rate Period equal to [ ]% per annum; have an
initial Dividend Payment Date of [ ], 1999; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Agreement and Declaration of
Trust applicable to Preferred Shares of the Trust, as set forth in Part I and
Part II of this Statement. Any shares of Series W Preferred Shares issued
thereafter shall be issued on the first day of a Rate Period of the then
outstanding shares of Series W Preferred Shares, shall have, for such Rate
Period, an Applicable Rate equal to the Applicable Rate for shares of such
series established in the first Auction for shares of such series preceding the
date of such issuance; and shall have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Agreement and Declaration of Trust applicable to Preferred Shares
of the Trust, as set forth in Part I and Part II of this Statement. The Series W
Preferred Shares shall constitute a separate series of Preferred Shares of the
Trust, and each share of Series W Preferred Shares shall be identical except as
provided in Section 11 of Part I of this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series W Preferred
Shares is 3,720.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading
"Definitions" in this Statement, the following terms shall have the following
meanings for purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
AAA-1
<PAGE>
"GROSS-UP PAYMENT" means payment to a Holder of Preferred Shares of an
amount which, when taken together with the aggregate amount of Taxable
Allocations made to such Holder to which such Gross-up Payment relates,
would cause such Holder's dividends in dollars (after Federal income tax
consequences) from the aggregate of such Taxable Allocations and the
related Gross-up Payment to be at least equal to the dollar amount of the
dividends which would have been received by such Holder if the amount of
such aggregate Taxable Allocations had been excludable from the gross
income of such Holder. Such Gross-up Payment shall be calculated (i)
without consideration being given to the time value of money; (ii) assuming
that no Holder of Preferred Shares is subject to the Federal alternative
minimum tax with respect to dividends received from the Trust; and (iii)
assuming that each Taxable Allocation and each Gross- up Payment (except to
the extent such Gross-up Payment is designated as an exempt-interest
dividend under Section 852(b)(5) of the Code or successor provisions) would
be taxable in the hands of each Holder of Preferred Shares at the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or net capital gain, as applicable, or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income or net
capital gain, as applicable, which ever is greater, in effect at the time
such Gross-up Payment is made.
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of deter mining
the Discounted Value of any Moody's Eligible Asset, the percentage
determined by reference to the rating on such asset and the shortest
Exposure Period set forth opposite such rating that is the same length as
or is longer than the Moody's Exposure Period, in accordance with the table
set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
RATING CATEGORY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exposure Period AAA AA* A* BAA* Other** (V)MIG-1*** SP-1+**** UNRATED
- --------------- *****
- ---------------------------------------------------------------------------------------------------
7 weeks ..................... 151% 159% 166% 173% 187% 136% 148% 225%
- ---------------------------------------------------------------------------------------------------
8 weeks or less but greater 154 161 168 176 190 137 149 231
then seven weeks ............
- ---------------------------------------------------------------------------------------------------
9 weeks or less but greater 156 163 170 177 192 138 150 240
than eight weeks ............
- ---------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or
have a demand feature at par exercisable in 30 days and which do not
have a long-term rating.
AAA-2
<PAGE>
**** Municipal Obligations not rated by Moody's but rated SP-1+ by S&P,
which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating.
***** Municipal Obligations rated less than Baa3 by Moody's or less than BBB
by S&P or not rated by Moody's or S&P.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for short-
term Municipal Obligations will be 115%, so long as such Municipal Obligations
are rated at least MIG-1, VMIG-l or P-1 by Moody's and mature or have a demand
feature at par exercisable in 30 days or less or 125% as long as such Municipal
Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a
demand feature at par exercisable in 30 days or less and (ii) no Moody's
Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash,
(ii) does not have its Moody's rating, as applicable, suspended by Moody's,
and (iii) is part of an issue of Municipal Obligations of at least
$10,000,000. Municipal Obligations issued by any one issuer and rated BBB
or lower by S&P, Ba or B by Moody's or not rated by S&P and Moody's ("Other
Securities") may comprise no more than 4% of total Moody's Eligible Assets;
such Other Securi ties, if any, together with any Municipal Obligations
issued by the same issuer and rated Baa by Moody's or A by S&P, may
comprise no more than 6% of total Moody's Eligible Assets; such Other
Securities, Baa and A-rated Municipal Obligations, if any, together with
any Municipal Obligations issued by the same issuer and rated A by Moody's
or AA by S&P, may comprise no more than 10% of total Moody's Eligible
Assets; and such Baa, A and AA-rated Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and rated
Aa by Moody's or AAA by S&P, may comprise no more than 20% of total Moody's
Eligible Assets. For purposes of the foregoing sentence, any Municipal
Obligation backed by the guaranty, letter of credit or insurance issued by
a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating
on such Municipal Obligation. Other Securities issued by issuers located
within a single state or territory may comprise no more than 12% of total
Moody's Eligible Assets; such Other Securities, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Baa by Moody's or A by S&P, may comprise no more than
20% of total Moody's Eligible Assets; such Other Securities, Baa and A-
rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory
and rated A by Moody's or AA by S&P, may comprise no more than 40% of total
AAA-3
<PAGE>
Moody's Eligible Assets; and such Other Securities, Baa, A and AA-rated
Munici pal Obligations, if any, together with any Municipal Obligations
issued by issuers located within the same state or territory and rated Aa
by Moody's or AAA by S&P, may comprise no more than 60% of total Moody's
Eligible Assets. For purposes of applying the foregoing requirements, a
Municipal Obligation shall be deemed to be rated BBB by S&P if rated BBB-,
BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated without
including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be
considered to have a long-term rating of A. When the Trust sells a
Municipal Obligation and agrees to repurchase such Municipal Obligation at
a future date, such Municipal Obligation shall be valued at its Discounted
Value for purposes of determining Moody's Eligible Assets, and the amount
of the repurchase price of such Municipal Obligation shall be included as a
liability for purposes of calculating the Preferred Basic Maintenance
Amount. When the Trust purchases a Moody's Eligible Asset and agrees to
sell it at a future date, such Eligible Asset shall be valued at the amount
of cash to be received by the Trust upon such future date, provided that
the counterparty to the transaction has a long-term debt rating of at least
A2 from Moody's and the transaction has a term of no more than 30 days,
otherwise such Eligible Asset shall be valued at the Discounted Value of
such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material lien,
mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Trust
will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (c) Liens to secure payment for services rendered or cash
advanced to the Trust by BlackRock Advisors, Inc., BlackRock Financial
Management, Inc., State Street Bank and Trust or the Auction Agent and (d) Liens
by virtue of any repurchase agreement; or (iii) deposited irrevocably for the
payment of any liabilities for purposes of determining the Preferred Shares
Basic Maintenance Amount.
"RATE MULTIPLE," for shares of a series of Preferred Shares on any
Auction Date for shares of such series, shall mean the percentage, determined as
set forth in the columns below (depending on whether the trust has notified the
Auction Agent of its intent to allocate income taxable for Federal income tax
purposes to shares of such series prior to the Auction establishing the
Applicable Rate for shares of such series as provided in this statement) based
on the prevailing rating of shares of such series in effect at the close of
business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PREVAILING RATING APPLICABLE PERCENTAGE APPLICABLE PERCENTAGE
--NO NOTIFICATION NOTIFICATION
- ---------------------------------------------------- -------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
"aa3"/AA-- or higher 110% 150%
- --------------------------------------------------------------------------------
"a3"/A-- 125% 160%
- --------------------------------------------------------------------------------
"baa3"/BBB-- 150% 250%
- --------------------------------------------------------------------------------
</TABLE>
AAA-4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
APPLICABLE PERCENTAGE APPLICABLE PERCENTAGE
PREVAILING RATING --NO NOTIFICATION NOTIFICATION
ssssssss----------------- --------------------- ---------------------
- --------------------------------------------------------------------------------------------
<S> <C> <C>
"ba3"/BB-- 200% 275%
- --------------------------------------------------------------------------------------------
Below "ba3"/BB-- 250% 300%
- --------------------------------------------------------------------------------------------
</TABLE>
For purposes of this definition, the "prevailing rating" of shares of a
series of Preferred Shares shall be (i) "aa3"/AA-- or higher if such shares have
a rating of "aa3" or better by Moody's and AA-- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA-- or
higher, then "a3"/A-- if such shares have a rating of "a3" or better by Moody's
and A-- or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA-- or higher or "a3"/A--, then "baa3"/BBB-- if such
shares have a rating of "baa3" or better by Moody's and BBB-- or better by S&P
or the equivalent of such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below, (iv) if not "aa3"/AA-
- - or higher, "a3"/A-- or "baa3"/BBB--, then "ba3"/BB-- if such shares have a
rating of "ba3" or better by Moody's and BB-- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, and (v) if not "aa3"/AA-- or higher,
"a3"/A--, "baa3"/BBB--, or "ba3"/BB--, then Below "ba3"/BB--; provided, however,
that if such shares are rated by only one rating agency, the prevailing rating
will be determined without reference to the rating of any other rating agency.
The Trust shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for the Preferred Shares. If neither S&P nor Moody's
shall make such a rating available, the party set forth in Section 7 of Appendix
A or its successor shall select one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of the series of Preferred Shares set forth opposite such party's name in
Section 7 of Appendix A and the Trust shall take all reasonable action to enable
such rating agency to provide a rating for such shares.
SECTION 5. INITIAL RATE PERIODS.
The Initial Rate Period for shares of Series W Preferred Shares
shall be the period from and including the Date of Original Issue thereof to but
excluding [ ], 1999.
AAA-5
<PAGE>
SECTION 6. DATE FOR PURPOSES OF THE DEFINITION OF QUARTERLY VALUATION DATE
CONTAINED UNDER THE HEADING "DEFINITIONS" IN THIS STATEMENT.
December [31], 1999
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN
THIS STATEMENT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PARTY: SERIES OF PREFERRED SHARES
- -------- --------------------------
- --------------------------------------------------------------------------------
<S> <C>
Salomon Smith Barney Series W
- --------------------------------------------------------------------------------
</TABLE>
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of
Part I of this Statement, dividends shall be payable on shares of: Series W
Preferred Shares, for the Initial Rate Period on [ ], [ ], 1999, and on each [ ]
thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF PART I
OF THIS STATEMENT.
$62,000,000
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (b)(iii) OF SECTION
3 OF PART II OF THIS STATEMENT.
For purposes of subparagraph (b)(iii) of Section 3 of Part II of
this Statement, the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be equal to the lesser of
the Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
Days) or the product of (A) (I) the "AA" Composite Commercial Paper Rate on such
Auction Date for such Rate Period, if such Rate Period consists of fewer than
183 Rate Period Days; (II) the Treasury Bill Rate on such Auction Date for such
Rate Period, if such Rate Period consists of more than 182 but fewer than 365
Rate Period Days; or (III) the Treasury Note Rate on such Auction Date for such
Rate Period, if such Rate Period is more than 364 Rate
AAA-6
<PAGE>
Period Days (the rate described in the foregoing clause (A)(I), (II) or (III),
as applicable, being referred to herein as the "Benchmark Rate") and (B) 1 minus
the maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income, whichever is greater; provided, however,
that if the Trust has notified the Auction Agent of its intent to allocate to
shares of such series in such Rate Period any net capital gains or other income
taxable for Federal income tax purposes ("Taxable Income"), the Applicable Rate
for shares of such series for such Rate Period will be (i) if the Taxable Yield
Rate (as defined below) is greater than the Bench mark Rate, then the Benchmark
Rate, or (ii) if the Taxable Yield Rate is less than or equal to the Benchmark
Rate, then the rate equal to the sum of (x) the lesser of the Kenny Index (if
such Rate Period consists of fewer than 183 Rate Period Days) or the product of
the Benchmark Rate multiplied by the factor set forth in the preceding clause
(B) and (y) the product of the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax applicable to ordinary income, whichever is
greater, multiplied by the Taxable Yield Rate. For purposes of the foregoing,
Taxable Yield Rate means the rate determined by (a) dividing the amount of
Taxable Income available for distribution per such Preferred Shares by the
number of days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360 (in
the case of any other Dividend Period), and (c) dividing the amount determined
in (b) above by $25,000.
SECTION 13. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS
For so long as any Preferred Shares are rated by Moody's, the Trust will
not buy or sell futures contracts, write, purchase or sell call options on
futures contracts or purchase put options on futures contracts or write call
options (except covered call options) on portfolio securities unless it receives
written confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the Preferred Shares by Moody's, except that
the Trust may purchase or sell exchange-traded futures contracts based on the
Bond Buyer Municipal Bond Index (the "Municipal Index") or United States
Treasury Bonds or Notes ("Treasury Bonds"), and purchase, write or sell
exchange-traded put options on such futures contracts and purchase, write or
sell exchange-traded call options on such futures contracts (collectively,
"Moody's Hedging Transactions"), subject to the following limitations:
(i) the Trust will not engage in any Moody's Hedging Transaction based on
the Municipal Index (other than transactions which terminate a
futures contract or option held by the Trust by the Trust's taking an
opposite position thereto ("Clos ing Transactions")) which would
cause the Trust at the time of such transaction to own or have sold
(A) outstanding futures contracts based on the Municipal Index
exceeding in number 10% of the average number of daily traded futures
AAA-7
<PAGE>
contracts based on the Municipal Index in the 30 days preceding the
time of effecting such transaction as reported by the Wall Street
Journal or (B) outstanding futures contracts based on the Municipal
Index having a Market Value exceeding 50% of the Market Value of all
Municipal Bonds constituting Moody's Eligible Assets owned by the
Trust (other than Moody's Eligible Assets already subject to a
Moody's Hedging Transaction);
(ii) the Trust will not engage in any Moody's Hedging Transaction based
on Treasury Bonds (other than Closing Transactions) which would
cause the Trust at the time of such transaction to own or have sold
(A) outstanding futures contracts based on Treasury Bonds having an
aggregate Market Value exceeding 20% of the aggre gate Market Value
of Moody's Eligible Assets owned by the Trust and rated Aa by
Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by
S&P) or (B) outstanding futures contracts based on Treasury Bonds
having an aggregate Market Value exceeding 40% of the aggregate
Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Trust (other than Moody's Eligible Assets
already subject to a Moody's Hedging Transaction) and rated Baa or A
by Moody's (or, if not rated by Moody's but rated by S&P, rated A or
AA by S&P (for purpose of the foregoing clauses (i) and (ii), the
Trust shall be deemed to own the number of futures contracts that
underlie any outstanding options written by the Trust);
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract based on the Municipal Index if the
amount of open interest in the Municipal Index as reported by The
Wall Street Journal is less than 5,000;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding futures contract by no later than the fifth Business Day
of the month in which such contracts expires and will engage in a
Closing Transaction to close out any outstanding option on a futures
contract by no later than the first Business Day of the month in
which such option expires;
(v) the Trust will engage in Moody's Hedging Transaction only with
respect to futures contracts or options thereon having the next
settlement date of the settle ment date immediately thereafter;
(vi) the Trust will not engage in options and futures transactions for
leveraging or speculative purposes and will not write any call
options or sell any futures contracts for the purpose of hedging the
anticipated purchase of an asset prior to completion of such
purchase; and
(vii) the Trust will not enter into an option of futures transaction
unless, after giving effect thereto, the Trust would continue to
have Moody's Eligible Assets with an aggregate Discounted Value
equal to or greater than the Preferred Shares Basic Maintenance
Amount.
AAA-8
<PAGE>
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the Preferred
Shares Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Trust is obligated to deliver or receive pursuant to an outstanding
futures contract or option shall be as follows: (i) assets subject to call
options written by the Trust which are either exchange-traded and "readily
reversible" or which expire within 49 days after the date as of which such
valuation is made shall be valued at the lesser of (a) Discounted Value and (b)
the exercise price of the call option written by the Trust; (ii) assets subject
to call options written by the Trust not meeting the requirements of clause (i)
of this sentence shall have no value; (iii) assets subject to put options
written by the Trust shall be valued at the lesser of (A) the exercise price and
(B) the Discounted Value of the subject security; (iv) futures contracts shall
be valued at the lesser of (A) settlement price and (B) the Discounted Value of
the subject security, provided that, if a contract matures within 49 days after
the date as of which such valuation is made, where the Trust is the seller the
contract may be valued at the settlement price and where the Trust is the buyer
the contract may be valued at the Discounted Value of the subject securities;
and (v) where delivery may be made to the Trust with any security of a class of
securities, the Trust shall assume that it will take delivery of the security
with the lowest Discounted Value.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the following amounts shall be subtracted from the
aggregate Discounted Value of the Moody's Eligible Assets held by the Trust: (i)
10% of the exercise price of a written call option; (ii) the exercise price of
any written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust writes call options on a futures contract and does not own the
underlying contract.
(c) For so long as any Preferred Shares are rated by Moody's, the Trust
will not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions that are permitted under Section 13(b)
of this Statement), except that the Trust may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitation:
(i) the Trust will maintain in a segregated account with its custodian
cash, cash equivalents or short-term, fixed-income securities rated P-1, MTG-1
or VMIG-1 by Moody's and maturing prior to the date of the Forward Commitment
with a Market Value that equals or exceeds the amount of the Trust's obligations
under any Forward Commitments to which it is from time to time a party or long-
term fixed income securities with a Discounted Value that equals or exceeds
AAA-9
<PAGE>
the amount of the Trust's obligations under any Forward Commitment to which it
is from time to time a party; and
(ii) the Trust will not enter into a Forward Commitment unless, after
giving effect thereto, the Trust would continue to have Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the Preferred Shares
Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the Discounted Value of all Forward Commitments to
which the Trust is a party and of all securities deliverable to the Trust
pursuant to such Forward Commitments shall be zero.
AAA-10
<PAGE>
EXHIBIT (d)
CERTIFICATE NO. SHARES
__________ ______
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
Organized Under the Laws of The State of Delaware
Municipal Auction Rate Cumulative Preferred Shares - Series W
$.001 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No. 09248T 20 8
___________
This certifies that Cede & Co. is the owner of [ ] fully paid and non-
assessable shares of Municipal Auction Rate Cumulative Preferred Shares
- - Series W, $.001 par value per share, $25,000 liquidation preference per share,
of The BlackRock Strategic Municipal Trust (the "Trust") transferable only on
the books of the Trust by the holder thereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class authorized to be issued, will be furnished by the Trust to any
shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this ____ day
of October A.D. 1999.
BANKERS TRUST COMPANY THE BLACKROCK STRATEGIC MUNICIPAL TRUST
As Transfer Agent and Registrar
By: ______________________________ By: _______________________________
Authorized Signature President
Attest: _______________________________
Secretary
<PAGE>
FOR VALUE RECEIVED, ______________________________________ hereby sells, assigns
and transfers unto _____________________________________________________________
________________________________________________________________________________
Shares represented by this Certificate, and do hereby irrevocably constitute and
appoint __________________________________ Attorney to transfer the said Shares
on the books of the within named Trust with full power of substitution in the
premises.
Dated _________________________, ________
In presence of
________________________________________________________________________________
Shares of Municipal Auction Rate Cumulative Preferred Shares
evidenced by this Certificate may be sold, transferred, or
otherwise disposed of only pursuant to the provisions of the
Trust's Agreement and Declaration of Trust, as amended, and the
Trust's Statement of Preferences.
The Trust will furnish to any shareholder, upon request and
without charge, the Trust's Agreement and Declaration of Trust
and a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or
series of capital stock of the Trust authorized to be issued, so
far as they have been determined, and the authority of the Board
of Trustees to determine the relative rights and preferences of
subsequent classes or series. Any such request should be
addressed to the Secretary of the Trust.
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Trust or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
<PAGE>
EXHIBIT (h)(1)
Municipal Auction Rate Cumulative Preferred Shares
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
______ Shares, Series ______
Liquidation Preference $25,000 Per Share
FORM OF UNDERWRITING AGREEMENT
------------------------------
__________ ___, 1999
SALOMON SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
As Representatives of the
several Underwriters listed in
Schedule I hereto
c/o SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
The BlackRock Strategic Municipal Trust, a Delaware business trust
(the "Trust"), proposes, upon the terms and conditions set forth herein, to
issue and sell an aggregate of ______ shares of its Municipal Auction Rate
Cumulative Preferred Shares, Series ______, each with a liquidation preference
of $25,000 per share (the "Shares"). The Shares will be authorized by, and
subject to the terms and conditions of, the Statement of Preferences of
Municipal Auction Rate Cumulative Preferred Shares of the Trust (the
"Statement") and the Agreement and Declaration of Trust of the Trust (the
"Declaration") in the forms filed as exhibits to the Registration Statement
referred to in Section 1 of this agreement, as the same may be amended from time
to time. The Trust, its investment adviser, BlackRock Advisors, Inc. ("BAI"),
and its investment sub-adviser, BlackRock Financial Management, Inc. ("BFM")
(each, an "Adviser" and together, the "Advisers"), wish to confirm as follows
their agreement with Salomon Smith Barney Inc., A.G. Edwards & Sons, Inc.,
PaineWebber Incorporated and Prudential Securities Incorporated (the
"Representatives"), as representatives of the several Underwriters listed in
Schedule I hereto (the "Underwriters"), in connection with the purchase of the
Shares by the Underwriters.
<PAGE>
Collectively, the Investment Management Agreement dated as of August
24, 1999 between the Trust and BAI (the "Investment Advisory Agreement"), the
Sub-Investment Advisory Agreement dated as of August 24, 1999 between the Trust,
BAI and BFM (the "Sub-Advisory Agreement"), the Custodian Agreement dated as of
August 19, 1999 between the Trust and State Street Bank and Trust Company, the
Transfer Agent and Service Agreement dated as of August 27, 1999 between the
Trust and State Street Bank and Trust Company, the Auction Agency Agreement to
be dated as of ______ __, 1999 between the Trust and Bankers Trust Company and
the Broker-Dealer Agreement to be dated as of ______ __, 1999 between the Trust
and Salomon Smith Barney Inc. are hereinafter referred to as the "Trust
Agreements." The Investment Advisory Agreement and the Sub-Advisory Agreement
are hereinafter collectively referred to as the "Advisory Agreements." This
Underwriting Agreement is hereinafter referred to as the "Agreement."
1. Registration Statement and Prospectus. The Trust has prepared and
-------------------------------------
filed in accordance with the provisions of the Securities Act of 1933, as
amended (the "1933 Act"), the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated under the 1933 Act (the "1933 Act
Rules and Regulations") and the 1940 Act (the "1940 Act Rules and Regulations"
and, together with the 1933 Act Rules and Regulations, the "Rules and
Regulations"), a registration statement on Form N-2, as amended by Pre-Effective
Amendments Nos. (File Nos.___-______ and 811-09417) (the "registration
statement"), including a prospectus relating to the Shares. The Trust also has
filed a notification of registration of the Trust as an investment company under
the 1940 Act on Form N-8A (the "1940 Act Notification"). The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective under the 1933 Act or, if the registration statement became effective
under the 1933 Act prior to the execution of this Agreement, as amended or
supplemented at the time it became effective, prior to the execution of this
Agreement, and includes any information deemed to be included by Rule 430A under
the 1933 Act Rules and Regulations. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed under the 1933 Act and must be declared effective before
the offering of the Shares may commence, the term "Registration Statement" as
used in this Agreement means the registration statement as amended by said post-
effective amendment. If the Trust has filed an abbreviated registration
statement to register an additional amount of Shares pursuant to Rule 462(b)
under the 1933 Act (the "Rule 462 Registration Statement"), then any reference
herein to the term "Registration Statement" shall include such Rule 462
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus and statement of additional information in the forms included in
the Registration Statement or, if the prospectus and statement of additional
information included in the Registration Statement omit information in reliance
on Rule 430A under the 1933 Act Rules and Regulations and such information is
included in a prospectus and statement of additional information filed with the
Commission pursuant to Rule 497(h) under the 1933 Act, the term "Prospectus" as
used in this Agreement means the prospectus and statement of additional
information in the forms included in the Registration Statement as supplemented
by the addition of the information contained in the prospectus filed with the
Commission pursuant to Rule 497(h). The term "Prepricing Prospectus" as used in
this Agreement means the
2
<PAGE>
prospectus and statement of additional information subject to completion in the
forms included in the registration statement at the time of filing of [Pre-
Effective Amendment No. 1 to the registration statement with the Commission on
_______ ___, 1999,] and as such prospectus and statement of additional
information shall have been amended from time to time prior to the date of the
Prospectus. The terms "Registration Statement," "Prospectus" and "Prepricing
Prospectus" shall also include any financial statements and other information
incorporated by reference therein.
The Trust has furnished you with copies of such registration
statement, each amendment to such registration statement filed with the
Commission and each Prepricing Prospectus.
2. Agreements to Sell and Purchase. (a) The Trust hereby agrees,
-------------------------------
subject to all the terms and conditions set forth herein, to issue and sell to
the Underwriters and, upon the basis of the representations, warranties and
agreements of the Trust and the Advisers herein contained and subject to all the
terms and conditions set forth herein, each Underwriter agrees severally and not
jointly to purchase from the Trust, at a purchase price of $[__________] per
share, the number of Shares set forth opposite the name of such Underwriter in
Schedule I hereto.
3. Terms of Public Offering. The Trust and the Advisers have been
------------------------
advised by you that the Underwriters propose to make a public offering of their
respective Shares as soon after the Registration Statement and this Agreement
have become effective as in your judgment is advisable and initially to offer
the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
-------------------------------------------
Underwriters of and payment for the Shares shall be made at the office of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, or through
the facilities of the Depository Trust Company or another mutually agreeable
facility, at 9:30 A.M., New York City time, on ______ __, 1999 (the "Closing
Date"). The place of closing for the Shares and the Closing Date may be varied
by agreement between you and the Trust.
Certificates for the Shares purchased hereunder shall be registered in
such names and in such denominations as you shall request prior to 9:30 A.M.,
New York City time, on the second business day preceding the Closing Date. Such
certificates shall be made available to you in New York City for inspection and
packaging not later than 9:30 A.M., New York City time, on the business day next
preceding the Closing Date. The certificates evidencing the Shares purchased
hereunder shall be delivered to you on the Closing Date, through the facilities
of The Depository Trust Company, against payment of the purchase price therefor
in immediately available funds.
5. Agreements of the Trust and the Advisers. The Trust and the
----------------------------------------
Advisers, jointly and severally, agree with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective under the
3
<PAGE>
1933 Act before the offering of the Shares may commence, the Trust will endeavor
to cause the Registration Statement or such post-effective amendment to become
effective under the 1933 Act as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing when the
Registration Statement or such post-effective amendment has become effective.
(b) The Trust will advise you promptly and, if requested by you, will
confirm such advice in writing: (i) of any request made by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus (or any amendment or supplement to any of the
foregoing) or for additional information, (ii) of the issuance by the
Commission, the National Association of Securities Dealers, Inc. (the "NASD"),
any state securities commission, any national securities exchange, any
arbitrator, any court or any other governmental, regulatory, self-regulatory or
administrative agency or any official of any order suspending the effectiveness
of the Registration Statement, prohibiting or suspending the use of the
Prospectus or any Prepricing Prospectus, or any sales material (as hereinafter
defined), of any notice pursuant to Section 8(e) of the 1940 Act, of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purposes, (iii)
of receipt by the Trust, the Advisers, any affiliate of the Trust or the
Advisers or any representative or attorney of the Trust or the Advisers of any
other material communication adverse to the Trust from the Commission, the NASD,
any state securities commission, any national securities exchange, any
arbitrator, any court or any other governmental, regulatory, self-regulatory or
administrative agency or any official relating to the Trust (if such
communication relating to the Trust is received by such person within three
years after the date of this Agreement), the Registration Statement, the 1940
Act Notification, the Prospectus, any Prepricing Prospectus, any sales material
(as herein defined) (or any amendment or supplement to any of the foregoing) or
this Agreement or any of the Trust Agreements and (iv) within the period of time
referred to in paragraph (f) below, of any material adverse change in the
condition (financial or other), prospects, assets or results of operations of
the Trust or any event which should reasonably be expected to have a material
adverse effect on the ability of either Adviser to perform its respective
obligations under this Agreement and the Advisory Agreements to which it is a
party (in either case, other than as a result of changes in market conditions
generally or the market for municipal securities generally) or of the happening
of any other event which makes any statement of a material fact made in the
Registration Statement or the Prospectus, or any Prepricing Prospectus (or any
amendment or supplement to any of the foregoing) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus, or any Prepricing Prospectus (or any amendment or supplement to any
of the foregoing) in order to state a material fact required by the 1933 Act,
the 1940 Act or the Rules and Regulations to be stated therein or necessary in
order to make the statements therein (in the case of a prospectus, in light of
the circumstances under which they were made) not misleading, or of the
necessity to amend or supplement the Registration Statement, the Prospectus, or
any Prepricing Prospectus (or any amendment or supplement to any of the
foregoing) to comply with the 1933 Act, the 1940 Act, the Rules and Regulations
or any other law or order of any court or regulatory body. If at any time the
Commission, the NASD, any state securities commission, any national securities
exchange, any arbitrator, any court or any other governmental, regulatory, self-
regulatory or administrative agency or any official shall issue any order
suspending the
4
<PAGE>
effectiveness of the Registration Statement, prohibiting or suspending the use
of the Prospectus or any sales material (as herein defined) (or any amendment or
supplement to any of the foregoing) or suspending the qualification of the
Shares for offering or sale in any jurisdiction, the Trust will use its
reasonable best efforts to obtain the withdrawal of such order at the earliest
possible time.
(c) The Trust will furnish to you, without charge, three signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the Registration Statement as originally filed and of each amendment
thereto, but without exhibits, as you may request.
(d) The Trust will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus, or any sales
material (as herein defined), of which you shall not previously have been
advised or to which you shall reasonably object after being so advised or (ii)
so long as, in the opinion of counsel for the Underwriters, a Prospectus is
required by the 1933 Act to be delivered in connection with sales by any
Underwriter or any dealer, file any information, documents or reports pursuant
to the Securities Exchange Act of 1934, as amended (the "1934 Act"), without
delivering a copy of such information, documents or reports to you, as
Representatives of the several Underwriters, prior to or concurrently with such
filing.
(e) Prior to the execution and delivery of this Agreement, the Trust
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Trust consents to the
use, in accordance with the provisions of the 1933 Act and with the state
securities or blue sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Trust.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the 1933 Act to be
delivered in connection with sales by any Underwriter or any dealer, the Trust
will promptly deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may reasonably request. The Trust consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the 1933 Act and with the state securities or blue sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
all dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the Prospectus is
required by the 1933 Act to be delivered in connection with sales by any
Underwriter or any dealer. If during such period of time any event shall occur
that in the judgment of the Trust or in the opinion of counsel for the
Underwriters is required to be set forth in the Registration Statement or the
Prospectus (as then amended or supplemented) or is required to be set forth
therein in order to make the statements therein (in the case of the Prospectus,
in light of the circumstances under which they were made) not misleading, or if
it is necessary to supplement or amend the
5
<PAGE>
Registration Statement or the Prospectus to comply with the 1933 Act, the 1940
Act, the Rules and Regulations or any other federal law, rule or regulation, or
any state securities or blue sky disclosure laws, rules or regulations, the
Trust will forthwith prepare and, subject to the provisions of paragraph (d)
above, promptly file with the Commission an appropriate supplement or amendment
thereto, and will promptly furnish to the Underwriters and dealers, without
charge, a reasonable number of copies thereof. In the event that the Trust and
you, as Representatives of the several Underwriters, agree that the Registration
Statement or the Prospectus should be amended or supplemented, the Trust, if in
the opinion of counsel to the Underwriters, is required by law or any national
securities exchange on which the Shares are listed, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement or will otherwise appropriately disseminate the required
information.
(g) The Trust will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or blue sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Trust be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Trust will make generally available to its security holders
an earnings statement, which need not be audited, covering a twelve-month period
ending not later than 17 months after the effective date of the Registration
Statement as soon as practicable after the end of such period, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule
158 of the 1933 Act Rules and Regulations.
(i) During the period of three years hereafter, the Trust will
furnish to you (i) as soon as available, a copy of each proxy statement, annual
and semi-annual report of the Trust mailed to shareholders or filed with the
Commission or furnished to the New York Stock Exchange (the "NYSE") other than
reports on Form N-SAR, and (ii) from time to time such other information
concerning the Trust as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 11 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 hereof) or if this Agreement shall be
terminated by the Underwriters because of any failure or refusal on the part of
the Trust or the Advisers to comply with any material term or fulfill any
material condition of this Agreement required to be complied with or fulfilled
by them, the Trust and the Advisers, jointly and severally, agree to reimburse
the Representatives for all out-of-pocket expenses (including reasonable fees
and expenses of counsel for the Underwriters) incurred by the Underwriters in
connection herewith.
(k) The Trust will apply the net proceeds from the sale of the Shares
in accordance with the description set forth in the Prospectus and in such a
manner as to comply
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with the investment objectives, policies and restrictions of the Trust as
described in the Prospectus, as the same may be amended from time to time.
(l) The Trust will timely file the requisite copies of the Prospectus
with the Commission pursuant to Rule 497(c) or Rule 497(h) of the 1933 Act Rules
and Regulations, whichever is applicable or, if applicable, will timely file the
certification permitted by Rule 497(j) of the 1933 Act Rules and Regulations and
will advise you of the time and manner of such filing.
(m) Except as provided in this Agreement, the Trust will not sell,
contract to sell or otherwise dispose of any senior securities (as defined in
the 1940 Act) of the Trust or any securities convertible into or exercisable or
exchangeable for senior securities of the Trust, or grant any options or
warrants to purchase senior securities of the Trust, for a period of 180 days
after the date of the Prospectus, without the prior written consent of Salomon
Smith Barney Inc.
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, neither the Trust nor the Advisers have taken, nor
will any of them take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or manipulation
of the price of the Shares or any other securities issued by the Trust to
facilitate the sale or resale of the Shares.
(o) The Trust will use its reasonable best efforts to cause the
Shares, prior to the Closing Date, to be assigned a rating of `aaa' by Moody's
Investors Service, Inc. ("Moody's").
(p) The Trust will comply with the requirements of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code") to qualify as a
regulated investment company under the Code.
(q) The Trust and the Advisers will use their reasonable best efforts
to perform all of the agreements required of them and discharge all conditions
of theirs to closing as set forth in this Agreement.
6. Representations and Warranties of the Trust and the Advisers. The
------------------------------------------------------------
Trust and the Advisers, jointly and severally, represent and warrant to each
Underwriter that:
(a) Each Prepricing Prospectus complied when filed with the
Commission in all material respects with the provisions of the 1933 Act, the
1940 Act and the Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus or the Prospectus.
(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940 Act Notification when originally filed
with the Commission and any amendment or supplement
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thereto when filed with the Commission, complied or will comply in all material
respects with the requirements of the 1933 Act, the 1940 Act and the Rules and
Regulations, as applicable, and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they were made) not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the registration statement or the Prospectus
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Trust in writing by or on behalf of any Underwriter
through you expressly for use therein.
(c) All the shares of beneficial interest of the Trust outstanding as
of the date hereof have been duly authorized and validly issued, are fully paid
and nonassessable and are free of any preemptive or similar rights; the Shares
have been duly authorized and, when issued and delivered to the Underwriters
against payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights that entitle or will entitle any person to acquire any Shares upon the
issuance thereof by the Trust, and will conform in all material respects to the
description thereof in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them); and the capitalization of the Trust
conforms in all material respects to the description thereof in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them).
(d) Except for shares to be issued pursuant to the Trust's dividend
reinvestment plan and as otherwise described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, or
any commitment, plan or arrangement to issue, any shares of beneficial interest
of the Trust or any security convertible into or exchangeable or exercisable for
shares of beneficial interest of the Trust.
(e) The Trust is a business trust duly organized and validly existing
in good standing under the laws of the State of Delaware with full business
trust power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
to so register or qualify does not have a material adverse effect on the
condition (financial or other), prospects, assets or results of operations of
the Trust; and the Trust has no subsidiaries.
(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Trust or the Advisers, threatened, against the Trust, or to
which the Trust or any of its properties is subject, that are required to be
described in the Registration Statement or the Prospectus (and any amendment or
supplement to either of them) but are not described as required, and there are
no agreements, contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the Prospectus (and
any amendment or supplement to either of them) or to be filed as an exhibit to
the Registration Statement that are not described or filed as required by the
1933 Act, the 1940 Act or the Rules and Regulations.
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(g) The Trust is not in violation of the Statement, the Declaration
or its bylaws (the "Bylaws"), or other organizational documents or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Trust or of any decree of the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court or
governmental agency, body or official having jurisdiction over the Trust, or in
default in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any material agreement, indenture, lease or other instrument to which the
Trust is a party or by which it or any of its properties may be bound, except
where such violation or default does not have a material adverse effect on the
condition (financial or other), prospects, assets or results of operations of
the Trust.
(h) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or any of the Trust Agreements by the
Trust, nor the consummation by the Trust of the transactions contemplated hereby
or thereby (A) requires any consent, approval, authorization or other order of,
or registration or filing with, the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court,
regulatory body, administrative agency or other governmental body, agency or
official having jurisdiction over the Trust (except such as may have been
obtained prior to the date hereof and such as may be required for compliance
with the state securities or blue sky laws of various jurisdictions which have
been or will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the Statement, the Declaration, the Bylaws or other organizational documents of
the Trust or (B) conflicts or will conflict with or constitutes or will
constitute a material breach of, or a default under, any material agreement,
indenture, lease or other instrument to which the Trust is a party or by which
it or any of its properties may be bound, or materially violates or will
materially violate any material statute, law, regulation or judgment,
injunction, order or decree applicable to the Trust or any of its properties, or
will result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of the Trust pursuant to the terms of
any agreement or instrument to which it is a party or by which it may be bound
or to which any of its property or assets is subject. The Trust is not subject
to any order of any court or of any arbitrator, governmental authority or
administrative agency.
(i) The accountants, Deloitte & Touche LLP, who have certified or
shall certify the financial statements included or incorporated by reference in
the Registration Statement and the Prospectus (or any amendment or supplement to
either of them) are independent public accountants as required by the 1933 Act,
the 1940 Act and the Rules and Regulations.
(j) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectus (and any amendment or supplement to either of them), present
fairly the financial position of the Trust on the basis stated or incorporated
by reference in the Registration Statement at the respective dates or for the
respective periods to which they apply; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and
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<PAGE>
statistical information and data included in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them) are accurately
presented.
(k) The execution and delivery of, and the performance by the Trust
of its obligations under, this Agreement and the Trust Agreements have been duly
and validly authorized by the Trust, and this Agreement and the Trust Agreements
have been duly executed and delivered by the Trust and, assuming due
authorization, execution and delivery by the other parties thereto, each
constitutes the valid and legally binding agreement of the Trust, enforceable
against the Trust in accordance with its terms, except as rights to indemnity
and contribution hereunder and thereunder may be limited by federal or state
securities laws, and subject to the qualification that the enforceability of the
Trust's obligations hereunder and thereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium, and other laws
relating to or affecting creditors' rights generally and by general equitable
principles whether enforcement is considered in a proceeding in equity or at
law.
(l) Except as disclosed in or contemplated by the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
subsequent to the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or supplement to
either of them), the Trust has not incurred any material liability or material
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Trust, and there has not
been any change in the capitalization, or material increase in the short-term
debt or long-term debt, of the Trust, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
prospects, assets or results of operations of the Trust, whether or not arising
in the ordinary course of business (other than as a result of changes in market
conditions generally or the market for municipal securities generally).
(m) The Trust has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials permitted by the 1933 Act, the 1940 Act or the
Rules and Regulations.
(n) The Trust has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto), subject
to such qualifications as may be set forth in the Prospectus; the Trust has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the Trust under any such permit, subject in each
case to such qualification as may be set forth in the Prospectus (and any
amendment or supplement thereto), and except where the revocation, termination
or impairment of the Trust's rights under such permits should not reasonably be
expected to have a material adverse effect on the condition (financial or
other), prospects, assets or results of
10
<PAGE>
operations of the Trust; and, except as described in the Prospectus (and any
amendment or supplement thereto), none of such permits contains any restriction
that should reasonably be expected to have a material adverse effect on the
condition (financial or other), prospects, assets or results of operations of
the Trust.
(o) The Trust maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization and with the
applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and
the Code; (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to maintain accountability for assets and to maintain compliance with the
books and records requirements under the 1940 Act and the 1940 Act Rules and
Regulations; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(p) The Trust has filed all tax returns required to be filed, which
returns are complete and correct in all material respects, and the Trust is not
in material default in the payment of any taxes which were payable pursuant to
said returns or any assessments with respect thereto.
(q) No holder of any security of the Trust has any right to require
registration of any security of the Trust because of the filing of the
registration statement or consummation of the transactions contemplated by this
Agreement.
(r) The Trust, subject to the registration statement having been
declared effective and the filing of the Prospectus under Rule 497 under the
1933 Act Rules and Regulations, has taken all required action under the 1933
Act, the 1940 Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this Agreement.
(s) The conduct by the Trust of its business (as described in the
Prospectus) does not require it to be the owner, possessor or licensee of any
patents, patent licenses, trademarks, service marks or trade names
(collectively, "Intellectual Property") which it does not own, possess or
license, except where the failure to own, possess or license such Intellectual
Property should not reasonably be expected to have a material adverse effect on
the condition (financial or other), prospects, assets or results of operations
of the Trust.
(t) The Trust is registered under the 1940 Act and the 1940 Act Rules
and Regulations as a closed-end, diversified management investment company and
the 1940 Act Notification has been duly filed with the Commission and, at the
time of filing thereof and any amendment or supplement thereto, conformed in all
material respects with all applicable provisions of the 1940 Act and the 1940
Act Rules and Regulations; no order of suspension or revocation of such
registration under the 1940 Act and the 1940 Act Rules and Regulations has been
issued or proceedings therefor initiated or, to the knowledge of the Trust or
either of the
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Advisers, threatened by the Commission. The provisions of the Statement, the
Declaration and Bylaws, and the investment policies and restrictions described
in the Registration Statement and the Prospectus, comply in all material
respects with the requirements of the 1940 Act and the 1940 Act Rules and
Regulations. The Trust is, and at all times through the completion of the
transactions contemplated hereby, will be, in compliance in all material
respects with the terms and conditions of the 1933 Act and the 1940 Act. No
person serving or acting as an officer, trustee or investment adviser of the
Trust is prohibited from so serving or acting by, and the composition of the
Trust's Board of Trustees is in compliance with, the provisions of the 1940 Act
and the 1940 Act Rules and Regulations and the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), and the rules and regulations of the Commission
promulgated under the Advisers Act (the "Advisers Act Rules and Regulations").
(u) Except as stated in this Agreement and in the Prospectus (and any
amendment or supplement thereto), the Trust has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
securities issued by the Trust to facilitate the sale or resale of the Shares,
and the Trust is not aware of any such action taken or to be taken by any
affiliates of the Trust who are not underwriters or dealers participating in the
offering of the Shares.
(v) The Trust has filed in a timely manner each document or report
required to be filed by it pursuant to the 1934 Act and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act Rules and
Regulations"); each such document or report at the time it was filed conformed
to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and
none of such documents or reports contained an untrue statement of any material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(w) All advertising, sales literature or other promotional material
(including "prospectus wrappers") intended for public distribution and
authorized in writing by or prepared by the Trust or the Advisers for use in
connection with the offering and sale of the Shares (collectively, "sales
material") complied and comply in all material respects with the applicable
requirements of the 1933 Act, the 1940 Act, the Rules and Regulations and the
rules and interpretations of the NASD and no such sales material, when read
together with the Prospectus, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. No advertising, sales
literature or other promotional material (including "broker kits," "road show
slides" and "road show scripts") not intended for public distribution and
authorized in writing by or prepared by the Trust or the Advisers for use in
connection with the offering and sale of the Shares was or is, when read
together with the Prospectus, materially false or misleading.
(x) Each of the Trust Agreements and the Trust's and the Advisers'
obligations under this Agreement and each of the Trust Agreements to which it is
a party comply in all material respects with all applicable provisions of the
1933 Act, the 1940 Act, the Rules and Regulations, the Advisers Act and the
Advisers Act Rules and Regulations.
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(y) As required by Subchapter M of the Code, the Trust is currently
in compliance with the requirements to qualify as a regulated investment company
under the Code.
(z) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), no trustee of the
Trust is an "interested person" (as defined in the 1940 Act) of the Trust or an
"affiliated person" (as defined in the 1940 Act) of any Underwriter.
(aa) The Trust's common shares are duly listed on the NYSE.
(ab) The Trust believes, after reasonable inquiry, that each counter-
party to the Trust Agreements and each other person with whom the Trust engages
in material transactions has a program reasonably designed to address on a
timely basis the risk that its computer hardware and software may be unable to
recognize and properly execute date-sensitive functions involving certain dates
prior to and any dates after December 31, 1999 (the "Year 2000 Problem"), except
to the extent that a failure by any such person to have such a program should
not reasonably be expected to have a material adverse effect on the condition
(financial or other), prospects, assets or results of operations of the Trust.
The Trust is in compliance in all material respects with the Commission's
Release No. 33-7558 dated July 29, 1998 related to Year 2000 compliance.
7. Representations and Warranties of the Advisers. BAI and BFM,
----------------------------------------------
jointly and severally, represent and warrant to each Underwriter that:
(a) Each of the Advisers is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and each is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
to so register or to qualify does not have a material adverse effect on the
ability of such Adviser to perform its obligations under this Agreement and the
Advisory Agreements to which it is a party.
(b) Each of the Advisers is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers
Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the Advisory Agreements to which it is a party
for the Trust as contemplated by the Prospectus (or any amendment or supplement
thereto). There does not exist any proceeding which should reasonably be
expected to have a material adverse affect on the registration of either Adviser
with the Commission.
(c) There are no legal or governmental proceedings pending or, to the
knowledge of each Adviser, threatened against such Adviser, that are required to
be described in the Registration Statement or the Prospectus (or any amendment
or supplement to either of them) but
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are not described as required or that should reasonably be expected to have a
material adverse effect on the ability of such Adviser to perform its
obligations under this Agreement and the Advisory Agreements to which it is a
party.
(d) Neither the execution, delivery or performance of this Agreement
or the Advisory Agreements by each Adviser which is a party thereto, nor the
consummation by each Adviser of the transactions contemplated hereby or thereby
(A) requires either Adviser to obtain any consent, approval, authorization or
other order of, or registration or filing with, the Commission, the NASD, any
state securities commission, any national securities exchange, any arbitrator,
any court, regulatory body, administrative agency or other governmental body,
agency or official having jurisdiction over either Adviser or conflicts or will
conflict with or constitutes or will constitute a breach of or a default under,
the certificate of incorporation or bylaws, or other organizational documents,
of such Adviser or (B) conflicts or will conflict with or constitutes or will
constitute a material breach of or a default under, any material agreement,
indenture, lease or other instrument to which either Adviser is a party or by
which either Adviser or any of its properties may be bound, or materially
violates or will materially violate any material statute, law, regulation or
judgment, injunction, order or decree applicable to either Adviser or any of its
properties or will result in the creation or imposition of any material lien,
charge or encumbrance upon any property or assets of either Adviser pursuant to
the terms of any agreement or instrument to which it is a party or by which it
may be bound or to which any of the property or assets of either Adviser is
subject, except in any case under clause (A) or (B) as should not reasonably be
expected to have a material adverse effect on the ability of each Adviser to
perform its obligations under this Agreement and the Advisory Agreements to
which it is a party. Neither Adviser is subject to any order of any court or of
any arbitrator, governmental authority or administrative agency.
(e) The execution and delivery of, and the performance by each
Adviser of its respective obligations under, this Agreement and the Advisory
Agreements to which it is a party have been duly and validly authorized by such
Adviser, and this Agreement and the Advisory Agreements have been duly executed
and delivered by such Adviser and, assuming due authorization, execution and
delivery by the other parties thereto, each constitutes the valid and legally
binding agreement of such Adviser, enforceable against such Adviser in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws, and subject to the
qualification that the enforceability of the Trust's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and by general equitable principles whether enforcement is
considered in a proceeding in equity or at law.
(f) Each Adviser has the financial resources necessary for the
performance of its services and obligations as contemplated in the Prospectus
(or any amendment or supplement thereto) and under this Agreement and the
Advisory Agreements to which it is a party.
(g) The description of each Adviser in the Registration Statement and
the Prospectus (and any amendment or supplement to either of them) complied and
comply in all
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material respects with the provisions of the 1933 Act, the 1940 Act, the
Advisers Act, the Rules and Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading.
(h) Each of the Advisory Agreements complies in all material respects
with all applicable provisions of the 1940 Act, the 1940 Act Rules and
Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(i) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
there has not occurred any event which should reasonably be expected to have a
material adverse effect on the ability of either Adviser to perform its
respective obligations under this Agreement and the Advisory Agreements to which
it is a party.
(j) Each of the Advisers has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto), except to
the extent that the failure to so have should not reasonably be expected to have
a material adverse effect on the ability of such Adviser to perform its
obligations under the Advisory Agreements to which it is a party; each of the
Advisers has fulfilled and performed all its material obligations with respect
to such permits and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in any other
material impairment of the rights of either Adviser under any such permit,
except where the revocation, termination or impairment of such Adviser's rights
under such permits should not reasonably be expected to have a material adverse
effect on the ability of such Adviser to perform its obligations under the
Advisory Agreements to which it is a party.
(k) Except as stated in this Agreement and in the Prospectus (and in
any amendment or supplement thereto), neither Adviser has taken, nor will it
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any securities issued by the Trust to facilitate the sale or resale of the
Shares, and neither Adviser is aware of any such action taken or to be taken by
any affiliates of the Advisers who are not underwriters or dealers participating
in the offering of the Shares.
8. Indemnification and Contribution. (a) The Trust and the
--------------------------------
Advisers, jointly and severally, agree to indemnify and hold harmless you and
each other Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation), joint or several, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Prepricing Prospectus or in the Registration Statement or
the Prospectus or in any amendment or
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supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with information relating to any Underwriter furnished in writing to the Trust
by or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the 1933 Act and the 1933 Act Rules and Regulations, and
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such Prepricing Prospectus was corrected in the
Prospectus, provided that the Trust has delivered the Prospectus to the several
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending. The foregoing indemnity agreement shall be in addition to any liability
which the Trust or the Advisers may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Trust or the Advisers, such Underwriter or
such controlling person shall promptly notify the Trust or the Advisers, and the
Trust or the Advisers shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the Trust or the Advisers have agreed in
writing to pay such fees and expenses, (ii) the Trust and the Advisers have
failed to assume the defense and employ counsel, or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the Trust or the Advisers
and such Underwriter or such controlling person shall have been advised by its
counsel that representation of such indemnified party and the Trust or the
Advisers by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the Trust and the Advisers shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Trust and the Advisers
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by the Representatives, and that all such fees and expenses shall be
reimbursed as they are incurred. The Trust and the Advisers shall not be liable
for any settlement of any such action, suit or proceeding effected without their
16
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written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Trust and the Advisers agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Trust and the Advisers, their trustees and directors, any
officers who sign the Registration Statement, and any person who controls the
Trust or the Advisers within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, to the same extent as the foregoing indemnity from
the Trust and the Advisers to each Underwriter, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the Trust
or the Advisers, any of their trustees and directors, any such officer, or any
such controlling person based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Trust and the Advisers by paragraph (b) above (except that if the Trust or
the Advisers shall have assumed the defense thereof such Underwriter shall not
be required to do so, but may employ separate counsel therein and participate in
the defense thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Trust and the Advisers, their trustees and
directors, any such officer, and any such controlling person shall have the
rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Trust and the Advisers on the one hand (treated jointly for this purpose as one
person) and the Underwriters on the other hand from the offering of the Shares,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Trust and the Advisers on the one hand (treated jointly for this purpose as
one person) and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Trust and the Advisers on the one hand (treated jointly
for this purpose as one person) and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Trust bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The Trust and the
Advisers agree that
17
<PAGE>
as between the Trust, BAI and BFM (and solely for the purpose of allocating
among such parties the total amount to be contributed by each of them to one
another and without prejudice to the right of the Underwriters to receive
contributions from the Trust and the Advisers under this Section 8(d) on a joint
and several basis) the relative benefits received by the Trust, on the one hand,
and BAI and BFM, on the other hand, shall be deemed to be in the same proportion
that the total net proceeds from the offering (before deducting expenses)
received by the Trust bear to the present value of the future revenue stream to
be generated by the advisory fee to be paid by the Trust to BAI pursuant to the
Investment Advisory Agreement. The relative fault of the Trust and the Advisers
on the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Trust and the Advisers on the one hand (treated jointly for this
purpose as one person) or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Trust, the Advisers and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which such
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to the respective number of Shares set forth opposite their names
in Schedule I hereto (or such numbers of Shares increased as set forth in
Section 11 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or
18
<PAGE>
expenses are incurred. The indemnity and contribution agreements contained in
this Section 8 and the representations and warranties of the Trust and the
Advisers set forth in this Agreement shall remain operative and in full force
and effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Trust, the Advisers,
their trustees, directors or officers, or any person controlling the Trust or
the Advisers, (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any Underwriter or any
person controlling any Underwriter, or to the Trust, the Advisers, their
trustees, directors or officers, or any person controlling the Trust or the
Advisers, shall be entitled to the benefits of the indemnity, contribution, and
reimbursement agreements contained in this Section 8.
9. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters to purchase the Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 497 and 430A under the 1933 Act and the 1933
Act Rules and Regulations shall have been timely made; no stop order suspending
the effectiveness of the Registration Statement or order pursuant to Section
8(e) of the 1940 Act shall have been issued and no proceeding for those purposes
shall have been instituted or, to the knowledge of the Trust, the Advisers or
any Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change or any development involving a prospective
change in or affecting the condition (financial or other), business, prospects,
properties, net assets, or results of operations of the Trust or the Advisers
not contemplated by the Prospectus, which in your opinion, as Representatives of
the several Underwriters, would materially adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the Trust or
the Advisers or any officer, trustee or director of the Trust or the Advisers
which makes any statement made in the Prospectus untrue or which, in the opinion
of the Trust and its counsel or the Underwriters and their counsel, requires the
making of any addition to or change in the Prospectus in order to state a
material fact required by the 1933 Act, the 1940 Act or the Rules and
Regulations or any other law to be stated therein or necessary in order to make
the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion, as
Representatives of the several Underwriters, materially adversely affect the
market for the Shares.
(c) You shall have received on the Closing Date an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Trust, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, in the form attached hereto as Exhibit A.
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<PAGE>
(d) You shall have received on the Closing Date an opinion of
Daniel Waltcher, Esq., counsel for the Advisers, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, in form and
substance satisfactory to you and to the effect that:
(i) Based on certificates of the Secretary of State of the
State of Delaware, each of the Advisers is a corporation duly
incorporated and validly existing in good standing under the laws of
the State of Delaware, with all necessary corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus
(and any amendment or supplement to either of them). Based on
certificates of the applicable secretaries of state, each Adviser is
duly registered and qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration
or qualification, except where the failure to so register and qualify
does not have a material adverse effect on the ability of such Adviser
to perform its obligations under this Agreement and the Advisory
Agreements to which it is a party;
(ii) Each of the Advisers is duly registered with the
Commission as an investment adviser under the Advisers Act and is not
prohibited by the Advisers Act, the Advisers Act Rules and
Regulations, the 1940 Act or the 1940 Act Rules and Regulations from
acting under the Advisory Agreements to which it is a party for the
Trust as contemplated by the Prospectus (or any amendment or
supplement thereto); and, to the best knowledge of such counsel after
reasonable inquiry, there does not exist any proceeding which should
reasonably be expected to adversely affect the registration of either
Adviser with the Commission;
(iii) Each of the Advisers has corporate power and authority
to enter into this Agreement and the Advisory Agreements to which it
is a party, and this Agreement and the Advisory Agreements to which
each Adviser is a party have been duly authorized, executed and
delivered by each Adviser which is a party thereto and each Advisory
Agreement is a valid and legally binding agreement of such Adviser,
enforceable against such Adviser in accordance with its terms except
as rights to indemnity and contribution hereunder and thereunder may
be limited by Federal or state securities laws or principles of public
policy and subject to the qualification that the enforceability of the
Advisers' obligations thereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights generally and by
general equitable principles whether enforcement is considered in a
proceeding in equity or at law;
(iv) Neither the execution, delivery or performance of this
Agreement or the Advisory Agreements by each Adviser which is a party
thereto, nor the consummation by each Adviser of the transactions
contemplated hereby and thereby (A) conflicts or will conflict with,
or constitutes or will constitute a breach of or default under, the
certificate of incorporation or bylaws, or other
20
<PAGE>
organizational documents, of such Adviser or (B) conflicts or will
conflict with, or constitutes or will constitute a material breach of
or material default under any material agreement, indenture, lease or
other instrument to which either Adviser is a party, or will result in
the creation or imposition of any material lien, charge or encumbrance
upon any material property or material assets of either Adviser, nor
will any such action result in any material violation of any law of
the State of New York, the Delaware General Corporation Law, the 1940
Act, the Advisers Act or any regulation or judgment, injunction, order
or decree applicable to either Adviser or any of its properties;
(v) No consent, approval, authorization or other order of,
or registration or filing with, the Commission, any arbitrator, any
court, regulatory body, administrative agency or other governmental
body, agency, or official of the State of New York is required on the
part of either Adviser for the execution, delivery and performance of
this Agreement or the Advisory Agreements to which it is a party, or
the consummation by such Adviser of the transactions contemplated
hereby and thereby;
(vi) To the best knowledge of such counsel after reasonable
inquiry, there are no legal or governmental proceedings pending or
threatened against either Adviser or to which either Adviser or any of
its properties is subject, which are required to be described in the
Registration Statement or the Prospectus (or any amendment or
supplement to either of them) but are not described as required;
(vii) Each of the Advisers has all material permits, licenses,
franchises and authorizations of governmental or regulatory
authorities as are necessary to own its properties and to conduct its
business in the manner described in the Prospectus (and any amendment
or supplement thereto), and to perform its obligations under the
Advisory Agreements to which it is a party; and
(viii) Such counsel shall also state that the description of
each of the Advisers contained in the Registration Statement (and any
amendment or supplement thereto) does not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein
not misleading and that the description of the Advisers contained in
the Prospectus or any amendment or supplement thereto, as of its issue
date and as of the Closing Date does not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein,
in the light of the circumstances under which they were made, not
misleading.
(e) [Reserved.]
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<PAGE>
(f) You shall have received on the Closing Date an opinion of Simpson
Thacher & Bartlett, counsel for the Underwriters, dated the Closing Date and
addressed to you, with respect to such matters as you may reasonably request.
(g) You shall have received letters addressed to you and dated the
date hereof and the Closing Date from Deloitte & Touche LLP, independent
certified public accountants, substantially in the forms heretofore approved by
the Representatives.
(h) (i) No order suspending the effectiveness of the registration
statement or the Registration Statement or prohibiting or suspending the use of
the Prospectus (or any amendment or supplement thereto) or any Prepricing
Prospectus or any sales material shall have been issued and no proceedings for
such purpose or for the purpose of commencing an enforcement action against the
Trust, the Advisers or with respect to the transactions contemplated by the
Prospectus (or any amendment or supplement thereto) and this Agreement (other
than enforcement actions against any Underwriter with respect to the
transactions contemplated by the Prospectus (or any amendment or supplement
thereto) and this Agreement) may be pending before or, to the knowledge of the
Trust, the Advisers or any Underwriter or in the reasonable view of counsel to
the Underwriters, shall be threatened by the Commission at or prior to the
Closing Date and that any request for additional information on the part of the
Commission (to be included in the Registration Statement, the Prospectus or
otherwise) be complied with to the reasonable satisfaction of the Underwriters;
(ii) there shall not have been any change in the capitalization of the Trust nor
any material increase in the short-term or long-term debt of the Trust (other
than in the ordinary course of business) from that set forth or contemplated in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus
(or any amendment or supplement to either of them), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement to either of them), any material adverse change (other than as a
result of changes in market conditions generally or the market for municipal
securities generally) in the condition (financial or other), prospects, assets
or results of operations of the Trust; (iv) the Trust shall not have any
liabilities or obligations, direct or contingent (whether or not in the ordinary
course of business), that are material to the Trust, other than those reflected
in or contemplated by the Registration Statement or the Prospectus (or any
amendment or supplement to either of them); and (v) all the representations and
warranties of the Trust and the Advisers contained in this Agreement that are
qualified by a materiality standard shall be true and correct, and all
representations and warranties of the Trust and the Advisers contained in this
Agreement that are not so qualified shall be true and correct in all material
respects, on and as of the date hereof and on and as of the Closing Date as if
made on and as of the Closing Date, and you shall have received a certificate of
the Trust and the Advisers, dated the Closing Date and signed by the chief
executive officer and the chief financial officer of each of the Trust and the
Advisers (or such other officers as are reasonably acceptable to you), to the
effect set forth in this Section 9(h) and in Section 9(i) hereof.
(i) Neither the Trust nor either of the Advisers shall have failed at
or prior to the Closing Date to have performed or complied in all material
respects with any of its agreements
22
<PAGE>
herein contained and required to be performed or complied with by it hereunder
at or prior to the Closing Date.
(j) The Trust shall have delivered and you shall have received
evidence satisfactory to you that the Shares are rated `aaa' by Moody's as of
the Closing Date, and there shall not have been given any notice of any intended
or potential downgrading, or of any review for a potential downgrading, in the
rating accorded to the Shares by Moody's.
(k) The Trust shall have furnished to you a report showing compliance
with the asset coverage requirements of the 1940 Act and a Preferred Shares
Basic Maintenance Report (as defined in the Statement), each dated the Closing
Date and in form and substance satisfactory to you. Each such report may use
portfolio holdings and valuations as of the close of business of any day not
more than six business days preceding the Closing Date, provided, however, that
the Trust represents in such report that its total net assets as of the Closing
Date have not declined by 5% or more from such valuation date.
(l) The Trust and the Advisers shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Trust or the
Advisers and delivered to you, or to your counsel, shall be deemed a
representation and warranty by the Trust or the Advisers, as applicable, to each
Underwriter as to the statements made therein.
10. Expenses. The Trust agrees to pay the following costs and
--------
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the 1940 Act
Notification, the Prospectus and each amendment or supplement to any of them
(including, without limitation, the filing fees prescribed by the 1933 Act, the
1940 Act and the Rules and Regulations); (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Prepricing
Prospectus, the Prospectus, any sales material and all amendments or supplements
to any of them as may be reasonably requested for use in connection with the
offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the reproduction and delivery of this Agreement, any dealer agreements and
all other agreements or documents reproduced and delivered in connection with
the offering of the Shares; (v) the registration or qualification of the Shares
for offer and sale under the securities or blue sky laws of the several states
as provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and
23
<PAGE>
supplemental blue sky memoranda and such registration and qualification, which
fees, expenses and disbursements shall not exceed $5,000); (vi) the filing fees
and the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the NASD (which fees and expenses of counsel
for the Underwriters (exclusive of filing fees) shall not exceed $15,000); (vii)
fees paid to Moody's; (viii) the transportation and other expenses incurred by
or on behalf of Trust representatives in connection with presentations to
prospective purchasers of the Shares; and (ix) the fees and expenses of the
Trust's accountants and the fees and expenses of counsel (including local and
special counsel) for the Trust.
11. Effective Date of Agreement. This Agreement shall become
---------------------------
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when the
registration statement or such post-effective amendment has become effective.
Until such time as this Agreement shall have become effective, it may be
terminated by the Trust, by notifying you, or by you, as Representatives of the
several Underwriters, by notifying the Trust.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Shares set forth
opposite its name in Schedule I hereto bears to the aggregate number of Shares
set forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify, to purchase the Shares which such defaulting
Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they are obligated to purchase on the Closing Date and the aggregate
number of Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to you and the Trust
for the purchase of such Shares by one or more non-defaulting Underwriters or
other party or parties approved by you and the Trust are not made within 36
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter, the Trust or the Advisers. In any such
case which does not result in termination of this Agreement, either you or the
Trust shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Trust,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
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<PAGE>
Any notice under this Section 11 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
12. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to the Trust or the Advisers, by notice to the Trust or the
Advisers, if prior to the Closing Date (i) trading in the Trust's common shares
or securities generally on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or the Nasdaq Stock Market shall have been
suspended or materially limited, (ii) additional material governmental
restrictions not in force on the date of this Agreement have been imposed upon
trading in securities generally or a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or material
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of which is to
make it, in your judgment, impracticable or inadvisable to commence or continue
the offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given to the
Trust or either Adviser by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
13. Information Furnished by the Underwriters. The statements set
-----------------------------------------
forth in the [last paragraph on the cover page, and the statements in the first
and third paragraphs under the caption "Underwriting"] in any Prepricing
Prospectus and in the Prospectus, constitute the only information furnished by
or on behalf of the Underwriters through you as such information is referred to
in Sections 6(b) and 8 hereof.
14. Miscellaneous. Except as otherwise provided in Sections 5, 11
-------------
and 12 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Trust or the Advisers, at the
office of BlackRock Financial Management, Inc. at 345 Park Avenue, New York, New
York 10154, Attention: Ralph L. Schlosstein; or (ii) if to you, as
Representatives of the several Underwriters, to Salomon Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Trust, the Advisers, their trustees, directors and
officers, and the other controlling persons referred to in Section 8 hereof and
their respective successors and assigns, to the extent provided herein, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any Underwriter of any
of the Shares in his status as such purchaser.
15. Applicable Law; Counterparts. This Agreement shall be governed
----------------------------
by and construed in accordance with the laws of the State of New York.
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<PAGE>
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
26
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Trust, the Advisers and the several Underwriters.
Very truly yours,
THE BLACKROCK STRATEGIC
MUNICIPAL TRUST
By:__________________________
BLACKROCK ADVISORS, INC.
By:__________________________
BLACKROCK FINANCIAL
MANAGEMENT, INC.
By:__________________________
Confirmed as of the date first
above mentioned on behalf of themselves and the
other several Underwriters named in Schedule I hereto.
SALOMON SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
As Representatives of the Several Underwriters
By: SALOMON SMITH BARNEY INC.
By: __________________________
Managing Director
27
<PAGE>
SCHEDULE I
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
Number of
Underwriter Shares
----------- ---------
--------
Total........................... --------
<PAGE>
EXHIBIT A
FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
<PAGE>
Exhibit K(2)
FORM OF
BLACKROCK STRATEGIC MUNICIPAL AUCTION AGENCY AGREEMENT
Basic Terms for Acting as Auction Agent
[ ], 1999
These basic terms ("Basic Terms") set forth the general terms
and conditions pursuant to which a bank or trust company identified in a Request
and Acceptance Letter will act as auction agent (an "Auction Agent") for
Municipal Auction Rate Cumulative Preferred Shares ("Preferred Shares") issued
by The BlackRock Pennsylvania Strategic Municipal Trust and by The BlackRock
Strategic Municipal Trust, each an investment company registered under the
Investment Company Act of 1940, as amended (each a "Trust"), for which BlackRock
Advisors, Inc. is the investment adviser.
- --------------------------------------------------------------------------------
The Trust proposes to issue Preferred Shares pursuant to its
Agreement and Declaration of Trust, as amended or supplemented by the Statement
(as defined below). The Trust desires that the Auction Agent perform certain
duties in connection with the Preferred Shares upon the terms and subject to the
conditions hereof.
1. Definitions and Rules of Construction.
1.1 Terms Defined By Reference to Statement.
Capitalized terms not defined herein shall have the respective meanings
specified in the Statement.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, the following terms
shall have the following meanings, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or
participant in, the Securities Depository that will act on behalf of a Bidder.
(b) "Agreement" shall mean the Basic Terms, together with the
Request and Acceptance Letter relating to one or more series of Preferred
Shares.
(c) "Auction" shall have the meaning specified in Section 2.1
hereof.
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(d) "Auction Procedures" shall mean the auction procedures
constituting Part II of the form of Statement as of the adoption thereof.
(e) "Authorized Officer" of the Auction Agent shall mean each
Senior Vice President, Vice President, Assistant Vice President, Assistant
Treasurer and Assistant Secretary of the Auction Agent assigned to its Corporate
Trust and Agency Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a communication to
the Trust.
(f) "Broker-Dealer Agreement" shall mean each agreement among the
Trust, the Auction Agent and a Broker-Dealer substantially in the form attached
hereto as Exhibit A.
(g) "Preferred Shares" shall mean the preferred shares, par value
$.001 per share, of the Trust designated as its "Municipal Auction Rate
Cumulative Preferred Shares" and bearing such further designation as to series
as the Board of Trustees, as the case may be, of the Trust or any committee
thereof shall specify; as set forth in the Request and Acceptance Letter.
(h) "Request and Acceptance Letter" shall mean the letter from
the Trust to the Auction Agent pursuant to which the Trust appoints the Auction
Agent and the Auction Agent accepts its appointment as auction agent for the
Preferred Shares.
(i) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit B.
(j) "Statement" shall mean the Statement of Preferences of
Municipal Auction Rate Cumulative Preferred Shares, as adopted by the Trust, a
copy of which is attached to the Request and Acceptance Letter, as the same may
be amended, supplemented or modified from time to time.
(k) "Trust Officer" shall mean the Chairman and Chief Executive
Officer, the President, each Vice President (whether or not designated by a
number or word or words added before or after the title "Vice President"), the
Secretary, the Treasurer, each Assistant Vice President, each Assistant
Secretary and each Assistant Treasurer of the Trust and every other officer or
employee of the Trust designated as a "Trust Officer" for purposes hereof in a
notice to the Auction Agent.
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1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of the Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience
of reference and shall not constitute a part of the Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto" and other words of
similar import refer to the Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
(e) Sections 1 and 2 hereof shall be read in conjunction with the
Statement and in the event of any conflict with the Statement the Statement
shall take precedent.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Statement for each series of Preferred Shares will
provide that the Applicable Rate for such series for each Subsequent Rate Period
thereof shall, except under certain conditions, be the rate per annum that a
bank or trust company appointed by the Trust advises results from implementation
of the Auction Procedures for such series. The Board of Trustees of the Trust or
a committee thereof has adopted a resolution appointing the Auction Agent as
auction agent for purposes of the Auction Procedures for each series of
Preferred Shares. The Auction Agent accepts such appointment and agrees to
follow the procedures set forth in this Section 2 and the Auction Procedures for
the purpose of determining the Applicable Rate for each series of Preferred
Shares for each Subsequent Rate Period thereof for which the Applicable Rate is
to be determined by an Auction. Each periodic implementation of such procedures
is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.
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2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial
Owners.
(a) Not later than seven days prior to the first Auction Date for the
first series of Preferred Shares subject to an Auction, the Trust shall provide
the Auction Agent with a list of the Broker-Dealers. Not later than seven days
prior to any Auction Date for any series of Preferred Shares for which any
change in such list of Broker-Dealers is to be effective, the Trust will notify
the Auction Agent in writing of such change and, if any such change involves the
addition of a Broker-Dealer to such list, shall cause to be delivered to the
Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement
signed by such Broker-Dealer; provided, however, that if the Trust proposes to
designate any Special Rate Period of any series of Preferred Shares pursuant to
Section 4 of Part I of the Statement, not later than 11:00 A.M. on the Business
Day next preceding the Auction next preceding the first day of such Rate Period
or by such later time or date, or both, as may be agreed to by the Auction
Agent, the Trust shall provide the Auction Agent with a list of the
Broker-Dealers for such series and a manually signed copy of each Broker-Dealer
Agreement or a new Schedule A to a Broker-Dealer Agreement (which Schedule A
shall replace and supersede any previous Schedule A to such Broker-Dealer
Agreement) with each Broker-Dealer for such series. The Auction Agent and the
Trust shall have entered into a Broker-Dealer Agreement with each Broker-Dealer
prior to the participation of any such Broker-Dealer in any Auction.
(b) In the event that any Auction Date for any series of Preferred
Shares shall be changed after the Auction Agent shall have given the notice
referred to in clause (vi) of paragraph (a) of the Settlement Procedures, or
after the notice referred to in Section 2.5(a) hereof, if applicable, the
Auction Agent, by such means as the Auction Agent deems practicable, shall give
notice of such change to the Broker-Dealers for such series not later than the
earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction
Date.
(c) (i) The Auction Agent shall maintain a registry of the beneficial
owners of the Preferred Shares of each series who shall constitute Existing
Holders of Preferred Shares of such series for purposes of Auctions and shall
indicate thereon the identity of the respective Broker-Dealer of each Existing
Holder, if any, on whose behalf such Broker-Dealer submitted the most recent
Order in any Auction which resulted in such Existing Holder continuing to hold
or purchasing Preferred Shares of such series. The Auction Agent shall keep such
registry current and accurate. The Trust shall provide or cause to be provided
to the Auction Agent at or prior to the Date of Original Issue of the Preferred
Shares of each series a list of the
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initial Existing Holders of the shares of each such series of Preferred Shares,
the number of shares purchased by each such Existing Holder and the respective
Broker-Dealer of each such Existing Holder or the affiliate thereof through
which each such Existing Holder purchased such shares. The Auction Agent shall
advise the Trust in writing whenever the number of Existing Holders is 500 or
more. The Auction Agent may rely upon, as conclusive evidence of the identities
of the Existing Holders of Preferred Shares of any series (A) such list, (B) the
results of Auctions, (C) notices from any Broker-Dealer as described in the
first sentence of Section 2.2(c)(iii) hereof and (D) the results of any
procedures approved by the Trust that have been devised for the purpose of
determining the identities of Existing Holders in situations where Preferred
Shares may have been transferred without compliance with any restriction on the
transfer thereof set forth in the Auction Procedures.
(ii) In the event of any partial redemption of any series of
Preferred Shares, the Auction Agent shall, at least two Business Days prior to
the next Auction for such series, request each Broker-Dealer to provide the
Auction Agent with a list of Persons who such Broker-Dealer believes should
remain Existing Holders after such redemption based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of
Preferred Shares of such series such Broker-Dealer believes are owned by such
Person after such redemption. In the absence of receiving any such information
from any Broker-Dealer, the Auction Agent may continue to treat the Persons
listed in its registry of Existing Holders as the beneficial owner of the number
of Preferred Shares of such series shown in such registry.
(iii) The Auction Agent shall be required to register a transfer
of Preferred Shares of any series from an Existing Holder of such Preferred
Shares only if such transfer is to another Existing Holder, or other Person if
permitted by the Trust, and only if such transfer is made (A) pursuant to an
Auction, (B) the Auction Agent has been notified in writing (I) in a notice
substantially in the form of Exhibit C to the Broker-Dealer Agreements by a
Broker-Dealer of such transfer or (II) in a notice substantially in the form of
Exhibit D to the Broker-Dealer Agreements by the Broker-Dealer of any Existing
Holder, or other Person if permitted by the Trust, that purchased or sold such
Preferred Shares in an Auction of the failure of such Preferred Shares to be
transferred as a result of such Auction or (C) pursuant to procedures approved
by the Trust that have been devised for the purpose of determining the
identities of Existing Holders in situations where Preferred Shares may have
been transferred without compliance with any restriction on the transfer thereof
set forth in the Auction Procedures. The Auction Agent is not
5
<PAGE>
required to accept any such notice for an Auction unless it is received by the
Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
(d) The Auction Agent may request the Broker-Dealers, as set forth in
the Broker-Dealer Agreements, to provide the Auction Agent with a list of
Persons who such Broker-Dealer believes should be Existing Holders based upon
inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as
a result of the most recent Auction and with respect to each such Person, the
number of shares of such series of Preferred Shares such Broker-Dealer believes
to be owned by such Person. The Auction Agent shall keep confidential such
registry of Existing Holders and shall not disclose the identities of the
Existing Holders of such Preferred Shares to any Person other than the Trust and
the Broker-Dealer that provided such information.
2.3 Information Concerning Rates.
(a) The Rate Multiple on the date of the Agreement is set forth in the
Request and Acceptance Letter. If there is any change in the credit rating of
Preferred Shares by the rating agency (or substitute or successor rating
agencies) referred to in the definition of "Rate Multiple" resulting in any
change in the Rate Multiple for Preferred Shares after the date of the Request
and Acceptance Letter, the Trust shall notify the Auction Agent in writing of
such change in the Rate Multiple prior to 12:00 Noon on the Business Day prior
to the next Auction Date for any series of Preferred Shares succeeding such
change. If the Trust designates all or a portion of any dividend on shares of
any series of Preferred Shares to consist of net capital gains or other income
taxable for Federal income tax purposes, it may indicate, in a notice in the
form of Exhibit I hereto to the Auction Agent pursuant to Section 2.6 hereof,
the Rate Multiple for such series to be in effect for the Auction Date on which
the dividend rate for such dividend is to be fixed. In determining the Maximum
Rate for any series of Preferred Shares on any Auction Date as set forth in
Section 2.3(b)(i) hereof, the Auction Agent shall be entitled to rely on the
last Rate Multiple for Preferred Shares of which it has most recently received
notice from the Trust (or, in the absence of such notice, the percentage
determined by reference to the definition of Rate Multiple), except that if the
Trust shall have notified the Auction Agent of a Rate Multiple to be in effect
for an Auction Date in accordance with the preceding sentence, the Rate Multiple
in effect for the next succeeding Auction Date of any series of Preferred Shares
shall be, unless the Trust notifies the Auction Agent of a change in the Rate
Multiple for such succeeding Auction Date pursuant to this Section 2.3(a), the
Rate Multiple that was in effect on the first preceding Auction Date for
Preferred Shares with respect to which the dividend, the rate for which was
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<PAGE>
fixed on such Auction Date, did not include any net capital gain or other
income taxable for Federal income tax purposes.
(i) On each Auction Date for any series of Preferred Shares, the
Auction Agent shall determine the Maximum Rate for such series. The Maximum
Rate for any series of Preferred Shares on any Auction Date shall be:
(A) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Trust pursuant to Section 4 of Part I of the Statement, the
product of (1) the Reference Rate on such Auction Date for the next Rate Period
of such series and (2) the Rate Multiple on such Auction Date, unless such
series has or had a Special Rate Period (other than a Special Rate Period of 28
Rate Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of such series after such
Special Rate Period, in which case the higher of:
(1) the dividend rate on shares of such series for the
then-ending Rate Period; and
(2) the product of (x) the higher of (I) the Reference Rate on
such Auction Date for a Rate Period equal in length to the
then-ending Rate Period of such series, if such then ending
Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period
equal in length to the then-ending Rate Period of such
series, if such then ending Rate Period was more than 364
Rate Period Days, and (II) the Reference Rate on such
Auction Date for a Rate Period equal in length to such
Special Rate Period of such series, if such Special Rate
Period was 364 Rate Period Days or fewer, or the Treasury
Note Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period, if such Special Rate
Period was more than 364 Rate Period Days and (y) the Rate
Multiple on such Auction Date; or
(B) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by
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the Trust pursuant to Section 4 of Part I of the Statement, the product of (1)
the highest of (x) the Reference Rate on such Auction Date for a Rate-Period
equal in length to the then-ending Rate Period of such series, if such
then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note
Rate on such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of such Rate Period, if such then-ending Rate Period was more than
364 Rate Period Days, (y) the Reference Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such Special Rate
Period is 364 Rate Period Days or fewer or the Treasury Note Rate on such
Auction Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is more than 364 Rate Period Days, and (z) the
Reference Rate on such Auction Date for Minimum Rate Periods and (2) the Rate
Multiple on such Auction Date.
Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the
Trust and the Broker-Dealers of the Maximum Rate so determined and the "AA"
Composite Commercial Paper Rate(s), the Taxable Equivalent of the Short-Term
Municipal Bond Rate(s), Treasury Note Rate(s) and Treasury Bill Rate(s), as the
case may be, used to make such determination.
(ii) From and after a Failure to Deposit by the Trust during any
Rate Period of any series of Preferred Shares, until such failure is cured
and a Late Charge (as defined in paragraph (a) of Section 2.7), is paid, in
accordance with subparagraph (e)(i) of Section 2 of Part I of the
Statement, on the first day of each Rate Period of such series the Auction
Agent shall determine the Treasury Note Rate for such Rate Period of more
than 364 Rate Period Days and the Reference Rate for Rate Periods of 364
Rate Period Days or fewer. Not later than 9:30 A.M. on each such first day,
the Auction Agent shall notify the Trust of the applicable Reference Rate
and Treasury Note Rate.
(iii) If any "AA" Composite Commercial Paper Rate, Taxable
Equivalent of the Short-Term Municipal Bond Rate, Treasury Note Rate or
Treasury Bill Rate, as the case may be, is not quoted on an interest or
bond equivalent, as the case may be, basis, the Auction Agent shall convert
the quoted rate to the interest or bond equivalent thereof as set forth in
the definition of such rate in the Statement if the rate obtained by the
Auction Agent is quoted on a discount basis, or if such rate is quoted on a
basis other than an interest or bond equivalent or discount basis the
Auction Agent shall
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<PAGE>
convert the quoted rate to an interest or bond equivalent rate after
consultation with the Trust as to the method of such conversion.
(iv) If any "AA" Composite Commercial Paper Rate is to be based
on rates supplied by Commercial Paper Dealers and one or more of the
Commercial Paper Dealers shall not provide a quotation for the
determination of such "AA" Composite Commercial Paper Rate, the Auction
Agent shall immediately notify the Trust so that the Trust can determine
whether to select a Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers to provide the quotation or quotations not being
supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The
Trust shall promptly advise the Auction Agent of any such selection.
(v) If any Treasury Note Rate or Treasury Bill Rate is to be
based on rates supplied by U.S. Government Securities Dealers and one or
more of the U.S. Government Securities Dealers shall not provide a
quotation for the determination of such Treasury Rate, the Auction Agent
shall immediately notify the Trust so that the Trust can determine whether
to select a Substitute U.S. Government Securities Dealer or Substitute U.S.
Government Securities Dealers to provide the quotation or quotations not
being supplied by any U.S. Government Securities Dealer or U.S. Government
Securities Dealers. The Trust shall promptly advise the Auction Agent of
any such selection.
(c) The maximum marginal tax rate referred to in the definition of
"Rate Multiple" in the Statement is referred to in this Agreement as the
"Highest Marginal Rate." The Highest Marginal Rate on the date of the Agreement
is set forth in the Request and Acceptance Letter. If there is any change in the
Highest Marginal Rate, the Trust shall notify the Auction Agent in writing of
such change prior to 12:00 Noon on the Business Day prior to the next Auction
Date for Preferred Shares succeeding such change. In determining the Maximum
Rate for any series of Preferred Shares on any Auction Date, the Auction Agent
shall be entitled to rely on the Highest Marginal Rate of which it has most
recently received notice from the Trust (or, in the absence of such notice, the
percentage set forth in the Request and Acceptance Letter).
2.4 Auction Schedule.
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The Auction Agent shall conduct Auctions in accordance with the schedule
set forth below. Such schedule may be changed by the Auction Agent with the
consent of the Trust, which consent shall not be unreasonably withheld. The
Auction Agent shall give written notice of any such change to each
Broker-Dealer. Such notice shall be given prior to the close of business on the
Business Day next preceding the first Auction Date on which any such change
shall be effective.
Time Event
- ---- -----
By 9:30 A.M. Auction Agent advises the Trust and
Broker-Dealers of the applicable Maximum Rate
and the Reference Rate(s) and Treasury Note
Rate(s), as the case may be, used in determining
such Maximum Rate as set forth in Section
2.3(b)(i) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section
2(a) of the Auction Procedures. Submission
Deadline is 1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant to
Section 3(a) of the Auction Procedures.
By approximately 3:00 P.M. Auction Agent advises Trust of results of
Auction as provided in Section 3(b) of the
Auction Procedures.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and Preferred Shares
allocated as provided in Section 4 of the
Auction Procedures. Auction Agent gives notice
of Auction results as set forth in paragraph(a)
of the Settlement Procedures.
The Auction Agent shall follow the notification procedures set forth in
paragraph (a) of the Settlement Procedures.
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2.5 Designation of Special Rate Period.
(a) The Statement will provide that, subject to the Trust's option to
designate a Special Rate Period as referred to in paragraph (b) of this Section
2.5, (i) each Rate Period of any series of Preferred Shares will be a Minimum
Rate Period (a duration of seven days, subject to certain exceptions) and (ii)
each Rate Period following a Rate Period of any series of Preferred Shares that
is other than a Minimum Rate Period will be a Minimum Rate Period. Not less than
10 nor more than 20 days prior to the last day of any such Rate Period that is
not a Minimum Rate Period, (i) the Trust shall deliver to the Auction Agent a
notice of the Auction Date of the next succeeding Auction for such series in the
form of Exhibit C hereto and (ii) the Auction Agent shall deliver such notice by
first-class mail, postage prepaid, to each Existing Holder of shares of such
series at the address set forth for such Existing Holder in the records of the
Auction Agent and to the Broker-Dealers for such series as promptly as
practicable after its receipt of such notice from the Trust.
(b) Pursuant to the Statement, the Trust may, at its option, designate
a Special Rate Period for any series of Preferred Shares in the manner described
in Section 4 of Part I of the Statement.
(i) If the Board of Trustees proposes to designate any succeeding
Subsequent Rate Period of any series of Preferred Shares as a Special Rate
Period, (A) the Trust shall deliver to the Auction Agent a notice of such
proposed Special Rate Period in the form of Exhibit D hereto not less than
20 (or such lesser number of days as may be agreed to from time to time by
the Auction Agent) nor more than 30 days prior to the first day of such
proposed Special Rate Period and (B) the Auction Agent on behalf of the
Trust shall deliver such notice by first-class mail, postage prepaid, to
each Existing Holder of shares of such series of Preferred Shares at the
address set forth for such Existing Holder in the records of the Auction
Agent and to the Broker-Dealers for such series as promptly as practicable
after its receipt of such notice from the Trust.
(ii) If the Board of Trustees determines to designate such
succeeding Subsequent Rate Period as a Special Rate Period, (A) the Trust
shall deliver to the Auction Agent a notice of such determination in the
form of Exhibit E hereto not later than 11:00 A.M. on the second Business
Day next preceding the first day
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of such proposed Special Rate Period (or such later time or date, or both,
as may be agreed to by the Auction Agent) and (B) the Auction Agent shall
deliver such notice to the Broker-Dealers for such series not later than
3:00 P.M. on such second Business Day (or, if the Auction Agent has agreed
to a later time or date, as promptly as practicable thereafter).
(iii) If the Trust shall deliver to the Auction Agent a notice
not later than 11:00 A.M. on the second Business Day next preceding the
first day of such proposed Special Rate Period (or such later time or date,
or both, as may be agreed to by the Auction Agent) stating that the Trust
has determined not to exercise its option to designate such succeeding
Subsequent Rate Period as a Special Rate Period, in the form of Exhibit F
hereto, or shall fail to timely deliver either such notice or a notice in
the form of Exhibit E hereto, the Auction Agent shall deliver a notice in
the form of Exhibit F hereto to the Broker-Dealers for such series not
later than 3:00 P.M. on such second Business Day (or, if the Auction Agent
has agreed to a later time or date, as promptly as practicable thereafter).
Such change in the length of any Rate Period shall not occur if (1) an
Auction for shares of such series shall not be held on such Auction Date for any
reason or (2) an Auction for shares of such series shall be held on such Auction
Date but Sufficient Clearing Bids for shares of such series shall not exist in
such Auction.
2.6 Allocation of Taxable Income.
The Trust may designate all or a portion of any dividend on shares of
any series of Preferred Shares to consist of net capital gains or other income
taxable for Federal income tax purposes and may deliver to the Auction Agent a
notice in the form of Exhibit I hereto of such designation not later than the
Dividend Payment Date for such series next preceding the Auction Date on which
the dividend rate for such dividend is to be fixed. The Auction Agent will
deliver such notice, if given, to the Broker-Dealers for such series on the
Business Day following its receipt of such notice from the Trust. Within two
Business Days after any Auction Date involving the allocation of income taxable
for Federal income tax purposes for which notice has so been given by the Trust,
the Auction Agent shall notify each Broker-Dealer for the related series as to
the dollar
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amount per share of such taxable income and income exempt from Federal income
taxation included in the related dividend.
2.7 Failure to Deposit.
(a) If:
(i) any Failure to Deposit shall have occurred with respect
to Preferred Shares during any Rate Period thereof (other than any Special
Rate Period of more than 364 Rate Period Days or any Rate Period succeeding
any Special Rate Period of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), but, prior to 12:00
Noon, New York City time, on the third Business Day next succeeding the
date on which such Failure to Deposit occurred, such Failure to Deposit
shall have been cured in accordance with Section 2.7(c) hereof and the
Trust shall have paid to the Auction Agent a late charge (a "Late Charge")
equal to the sum of (1) if such Failure to Deposit consisted of the failure
timely to pay to the Auction Agent the full amount of dividends with
respect to any Dividend Period on such shares, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the Dividend Payment Date for such
Dividend Period by (y) a fraction, the numerator of which shall be the
number of days for which such Failure to Deposit has not been cured in
accordance with Section 2.7(c) hereof (including the day such Failure to
Deposit occurs and excluding the day such Failure to Deposit is cured) and
the denominator of which shall be 360, and applying the rate obtained
against the aggregate liquidation preference of the outstanding Preferred
Shares and (2) if such Failure to Deposit consisted of the failure timely
to pay to the Auction Agent the Redemption Price of the Preferred Shares,
if any, for which Notice of Redemption has been given by the Trust, an
amount computed by multiplying (x) 200% of the Reference Rate for the Rate
Period during which such Failure to Deposit occurs on the redemption date
by (y) a fraction, the numerator of which shall be the number of days for
which such Failure to Deposit is not cured in accordance with Section
2.7(c) hereof (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the denominator of
which shall be 360, and applying the rate obtained against the aggregate
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liquidation preference of the outstanding Preferred Shares to the redeemed,
then the Auction Agent shall deliver a notice in the form of Exhibit G hereto by
first-class mail, postage prepaid, to the Broker-Dealers for such series not
later than one Business Day after its receipt of the payment from the Trust
curing such Failure to Deposit and such Late Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with respect to
Preferred Shares during any Rate Period thereof (other than any Special
Rate Period of more than 364 Rate Period Days or any Rate Period succeeding
any Special Rate Period of more than 364 Rate Period Days during which a
Failure to Deposit occurred but has not been cured), and, prior to 12:00
Noon, New York City time, on the third Business Day next succeeding the
date on which such Failure to Deposit occurred, such Failure to Deposit
shall not have been cured in accordance with Section 2.7(c) hereof or the
Trust shall not have paid the applicable Late Charge to the Auction Agent;
or
(ii) any Failure to Deposit shall have occurred with respect to
Preferred Shares during a Special Rate Period thereof of more than 364 Rate
Period Days, or during any Rate Period thereof succeeding any Special Rate
Period of more than 364 Rate Period Days during which a Failure to Deposit
occurred that has not been cured, and, prior to 12:00 noon, New York City
time, on the fourth Business Day preceding the Auction Date for the Rate
Period subsequent to such Rate Period, such Failure to Deposit shall not
have been cured in accordance with Section 2.7(c) hereof or the Trust shall
not have paid the applicable Late Charge to the Auction Agent in accordance
with Section 2(e)(i)(d) of the Statement (such Late Charge, for purposes of
this clause (b)(iii) of this Section 2.7, to be calculated by using, as the
Reference Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days and (y) commencing on the date
on which the Rate Period during which Failure to Deposit occurs commenced);
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then the Auction Agent shall deliver a notice in the form of Exhibit H hereto to
the Broker-Dealers for such series not later than one Business Day after the
receipt of the payment from the Trust curing such Failure to Deposit and such
Late Charge.
(c) A Failure to Deposit with respect to Preferred Shares shall have
been cured (if such Failure to Deposit is not solely due to the willful failure
to the Trust to make the required payment to the Auction Agent) with respect to
any Rate Period if, within the respective time periods described immediately
above, the Trust shall have paid to the Auction Agent (i) all accumulated and
unpaid dividends on the Preferred Shares and (ii) without duplication, the
Redemption Price for the Preferred Shares, if any, for which Notice of
Redemption has been mailed; provided, however, that the foregoing clause (ii)
shall not apply to the Trust's failure to pay the Redemption Price in respect of
Preferred Shares when the related Redemption Notice provides that redemption of
such shares is subject to one or more conditions precedent and each such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.
2.8 Broker-Dealers.
(a) Not later than 12:00 Noon on each Auction Date for any series of
Preferred Shares, the Trust shall pay to the Auction Agent an amount in cash
equal to the aggregate fees payable to the Broker-Dealers for such series
pursuant to Section 2.8 of the Broker-Dealer Agreements for such series. The
Auction Agent shall apply such moneys as set forth in Section 2.8 of each such
Broker-Dealer Agreement.
(b) The Trust shall obtain the consent of the Auction Agent prior to
selecting any Person to act as a Broker-Dealer, which consent shall not be
unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein if so directed by the Trust, provided that at least one
Broker-Dealer Agreement would be in effect for each series of Preferred Shares
after such termination.
(d) Subject to the Auction Agent's having consented to the selection
of the relevant Broker-Dealer pursuant to Section 2.8(b) hereof, the Auction
Agent shall from time to time enter into such Broker-Dealer Agreements with one
or more Broker-Dealers as the Trust shall request, and shall enter into such
schedules to any such Broker-Dealer Agreements as the Trust shall request, which
schedules,
15
<PAGE>
among other things, shall set forth the series of Preferred Shares to which such
Broker-Dealer Agreement relates.
2.9 Ownership of Shares of Preferred Shares.
The Trust shall notify the Auction Agent if the Trust or any affiliate of
the Trust acquires any Preferred Shares of any series. Neither the Trust nor any
affiliate of the Trust shall submit any Order in any Auction for Preferred
Shares, except as set forth in the next sentence. Any Broker-Dealer that is an
affiliate of the Trust may submit Orders in Auctions, but only if such Orders
are not for its own account. For purposes of this Section 2.9, a Broker-Dealer
shall not be deemed to be an affiliate of the Trust solely because one or more
of the directors or executive officers of such Broker-Dealer or of any Person
controlled by, in control of or under common control with such Broker-Dealer is
also a director of the Trust. The Auction Agent shall have no duty or liability
with respect to enforcement of this Section 2.9.
2.10 Access to and Maintenance of Auction Records.
The Auction Agent shall, upon the receipt of prior written notice from the
Trust, afford to the Trust access at reasonable times during normal business
hours to all books, records, documents and other information concerning the
conduct and results of Auctions. The Auction Agent shall maintain records
relating to any Auction for a period of six years after such Auction, and such
records shall, in reasonable detail, accurately and fairly reflect the actions
taken by the Auction Agent hereunder.
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent.
The Auction Agent, as dividend and redemption price disbursing agent, shall
pay to the Holders of Preferred Shares of any series (i) on each Dividend
Payment Date for such series, dividends on the Preferred Shares of such series,
(ii) on any date fixed for redemption of Preferred Shares of any series, the
Redemption Price of any shares of such series called for redemption and (iii)
any Late Charge related to any payment of dividends or Redemption Price, in each
case after receipt of the necessary funds from the Trust with which to pay such
dividends, Redemption Price or Late Charge. The amount of dividends for any Rate
Period for any series of Preferred Shares to be paid by the Auction Agent to the
Holders of such shares of such series will be determined by the Trust as set
forth in Section 2 of Part I of the Statement with respect to such series. The
Redemption Price of any shares to be paid by the Auction Agent to the Holders
will be determined by the Trust as set forth in Section 11 of Part I of the
Statement with respect to such series. The Trust shall
16
<PAGE>
notify the Auction Agent in writing of a decision to redeem shares of any series
of Preferred Shares at least five days prior to the date a notice of redemption
is required to be mailed to the Holders of the shares to be redeemed by
paragraph (c) of Section 11 of Part I of the Statement. Such notice by the Trust
to the Auction Agent shall contain the information required by paragraph (c) of
Section 11 of Part I of the Statement to be stated in the notice of redemption
required to be mailed by the Trust to such Holders.
17
<PAGE>
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Shares Certificates.
Upon the Date of Original Issue of each series of Preferred Shares, one or
more certificates representing all of the shares of such series issued on such
date shall be issued by the Trust and, at the request of the Trust, registered
in the name of Cede & Co. and countersigned by the Auction Agent.
4.2 Registration of Transfer of Shares.
Shares of each series of Preferred Shares shall be registered solely in the
name of the Securities Depository or its nominee.
4.3 Removal of Legend on Restricted Shares.
All requests for removal of legends on Preferred Shares of any series
indicating restrictions on transfer shall be accompanied by an opinion of
counsel stating that such legends may be removed and such shares freely
transferred, such opinion to be delivered under cover of a letter from a Trust
Officer authorizing the Auction Agent to remove the legend on the basis of said
opinion.
4.4 Lost Certificates.
The Auction Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed upon the
fulfillment of such requirements as shall be deemed appropriate by the Trust and
the Auction Agent, subject at all times to provisions of law, the By-Laws of the
Trust governing such matters and resolutions adopted by the Trust with respect
to lost securities. The Auction Agent may issue new certificates in exchange for
and upon the cancellation of mutilated certificates. Any request by the Trust to
the Auction Agent to issue a replacement or new certificate pursuant to this
Section 4.4 shall be deemed to be a representation and warranty by the Trust to
the Auction Agent that such issuance will comply with such provisions of law and
the By-Laws and resolutions of the Trust.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Auction Agent shall retain all stock or share certificates which have
been cancelled in transfer or exchange and all accompanying documentation in
accordance with applicable rules and regulations of the Securities and Exchange
Commission for two calendar years. Upon the expiration of this two-year period,
the
18
<PAGE>
Auction Agent shall deliver to the Trust the cancelled certificates and
accompanying documentation. The Trust shall also undertake to furnish to the
Securities and Exchange Commission and to the Board of Governors of the Federal
Reserve System, upon demand, at either the principal office or at any regional
office, complete, correct and current hard copies of any and all such records.
Thereafter such records shall not be destroyed by the Trust without the
concurrence of the Auction Agent.
4.6 Record Books.
For so long as the Auction Agent is acting as the transfer agent for any
series of Preferred Shares pursuant to the Agreement, it shall maintain a record
book containing a list of the Holders of the Preferred Shares of each such
series. In case of any request or demand for the inspection of the record books
of the Trust or any other books in the possession of the Auction Agent, the
Auction Agent will notify the Trust and secure instructions as to permitting or
refusing such inspection. The Auction Agent reserves the right, however, to
exhibit the record books or other books to any Person in case it is advised by
its counsel that its failure to do so would be unlawful.
4.7 Return of Funds.
Any funds deposited with the Auction Agent hereunder by the Trust for any
reason, including but not limited to redemption of Preferred Shares of any
series, that remain unpaid after ninety days shall be repaid to the Trust upon
the written request of the Trust, together with interest, if any, earned
thereon.
5. Representations and Warranties of the Trust.
The Trust represents and warrants to the Auction Agent that:
(a) the Trust is duly organized and existing business trust in good
standing under the laws of the State of its organization and has all
requisite power to execute and deliver the Agreement and to authorize, create
and issue the Preferred Shares of each series, and the Preferred Shares of each
series when issued, will be duly authorized, validly issued, fully paid and
nonassessable;
(b) the Agreement has been duly and validly authorized, executed and
delivered by the Trust and constitutes the legal, valid and binding obligation
of the Trust;
19
<PAGE>
(c) the form of the certificate evidencing the Preferred Shares of
each series complies or will comply with all applicable laws of the State of its
organization;
(d) when issued, the Preferred Shares of each series will have been
duly registered under the Securities Act of 1933, as amended, and no further
action by or before any governmental body or authority of the United States or
of any state thereof is required in connection with the execution and delivery
of the Agreement or will have been required in connection with the issuance of
Preferred Shares of each series;
(e) the execution and delivery of the Agreement and the issuance and
delivery of the Preferred Shares of each series do not and will not conflict
with, violate or result in a breach of, the terms, conditions or provisions of,
or constitute a default under, the Agreement and Declaration of Trust (as
amended by one or more Statements) or the By-Laws of the Trust, any law or
regulation, any order or decree of any court or public authority having
jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to
which the Trust is a party or by which it is bound the effect of which conflict,
violation, default or breach would be material to the Trust or the Trust and its
subsidiaries taken as a whole; and
(f) no taxes are payable upon or in respect of the execution of the
Agreement or the issuance of the Preferred Shares of any series.
20
<PAGE>
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Trust
hereunder and owes no fiduciary duties to any Person, other than the Trust, by
reason of the Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in the Agreement, and no implied covenants
or obligations shall be read into the Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under the
Agreement. The Auction Agent shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document believed in good faith
by it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized hereby which the Auction Agent believes in
good faith to have been given by the Trust or by a Broker-Dealer. The Auction
Agent may record telephone communications with the Trust or with the
Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk
its own Trusts or otherwise incur or become exposed to financial liability in
the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall not be
21
<PAGE>
responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or adequacy of
the Agreement, the Broker-Dealer Agreements or the Preferred Shares of any
series except that the Auction Agent hereby represents that the Agreement has
been duly authorized, executed and delivered by the Auction Agent and
constitutes a legal and binding obligation of the Auction Agent.
6.4 Compensation, Expenses and Indemnification.
(a) The Trust shall pay the Auction Agent from time to time reasonable
compensation for all services rendered by it under the Agreement and the
Broker-Dealer Agreements.
(b) The Trust shall reimburse the Auction Agent upon its request for
all reasonable out-of-pocket expenses, disbursements and advances incurred or
made by the Auction Agent in accordance with any provision of the Agreement and
the Broker-Dealer Agreements (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any expense or
disbursement attributable to its negligence or bad faith.
(c) The Trust shall indemnify the Auction Agent for and hold it
harmless against any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with its agency under the
Agreement and the Broker-Dealer Agreements, including the costs and expenses of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of the Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Trust may terminate the
Agreement at any time by so notifying the Auction Agent, provided that the Trust
has entered into an agreement in substantially the form of the Agreement with a
successor Auction Agent. The Auction Agent may terminate the Agreement upon
written
22
<PAGE>
notice to the Trust on the date specified in such notice, which date shall be no
earlier than 45 days after the date of delivery of such notice.
(b) Except as otherwise provided in this paragraph (b), the respective
rights and duties of the Trust and the Auction Agent under the Agreement with
respect to any series of Preferred Shares shall cease upon termination of the
Agreement with respect to such series. The Trust's representations, warranties,
covenants and obligations to the Auction Agent under Sections 5 and 6.4 hereof
shall survive the termination of the Agreement with respect to any series of
Preferred Shares. Upon termination of the Agreement with respect to any series
of Preferred Shares, the Auction Agent shall, at the Trust's request, promptly
deliver to the Trust copies of all books and records maintained by it with
respect to Preferred Shares in connection with its duties hereunder.
7.2 Communications.
Except for (i) communications authorized to be by telephone pursuant to the
Agreement or the Auction Procedures and (ii) communications in connection with
Auctions (other than those expressly required to be in writing), all notices,
requests and other communications to any party hereunder shall be in writing
(including telecopy or similar writing) and shall be given to such party,
addressed to it, at its address or telecopy number set forth below:
If to the Trust, [Name of Trust]
c/o BlackRock Financial Management, Inc.
345 Park Avenue, New York, New York 10154
Attention: [ ]
Telecopier No.: (212) 754-8775
Telephone No.: (888) 825-2257
If to the Auction Agent, to the address or telecopy number set forth in the
Request and Acceptance Letter, or such other address or telecopy number as such
party may hereafter specify for such purpose by notice to the other party. Each
such notice, request or communication shall be effective when delivered at the
address specified herein. Communications shall be given on behalf of the Trust
by a Trust Officer and on behalf of the Auction Agent by telephone (confirmed by
telecopy or in writing) by an Authorized Officer.
7.3 Entire Agreement.
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The Agreement contains the entire agreement between the parties relating
to, and superseding any prior agreement between the parties relating to, the
subject matter hereof, and there are no other representations, endorsements,
promises, agreements or understandings, oral, written or implied, between the
parties relating to the subject matter hereof except for agreements relating to
the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other than
the Trust, the Auction Agent and their respective successors and assigns, any
benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) The Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
7.6 Successors and Assigns.
The Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of each of the Trust and
the Auction Agent.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Governing Law.
The Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
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7.9 Declaration of Trust.
This Agreement has been executed on behalf of the Trust by the [Vice
President and Treasurer] of the Trust acting in such capacity and not
individually, and the obligations of the Trust set forth in this Agreement are
not binding upon any of the Trust's trustees, officers or shareholders
individually, but are binding only upon the assets and property of the Trust.
25
<PAGE>
EXHIBIT A
FORM OF
BROKER-DEALER AGREEMENT
A-1
<PAGE>
EXHIBIT B
SETTLEMENT PROCEDURES
B-1
<PAGE>
EXHIBIT C
[NAME OF TRUST]
NOTICE OF AUCTION DATE FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares")
NOTICE IS HEREBY GIVEN that the Auction Date of the next
Auction for Series ___ of the Trust's Preferred Shares is scheduled to be
_______________, 19___ and the next Dividend Payment Date for Series ___ of the
Trust's Preferred Shares will be __________________, 19___.
[A Failure to Deposit in respect of the Series ___ Preferred
Shares currently exists. If, prior to 12:00 noon, New York City time, on the
fourth Business Day preceding the next scheduled Auction Date of the Series ____
Preferred Shares, such Failure to Deposit is not cured or the applicable Late
Charge is not paid, the next Auction will not be held. Notice of the next
Auction for the Series ___ Preferred Shares will be delivered when such Failure
to Deposit is cured and the applicable Late Charge is paid.(1)]
[NAME OF TRUST]
- --------------------
(1) Include this language if a Failure to Deposit exists.
C-1
<PAGE>
EXHIBIT D
[NAME OF TRUST]
NOTICE OF PROPOSED CHANGE OF
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares")
[Name of Trust] (the "Trust") may exercise its option to
designate the Rate Period of its Series ____ Preferred Shares commencing [the
first day of the Special Rate Period] as a Special Rate Period.
By 11:00 A.M. on the second Business Day preceding the first
day of such proposed Special Rate Period, the Trust will notify
___________________ of either (a) its determination to exercise such option,
designating the length of such Special Rate Period for such series or (b) its
determination not to exercise such option.
[NAME OF TRUST]
Dated: __________, 19___
D-1
<PAGE>
EXHIBIT E
[NAME OF TRUST]
NOTICE OF CHANGE OF LENGTH OF RATE PERIOD
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares")
NOTICE IS HEREBY GIVEN that [NAME OF TRUST] (the "Trust") has
determined to designate the Rate Period of its Series ____ Preferred Shares
commencing on [the first day of the Special Rate Period] as a Special Rate
Period.
The Special Rate Period will be __________ [Rate Period Days].
The Auction Date for the Special Rate Period is [the Business
Day next preceding the first day of such Special Rate Period].
As a result of the Special Rate Period designation, the amount
of dividends payable on Series ____ Preferred Shares during the Special Rate
Period will be based on a 360-day year.
The Special Rate Period shall not commence if (a) an Auction
for Preferred Shares shall not be held on such Auction Date for any reason or
(b) an Auction for Preferred Shares shall be held on such Auction Date but
Sufficient Clearing Bids for such shares shall not exist in such Auction.
The scheduled Dividend Payment Dates for such series of
Preferred Shares during such Special Rate Period will be
_________________________.
[Special Redemption Provisions, if any]
Attached hereto is a Preferred Shares Basic Maintenance Report
showing that, as of the third Business Day next preceding such proposed Special
Rate Period, Moody's Eligible Assets (if Moody's is rating such Preferred
Shares) have an aggregate Discounted Value at least equal to the Preferred
Shares Basic Maintenance Amount as of such Business Day (assuming for purposes
of the foregoing calculation that (i) the Maximum Rate is the Maximum Rate on
such Business Day as if such Business Day were the Auction Date for the proposed
Special Rate Period, and (ii) the Moody's Discount Factors applicable to Moody's
Eligible Assets are determined by reference to the first Moody's Exposure Period
longer than the Moody's Exposure Period then applicable to the Trust).
[NAME OF TRUST]
Dated: __________, 19__
E-1
<PAGE>
EXHIBIT F
[NAME OF TRUST]
NOTICE OF DETERMINATION NOT TO CHANGE
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares")
NOTICE IS HEREBY GIVEN that [NAME OF TRUST] (the "Trust") has
determined not to exercise its option to designate a Special Rate Period of its
Series ___ Preferred Shares and the next succeeding Rate Period of such series
will be a Minimum Rate Period of ____ Rate Period Days.
[NAME OF TRUST]
Dated: __________, 19___
F-1
<PAGE>
EXHIBIT G
[NAME OF TRUST]
NOTICE OF CURE OF FAILURE TO DEPOSIT ON MUNICIPAL AUCTION
RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares")
NOTICE IS HEREBY GIVEN that [NAME OF TRUST] (the "Trust") has
cured its Failure to Deposit and paid the applicable Late Charge with respect to
its Series ___ Preferred Shares. The dividend rate on the shares of Series ___
Preferred Shares for the current Dividend Period is _____________% per annum,
the Dividend Payment Date for the current Dividend Period is scheduled to be
_______________, 19___ and the next Auction Date is scheduled to be
_______________, 19___.
[NAME OF TRUST]
Dated: __________, 19___
G-1
<PAGE>
EXHIBIT H
[NAME OF TRUST]
NOTICE OF CURE OF FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares ")
NOTICE IS HEREBY GIVEN that [NAME OF TRUST] (the "Trust") has
cured its Failure to Deposit and paid the applicable Late Charge with respect to
its Series ____ Preferred Shares. The next Auction Date for the Series ____
Preferred Shares is scheduled to be on _________________, 19___.
[NAME OF TRUST]
Dated: __________, 19___
H-1
<PAGE>
EXHIBIT I
[NAME OF TRUST]
NOTICE OF
[CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)
DIVIDEND FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("Preferred Shares ")
NOTICE IS HEREBY GIVEN that the amount of the dividend payable
on ________________, 19____ for Series ____ of the Trust's Preferred Shares will
be determined by the Auction to be held on _______________, 19___. Up to
[$ A](2) [$ B ](3) per share of the dividend payable on such date as determined
by such Auction will consist of [capital gains](2) [ordinary income taxable for
Federal income tax purposes](3). If the dividend amount payable on such date as
determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the
entire amount of the dividend will consist of [capital gains](2) [ordinary
income taxable for Federal income tax purposes](3). [To the extent such dividend
amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist
of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the
aforementioned composition of the dividend payable on _______________, 19___
should be considered in determining Orders to be submitted with respect to the
Auction to be held on ________________, 19__. The Rate Multiple in effect for
such Auction will be ____%.
[NAME OF TRUST]
- --------------------
(1) Include language with respect to capital gains, taxable
ordinary income or both, depending on the character of the designation to be
made with respect to the dividend(s).
(2) Include bracketed material if a portion of the dividend
will be designated capital gains.
(3) Include bracketed material if a portion of the dividend
will be designated ordinary income taxable for Federal income tax purposes and
no portion of the dividend will be designated capital gains.
I-1
<PAGE>
(4) Include bracketed material if a portion of the dividend
will be designated capital gains and a portion will be designated ordinary
income taxable for Federal income tax purposes.
A = the maximum amount of capital gains allocated to such series of Preferred
Shares to be included in such dividend, divided by the number of Preferred
Shares.
B = the maximum amount of ordinary income taxable for Federal income tax
purposes allocated to such series of Preferred Shares to be included in such
dividend, divided by the number of shares in such series.
I-2
<PAGE>
Exhibit K(3)
FORM OF
BLACKROCK STRATEGIC MUNICIPAL BROKER-DEALER AGREEMENT
Basic Terms for Acting as a Broker-Dealer
[ ], 1999
These basic terms ("Basic Terms") set forth the general terms
and conditions pursuant to which a broker-dealer identified in an Acceptance
Letter (together with its successors and assigns, a "BD") will act as a broker-
dealer for Municipal Auction Rate Cumulative Preferred Shares ("Preferred
Shares") issued by The BlackRock Pennsylvania Strategic Municipal Trust and by
the BlackRock Strategic Municipal Trust, each an investment company registered
under the Investment Company Act of 1940, as amended (each a "Trust"), for which
BlackRock Advisors Inc. (the "Adviser") is the investment adviser.
Each Trust has issued or may issue Preferred Shares, pursuant
to its Agreement and Declaration of Trust, as amended or supplemented by the
Statement (as defined below) of such Trust. A bank or trust company specified in
the Request Letter will act as the auction agent (the "Auction Agent") of such
Trust pursuant to authority granted it in the Auction Agency Agreement.
The Statement of each Trust will provide that, for each
Subsequent Rate Period of any series of Preferred Shares of such Trust then
outstanding, the Applicable Rate for such series for such Subsequent Rate Period
shall, except under certain conditions, be the rate per annum that the Auction
Agent of such Trust advises results from implementation of the Auction
Procedures for such series. The Board of Trustees or a committee thereof of each
Trust will adopt a resolution appointing the Auction Agent as auction agent for
purposes of the Auction Procedures for each series of Preferred Shares of such
Trust.
The Auction Procedures of each Trust will require the
participation of one or more Broker-Dealers for each series of Preferred Shares
of such Trust. BD will act as a Broker-Dealer for each series of Preferred
Shares of each Trust identified in a Request Letter.
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to Statement.
Capitalized terms not defined herein shall have the respective
meanings specified in the Statement of the relevant Trust.
<PAGE>
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, the following terms shall
have the following meanings, unless the context otherwise requires:
(a) "Acceptance Letter" shall mean the letter from Adviser to BD
pursuant to which the Adviser appoints BD as a Broker Dealer for each series of
Preferred Shares issued by any Trust that has executed a Request Letter.
(b) "Agreement", with respect to any Trust, shall mean the Basic
Terms, together with the Acceptance Letter and the Request Letter relating to
one or more series of Preferred Shares of such Trust and any other substantially
similar agreement among such Trust, the Adviser, any Auction Agent for such
Trust and/or BD.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Agency Agreement", with respect to any Trust, shall mean
the Auction Agency Agreement between such Trust and the Auction Agent relating
to one or more series of Preferred Shares of such Trust.
(e) "Auction Procedures", with respect to any Trust, shall mean the
auction procedures constituting Part II of the form of Statement of such Trust
as of the filing thereof.
(f) "Authorized Officer" of an Auction Agent shall mean each Senior
Vice President, Vice President, Assistant Vice President, Assistant Treasurer
and Assistant Secretary of such Auction Agent assigned to its Corporate Trust
and Agency Group and every other officer or employee of such Auction Agent
designated as an "Authorized Officer" for purposes of the Agreement in a
communication to BD.
(g) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of the Agreement in a communication to any
Auction Agent.
(h) "Preferred Shares" shall mean the preferred shares, par value
$.001 per share, of any Trust designated as its "Municipal Auction Rate
Cumulative Preferred Shares" and bearing such further designation as to series
as the
2
<PAGE>
Board of Trustees of such Trust or any committee thereof shall specify, as set
forth in a Request Letter.
(i) "Request Letter", with respect to any Trust, shall mean the letter
from such Trust to the Adviser and the Auction Agent for such Trust pursuant to
which such Trust appoints BD as a Broker-Dealer for each series of Preferred
Shares of such Trust.
(j) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.
(k) "Statement", with respect to any Trust, shall mean the Statement
of Preferences of one or more series of Municipal Auction Rate Cumulative
Preferred Shares, as adopted by such Trust, a copy of which will be attached to
the Request Letter of such Trust.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or intent,
the following rules shall apply to the construction of each Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of such Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto", and other words of similar
import refer to such Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
(e) Section 1 and 2 hereof shall be read in conjunction with the
Statement and in the event of any conflict with the Statement the Statement
shall take precedent.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
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(a) The provisions of the Auction Procedures of any Trust will be
followed by the Auction Agent of such Trust for the purpose of determining the
Applicable Rate for any Subsequent Rate Period of any series of Preferred Shares
of such Trust for which the Applicable Rate is to be determined by an Auction.
Each periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.
(c) BD agrees to act as, and assumes the obligations of, and
limitations and restrictions placed upon, a Broker-Dealer under each Agreement
for each series of Preferred Shares. BD understands that other Persons meeting
the requirements specified in the definition of "Broker-Dealer" contained in the
Auction Procedures may execute Agreements and participate as Broker-Dealers in
Auctions.
2.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for any series of
Preferred Shares, the Auction Agent for such series shall advise the
Broker-Dealers for such series by telephone of the Maximum Rate therefor and the
Reference Rate(s) and Treasury Note Rate(s), as the case may be, used in
determining such Maximum Rate.
(b) In the event that any Auction Date for any series of Preferred
Shares shall be changed after the Auction Agent for such series has given the
notice referred to in clause (vi) of paragraph (a) of the Settlement Procedures,
or after the notice referred to in Section 2.5(a) hereof, if applicable, such
Auction Agent, by such means as such Auction Agent deems practicable, shall give
notice of such change to BD, if it is a Broker-Dealer for such series, not later
than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old
Auction Date.
(c) For purposes of maintaining its list of Existing Holders, the
Auction Agent for any series of Preferred Shares from time to time may request
any Broker-Dealer to provide such Auction Agent with a list of Persons who such
Broker-Dealer believes should be Existing Holders based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of shares
of such series of Preferred Shares such Broker-Dealer believes are owned by such
Person. BD shall comply with any such request relating to a series of Preferred
Shares in
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respect of which BD was named a Broker-Dealer, and the Auction Agent shall keep
confidential any such information so provided by BD and shall not disclose any
information so provided by BD to any Person other than the Trust and BD.
(d) BD agrees to maintain a list of customers relating to a series of
Preferred Shares and to use its best efforts, subject to existing laws and
regulations, to contact the customers on such list whom BD believes may be
interested in participating in the Auction on each Auction Date, as a Potential
Holder or a Potential Beneficial Owner, for the purposes set forth in the
Auction Procedures. Nothing herein shall require BD to submit an Order for any
customer in any Auction.
(e) The Auction Agent's registry of Existing Holders of shares of a
series of Preferred Shares shall be conclusive and binding on BD. BD may inquire
of the Auction Agent between 3:00 P.M. on the Business Day preceding an Auction
for shares of a series of Preferred Shares and 9:30 A.M. on the Auction Date for
such Auction to ascertain the number of shares of such series in respect of
which the Auction Agent has determined BD to be an Existing Holder. If BD
believes it is the Existing Holder of fewer shares of such series than specified
by the Auction Agent in response to BD's inquiry, BD may so inform the Auction
Agent of that belief. BD shall not, in its capacity as Existing Holder of shares
of such series, submit Orders in such Auction in respect of shares of such
series covering in the aggregate more than the number of shares of such series
specified by the Auction Agent in response to BD's inquiry.
2.3 Auction Schedule; Method of Submission of Orders.
(a) Each Trust and the Auction Agent for such Trust shall conduct
Auctions for Preferred Shares in accordance with the schedule set forth below.
Such schedule with respect to any series of Preferred Shares of any Trust may be
changed by the Auction Agent for such series with the consent of such Trust,
which consent shall not be unreasonably withheld. Such Auction Agent shall give
written notice of any such change to each Broker-Dealer of such series. Such
notice shall be given prior to the close of business on the Business Day next
preceding the first Auction Date on which such change shall be effective.
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Time Event
- ---- -----
By 9:30 A.M Auction Agent for such series advises such Trust
and the Broker-Dealers for such series of the
applicable Maximum Rate and the Reference
Rate(s) and Treasury Note Rate(s), as the case
may be, used in determining such Maximum Rate as
set forth in Section 2.2(a) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section
2(a) of the Auction Procedures of such Trust.
Submission Deadline is 1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant to
Section 3(a) of the Auction Procedures of such
Trust.
By approximately 3:00 P.M. Auction Agent advises Trust of results of
Auction as provided in Section 3(b) of the
Auction Procedures of such Trust.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and shares of such series
of Preferred Shares allocated as provided in
Section 4 of the Auction Procedures of such
Trust.
Auction Agent gives notice of Auction results as
set forth in Section 2.4(a) hereof.
(b) BD shall submit Orders to the appropriate Auction Agent in writing
substantially in the form attached hereto as Exhibit B. BD shall submit a
separate Order to such Auction Agent for each Potential Holder or Existing
Holder with respect to whom BD is submitting an Order and shall not otherwise
net or aggregate such Orders prior to their submission to such Auction Agent.
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(c) BD shall deliver to the appropriate Auction Agent (i) a written
notice in substantially the form attached hereto as Exhibit C of transfers of
Preferred Shares to BD from another Person other than pursuant to an Auction and
(ii) a written notice substantially in the form attached hereto as Exhibit D, of
the failure of any Preferred Shares to be transferred to or by any Person that
purchased or sold Preferred Shares through BD pursuant to an Auction. Such
Auction Agent is not required to accept any such notice described in clause (i)
for an Auction unless it is received by the Auction Agent by 3:00 P.M. on the
Business Day preceding such Auction.
(d) BD and other Broker-Dealers may submit Orders in Auctions for
their own accounts (including Orders for their own accounts where the Order is
placed beneficially for a customer) unless the relevant Trust shall have
notified BD and all other Broker-Dealers that they may no longer do so, in which
case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their
own accounts. Any Broker-Dealer that is an affiliate of the Trust may submit
Orders in auctions, but only if such Orders are not for its own account. For
purposes of this Section 2.3(d), a Broker-Dealer shall not be deemed to be an
affiliate of the Trust solely because one or more of the directors or executive
officers of such Broker-Dealer or any Person controlled by, in control of or
under common control with such Broker-Dealer is also a Director of the Trust.
(e) BD agrees to handle its customers' orders in accordance with its
duties under applicable securities laws and rules.
(f) To the extent that pursuant to Section 4 of the Auction Procedures
of any Trust, BD continues to hold, sells, or purchases a number of shares that
is fewer than the number of shares in an Order submitted by BD to the Auction
Agent in which BD designated itself as an Existing Holder or Potential Holder in
respect of customer Orders, BD shall make appropriate pro rata allocations among
its customers for which it submitted Orders of similar tenor. If as a result of
such allocations, any Beneficial Owner would be entitled or required to sell, or
any Potential Beneficial Owner would be entitled or required to purchase, a
fraction of a Preferred Share on any Auction Date, BD shall, in such manner as
it shall determine in its sole discretion, round up or down the number of
Preferred Shares to be purchased or sold on such Auction Date by any Beneficial
Owner or Potential Beneficial Owner on whose behalf BD submitted an Order so
that the number of shares so purchased or sold by each such Beneficial Owner or
Potential Beneficial Owner on such Auction Date shall be whole shares.
2.4 Notices.
(a) On each Auction Date for any series of Preferred Shares, the
Auction Agent for such series shall notify BD, if BD is a Broker-Dealer of such
series, by telephone of the results of the Auction as set forth in paragraph (a)
of the
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Settlement Procedures. By approximately 11:30 A.M. on the Business Day next
succeeding such Auction Date, the relevant Auction Agent shall confirm to BD in
writing the disposition of all Orders submitted by BD in such Auction.
(b) BD shall notify each Existing Holder, Potential Holder, Beneficial
Owner or Potential Beneficial Owner of Preferred Shares with respect to whom BD
has submitted an Order as set forth in paragraph (b) of the Settlement
Procedures and take such other action as is required of BD pursuant to the
Settlement Procedures.
2.5 Designation of Special Rate Period.
(a) If any Trust delivers to its Auction Agent a notice of the Auction
Date for any series of Preferred Shares of such Trust for a Rate Period thereof
that next succeeds a Rate Period that is not a Minimum Rate Period in the form
of Exhibit C to the Auction Agency Agreement, and BD is a Broker-Dealer of such
series, the Auction Agent shall deliver such notice to BD as promptly as
practicable after its receipt of such notice from such Trust.
(b) If the Board of Trustees of any Trust proposes to designate any
succeeding Subsequent Rate Period of any series of Preferred Shares of such
Trust as a Special Rate Period and such Trust delivers to its Auction Agent a
notice of such proposed Special Rate Period in the form of Exhibit D to the
Auction Agency Agreement, and BD is a Broker-Dealer for such series, such
Auction Agent shall deliver such notice to BD as promptly as practicable after
its receipt of such notice from the Trust.
(c) If the Board of Trustees of any Trust determines to designate such
succeeding Subsequent Rate Period as a Special Rate Period, and such Trust
delivers to its Auction Agent a notice of such Special Rate Period in the form
of Exhibit E to the Auction Agency Agreement not later than 11:00 A.M. on the
second Business Day next preceding the first day of such Rate Period (or by such
later time or date, or both, as may be agreed to by such Auction Agent), and BD
is a Broker-Dealer for such series, such Auction Agent shall deliver such notice
to BD not later than 3:00 P.M. on such second Business Day (or, if such Auction
Agent has agreed to a later time or date, as promptly as practicable
thereafter).
(d) If any Trust shall deliver to its Auction Agent a notice not later
than 11:00 A.M. on the second Business Day next preceding the first day of any
Rate Period (or by such later time or date, or both, as may be agreed to by such
Auction Agent) stating that such Trust has determined not to exercise its option
to
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designate such succeeding Subsequent Rate Period as a Special Rate Period, in
the form of Exhibit F to the Auction Agency Agreement, or shall fail to timely
deliver either such notice or a notice in the form of Exhibit E to the Auction
Agency Agreement, and BD is a Broker-Dealer for such series, such Auction Agent
shall deliver a notice in the form of Exhibit F to the Auction Agency Agreement
to BD not later than 3:00 P.M. on such second Business Day (or, if such Auction
Agent has agreed to a later time or date, as promptly as practicable
thereafter).
2.6 Allocation of Taxable Income.
If any Trust delivers to its Auction Agent a notice in the form of Exhibit I
to the Auction Agency Agreement designating all or a portion of any dividend on
shares of any series of Preferred Shares of such Trust to consist of net capital
gains or other income taxable for Federal income tax purposes, and BD is a
Broker-Dealer for such series, such Auction Agent shall deliver such notice to
BD on the Business Day following its receipt of such notice from such Trust. On
or prior to the Auction Date referred to in such notice, BD will contact each of
its customers that is a Beneficial Owner of shares of such series of Preferred
Shares or a Potential Beneficial Owner of shares of such series of Preferred
Shares interested in submitting an Order in the Auction to be held on such
Auction Date, and BD will notify such Beneficial Owners and Potential Beneficial
Owners of the contents of such notice. BD will be deemed to have notified such
Beneficial Owners and Potential Beneficial Owners if, for each of them, (i) BD
makes a reasonable effort to contact such Beneficial Owner or Potential
Beneficial Owner by telephone, and (ii) upon failing to contact such Beneficial
Owner or Potential Beneficial Owner by telephone BD mails written notification
to such Beneficial Owner or Potential Beneficial Owner at the mailing address
indicated in the account records of BD.
The Auction Agent for any series of Preferred Shares shall be required to
notify BD if it is a Broker-Dealer for such series within two Business Days
after each Auction of such series of the Auction Agent's receipt of notice from
the Trust that such Auction involves an allocation of income taxable for Federal
income tax purposes as to the dollar amount per share of such taxable income and
income exempt from Federal income taxation included in the related dividend.
2.7 Failure to Deposit.
(a) If:
(i) any Failure to Deposit shall have occurred with respect to
shares of any series of Preferred Shares of any Trust during any Rate Period
thereof (other than any Special Rate Period of
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more than 364 Rate Period Days or any Rate Period succeeding any Special
Rate Period of more than 364 Rate Period Days during which a Failure to
Deposit occurred that has not been cured), but, prior to 12:00 Noon, New
York City time, on the third Business Day next succeeding the date on which
such Failure to Deposit occurred, such Failure to Deposit shall have been
cured in accordance with Section 2.7 of the Auction Agency Agreement and
such Trust shall have paid to the Auction Agent for such series the
applicable Late Charge as described in Section 2.7 of the Auction Agency
Agreement,
then, if BD is a Broker-Dealer for such series, such Auction Agent shall
deliver a notice in the form of Exhibit G to the Auction Agency Agreement
by first-class mail, postage prepaid, to BD not later than one Business Day
after its receipt of the payment from such Trust curing such Failure to
Deposit and such Late Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with respect to
shares of any series of Preferred Shares of any Trust during any Rate
Period thereof (other than any Special Rate Period of more than 364 Rate
Period Days or any Rate Period succeeding any Special Rate Period of more
than 364 Rate Period Days during which a Failure to Deposit occurred but
has not been cured), and, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured as
described in Section 2.7 of the Auction Agency Agreement or such Trust
shall not have paid to the Auction Agent for such series the applicable
Late Charge described in Section 2.7 of the Auction Agency Agreement; or
(ii) any Failure to Deposit shall have occurred with respect to
shares of any series of Preferred Shares of any Trust during a Special Rate
Period thereof of more than 364 Rate Period Days, or during any Rate Period
thereof succeeding any Special Rate Period of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 noon, New York City time, on the fourth Business Day
preceding the Auction Date for the Rate Period subsequent to such Rate
Period, such Failure to Deposit shall not have been cured as described in
Section 2.7 of the Auction Agency Agreement or such Trust shall not
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<PAGE>
have paid to the Auction Agent for such series the applicable Late Charge
described in Section 2.7 of the Auction Agency Agreement; then such Auction
Agent shall deliver a notice in the form of Exhibit H to the Auction Agency
Agreement to the Broker-Dealers for such series not later than one Business
Day after the receipt of the payment from such Trust curing such Failure to
Deposit and such Late Charge.
2.8 Service Charge to be Paid to BD.
On the Business Day next succeeding each Auction Date for any series
of Preferred Shares specified in, or on Schedule A to, the Request Letter of any
Trust, the Auction Agent for such series shall pay to BD from monies received
from such Trust an amount equal to the product of (a) (i) in the case of any
Auction Date immediately preceding a Rate Period of such series consisting of
364 Rate Period Days or fewer, 1/4 of 1%, or (ii) in the case of any Auction
Date immediately preceding a Rate Period of such series consisting of more than
364 Rate Period Days, such percentage as may be agreed upon by such Trust and BD
with respect to such Rate Period, times (b) a fraction, the numerator of which
is the number of Rate Period Days in the Rate Period therefor beginning on such
Business Day and the denominator of which is 365 if such Rate Period consists of
7 Rate Period Days and 360 for all other Rate Periods, times (c) $25,000 times
(d) the sum of (i) the aggregate number of shares of such series placed by BD in
such Auction that were (A) the subject of Submitted Bids of Existing Holders
submitted by BD and continued to be held as a result of such submission and (B)
the subject of Submitted Bids of Potential Holders submitted by BD and purchased
as a result of such submission plus (ii) the aggregate number of shares of such
series subject to valid Hold Orders (determined in accordance with paragraph (d)
of Section 2 of the Auction Procedures) submitted to the Auction Agent by BD
plus (iii) the number of Preferred Shares deemed to be subject to Hold Orders of
Existing Holders pursuant to paragraph (c) of Section 2 of the Auction
Procedures of such Trust that were acquired by BD for its own account or were
acquired by BD for its customers who are Beneficial Owners.
For purposes of subclause (d)(iii) of the foregoing paragraph, if any
Existing Holder or Beneficial Owner who acquired shares of any series of
Preferred Shares through BD transfers of those shares to another Person other
than pursuant to an Auction, then the Broker-Dealer for the shares so
transferred shall continue to be BD; provided, however, that if the transfer was
effected by, or if the transferee is, a Broker-Dealer other than BD, then such
Broker-Dealer shall be the Broker-Dealer for such shares.
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2.9 Settlement.
(a) If any Existing Holder or Beneficial Owner with respect to whom BD
has submitted a Bid or Sell Order for Preferred Shares of any series that was
accepted in whole or in part fails to instruct its Agent Member to deliver the
Preferred Shares subject to such Bid or Sell Order against payment therefor, BD,
if it knows the identity of such Agent Member, shall instruct such Agent Member
to deliver such shares against payment therefor and, if such Agent Member fails
to comply with such instructions, BD may deliver to the Potential Holder or
Potential Beneficial Owner with respect to whom BD submitted a Bid for Preferred
Shares of such series that was accepted in whole or in part a number of
Preferred Shares of such series that is less than the number of Preferred Shares
of such series specified in such Bid to be purchased by such Potential Holder or
Potential Beneficial Owner.
(b) Neither the Auction Agent nor the Trust shall have any
responsibility or liability with respect to the failure of an Existing Holder,
Beneficial Owner, Potential Holder or Potential Beneficial Owner or its
respective Agent Member to deliver Preferred Shares of any series or to pay for
Preferred Shares of any series sold or purchased pursuant to the Auction
Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event BD is an Existing Holder
with respect to shares of a series of Preferred Shares and the Auction
Procedures provide that BD shall be deemed to have submitted a Sell Order in an
Auction with respect to such shares if BD fails to submit an Order in that
Auction with respect to such shares, BD shall have no liability to any Person
for failing to sell such shares pursuant to such a deemed Sell Order if (i) such
shares were transferred by the beneficial owner thereof without notification of
such transfer in compliance with the Auction Procedures or (ii) BD has indicated
to the Auction Agent pursuant to Section 2.2(e) of this Agreement that,
according BD's records, BD is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of Preferred Shares with respect to whom
a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a Sell
Order for such shares that was accepted in whole or in part, fails to instruct
its Agent Member to deliver such shares against payment therefor, partial
deliveries of Preferred Shares that have been made in respect of Potential
Holders' or Potential Beneficial Owners' Submitted Bids for shares of such
series that have been accepted
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in whole or in part shall constitute good delivery to such Potential Holders and
Potential Beneficial Owners.
(e) Notwithstanding the foregoing terms of this Section, any delivery
or non-delivery of Preferred Shares of any series which represents any departure
from the results of an Auction for shares of such series, as determined by the
Auction Agent, shall be of no effect for purposes of the registry of Existing
Holders maintained by the Auction Agent pursuant to the Auction Agency Agreement
unless and until the Auction Agent shall have been notified of such delivery or
non-delivery.
(f) The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 2.9.
3. The Auction Agent.
3.1 Duties and Responsibilities.
(a) Each Auction Agent is acting solely as agent for the Trusts with
whom such Auction Agent has entered into Request Letters and owes no fiduciary
duties to any other Person, other than such Trusts, by reason of the Agreements
to which such Auction Agent is a party.
(b) Each Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in the Agreements to which it is a party,
and no implied covenants or obligations shall be read into such Agreements
against such Auction Agent.
(c) In the absence of bad faith or negligence on its part, each
Auction Agent shall not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under the
Agreements to which it is a party. Each Auction Agent shall not be liable for
any error of judgment made in good faith unless such Auction Agent shall have
been negligent in ascertaining the pertinent facts.
3.2 Rights of the Auction Agents.
(a) Each Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document believed in good faith
by it
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to be genuine. Each Auction Agent shall not be liable for acting upon any
telephone communication authorized by the Agreements to which it is a party that
such Auction Agent believes in good faith to have been given by the appropriate
Trust, by the Adviser or by a Broker-Dealer. Each Auction Agent may record
telephone communications with the Broker-Dealers.
(b) Each Auction Agent may consult with counsel of its choice and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) Each Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
3.3 Auction Agents' Disclaimers. Each Auction Agent makes no
representation as to the validity or adequacy of the Agreements to which it is a
party, the Auction Agency Agreements to which it is a party or the Preferred
Shares of any series.
4. Miscellaneous.
4.1 Termination.
Any party to any Agreement may terminate such Agreement at any time on five
days' notice to the other parties to such Agreement, provided that the Trust
party to such Agreement shall not terminate the Agreement unless at least one
Broker-Dealer Agreement would be in effect for each series of Preferred Shares
of such Trust after such termination. Each Agreement shall automatically
terminate with respect to any series of Preferred Shares with respect to which
the relevant Auction Agency Agreement has terminated.
4.2 Participant in Securities Depository; Payment of Dividends in Same-Day
Funds.
(a) BD is, and shall remain for the term of the Agreements, a member
of, or participant in, the Securities Depository (or an affiliate of such a
member or participant).
(b) BD represents that it (or if BD does not act as Agent Member, one
of its affiliates) shall make all dividend payments on the Preferred
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Shares available in same-day funds on each Dividend Payment Date to customers
that use BD or affiliate as Agent Member.
4.3 Communications.
Except for (i) communications authorized to be by telephone by the
Agreement of any Trust or the Auction Procedures of such Trust and (ii)
communications in connection with Auctions (other than those expressly required
to be in writing), all notices, requests and other communications to any party
under such Agreement shall be in writing (including telecopy or similar writing)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to a Trust, [Name of Trust]
addressed: c/o BlackRock Financial Management, Inc.
345 Park Avenue, New York, New York 10154
Attention: [ ]
Telecopier No.: (212) 754-8775
Telephone No.: (888) 825-2257
If to the Adviser, BlackRock Advisors, Inc.
addressed: 345 Park Avenue, New York, New York 10154
Attention: [ ]
Telecopier No.: (212) 754-8775
Telephone No.: (888) 825-2257
If to BD, to the
address or telecopy number
as set forth in the Acceptance
Letter,
If to an Auction
Agent, to the address
or telecopy number as set
forth in the Request Letter,
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other parties. Each such notice, request or
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communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
an Auction Agent by an Authorized Officer of such Auction Agent. BD may record
telephone communications with any Auction Agent.
4.4 Entire Agreement.
Each Agreement contains the entire agreement among the parties thereto
relating to the subject matter thereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
among the parties thereto relating to the subject matter thereof. Each Agreement
supersedes any prior agreement to which BD was a party in respect of any Trust.
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4.5 Benefits.
Nothing in any Agreement, express or implied, shall give to any person,
other than the Trust party to such Agreement, the Adviser, the Auction Agent
party to such Agreement and BD and their respective successors and assigns, any
benefit or any legal or equitable right, remedy or claim under such Agreement.
4.6 Amendment; Waiver.
(a) Each Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.
(b) Failure of any party to any Agreement to exercise any right or
remedy thereunder in the event of a breach thereof by any other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
(c) Notwithstanding any provision hereof to the contrary, the Trust
may (a) upon five business days' notice to the Auction Agent and you, amend,
alter or repeal any of the provisions contained herein, it being understood and
agreed that you shall be deemed to have accepted any such amendment, alteration
or repeal if, after the expiration of such five business day period, you submit
an Order to the Auction Agent in respect of the Preferred Shares of the Trust to
which such amendment, alteration or repeal relates, and (b) upon two business
days' notice to the Auction Agent and you, exclude you from participating as a
Broker-Dealer in any particular auction for any particular series of Preferred
Shares.
4.7 Successors and Assigns.
Each Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of the Trust party to such
Agreement, the Adviser, the Auction Agent party to such Agreement and BD.
4.8 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
4.9 Governing Law.
Each Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
17
<PAGE>
4.10 Declaration of Trust.
Each Agreement to which a Trust that is a Delaware business trust is a
party has been executed on behalf of such Trust by the Vice President and
Treasurer of such Trust acting in such capacity and not individually, and the
obligations of such Trust set forth in such Agreement are not binding upon any
of such Trust's trustees, officers or shareholders individually, but are binding
only upon the assets and property of such Trust.
18
<PAGE>
EXHIBIT A
SETTLEMENT PROCEDURES
A-1
<PAGE>
EXHIBIT B
[Name of Trust]
$____ Municipal Auction Rate Cumulative Preferred Shares, Series_____
$____ Municipal Auction Rate Cumulative Preferred Shares, Series_____
AUCTION DATE:
------------
ISSUE: SERIES:
--------------- -------------
THE UNDERSIGNED Broker-Dealer SUBMITS THE FOLLOWING ORDERS ON BEHALF OF THE
BIDDER(S) LISTED BELOW:
================================================================================
ORDERS BY EXISTING HOLDERS -
NUMBER OF PREFERRED SHARES
EXISTING HOLDER HOLD BID/RATE SELL
1. /
- ------------------------ ---------- -------------------------- ----------------
2. /
- ------------------------ ---------- -------------------------- ----------------
3. /
- ------------------------ ---------- -------------------------- ----------------
4. /
- ------------------------ ---------- -------------------------- ----------------
5. /
- ------------------------ ---------- -------------------------- ----------------
6. /
- ------------------------ ---------- -------------------------- ----------------
7. /
- ------------------------ ---------- -------------------------- ----------------
8. /
- ------------------------ ---------- -------------------------- ----------------
9. /
- ------------------------ ---------- -------------------------- ----------------
10. /
- ------------------------ ---------- -------------------------- ----------------
B-1
<PAGE>
ORDERS BY POTENTIAL HOLDERS-
NUMBER OF PREFERRED SHARES
POTENTIAL HOLDER BID/RATE
1. /
- ----------------------------- -------------------------------------------
2. /
- ----------------------------- -------------------------------------------
3. /
- ----------------------------- -------------------------------------------
4. /
- ----------------------------- -------------------------------------------
5. /
- ----------------------------- -------------------------------------------
6. /
- ----------------------------- -------------------------------------------
7. /
- ----------------------------- -------------------------------------------
8. /
- ----------------------------- -------------------------------------------
9. /
- ----------------------------- -------------------------------------------
10. /
- ----------------------------- -------------------------------------------
11. /
- ----------------------------- -------------------------------------------
12. /
- ----------------------------- -------------------------------------------
13. /
- ----------------------------- -------------------------------------------
14. /
- ----------------------------- -------------------------------------------
15. /
- ----------------------------- -------------------------------------------
B-2
<PAGE>
NOTES:
1. If one or more Orders covering in the aggregate more than the number of
outstanding Preferred Shares held by any Existing Holder are submitted, such
Orders shall be considered valid in the order of priority set forth in the
Auction Procedures.
2. A Hold Order or Sell Order may be placed only by an Existing Holder covering
a number of Preferred Shares not greater than the number of Preferred Shares
currently held by such Existing Holder.
3. Potential Holders may make Bids only, each of which must specify a rate. If
more than one Bid is submitted on behalf of any Potential Holder, each Bid
submitted shall be a separate Bid with the rate specified.
4. Bids may contain no more than three figures to the right of the decimal point
(.001 of 1%).
B-3
<PAGE>
================================================================================
[AUCTION AGENT]
AUCTION BID FORM
NAME OF AUTHORIZED Broker-Dealer:
--------------------------
Submit to:
SIGNATURE:
---------------------------------
TOTAL NUMBER OF ORDERS ON THIS BID FORM:
================================================================================
B-4
<PAGE>
EXHIBIT C
(To be used only for transfers made to a Broker-Dealer other than pursuant to an
Auction)
[NAME OF TRUST]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES,
SERIES
-----
TRANSFER FORM
We are the Broker-Dealer to whom the Existing Holder or Beneficial Owner named
below transferred shares of the above series of Preferred Shares other than
pursuant to an Auction. We hereby notify you that such Existing Holder or
Beneficial Owner has transferred shares of the above series of Preferred
-------
Shares to us.
---------------------------------------------
(Name of Existing Holder or Beneficial Owner)
---------------------------------------------
(Name of Broker-Dealer)
---------------------------------------------
By:
Printed Name:
Title:
C-1
<PAGE>
EXHIBIT D
(To be used only for failures to deliver
Preferred Shares sold pursuant to an Auction)
[NAME OF TRUST]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES,
SERIES
-----
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ________________ (the "Purchaser"), which
purchased _______ shares of the above series of Preferred Shares in the Auction
held on _____ from the seller of such shares.
II. We are a Broker-Dealer for ____________ (the "Seller"), which sold ________
shares of the above series of Preferred Shares in the Auction held on ______ to
the purchaser of such shares.
We hereby notify you that (check one) -
[_] the Seller failed to deliver such Preferred Shares to the Purchaser
[_] the Purchaser failed to make payment to the Seller upon delivery of such
Preferred Shares
----------------------------------------
(Name of Broker-Dealer)
----------------------------------------
By:
Printed Name:
Title:
D-1
<PAGE>
Exhibit K(4)
[LOGO APPEARS HERE]
[BOOK-ENTRY ONLY AUCTION-RATE/MONEY MARKET PREFERRED/AND REMARKETED
PREFERRED SECURITIES]
Letter of Representations
[To be Completed by Issuer and Trust Company]
The BlackRock Strategic Municipal Trust
----------------------------------------------
[Name of Issuer]
Bankers Trust Corporation
----------------------------------------------
[Name of Trust Company]
October , 1999
---------------
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street 49th Floor
New York NY 10041-0099
Re: The BlackRock Strategic Municipal Trust
-----------------------------------------------------------
Municipal Auction Rate Cumulative Preferred Shares
-----------------------------------------------------------
CUSIP 09248T 20 8 (Series W)
-----------------------------------------------------------
(Issue Description, including CUSIP number)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"). Trust Company will
act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated ___________, 1999 (the "Document"). Salomon
-------
Smith Barney Inc. is distributing the Securities through The Depository Trust
- -----------------
Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on _______________, 1999, there
shall be deposited with DTC one Security certificate registered in the name of
DTC's nominee, Cede & Co., which represents the total number of Securities
issued. Said certificate shall remain in DTC's custody as provided in the
Document. If however, the aggregate principal amount of the Securities exceeds
$200 million, one certificate will be issued with respect to each $200 million
of principal amount and an additional certificate will be issued with respect to
any remaining principal amount. Each Security certificate shall bear the
following legend:
<PAGE>
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by holders of
the Securities, Issuer or Agent shall establish a record date for such purposes
(with no provision for revocation of consents or votes by subsequent holders)
and shall send notice of such record date to DTC not less than 15 calendar days
in advance of such record date. Notices to DTC pursuant to this Paragraph by
telecopy shall be sent to DTC's Reorganization Department at (212) 709-6896 or
(212) 709-6897, and receipt of such notices shall be confirmed by telephoning
(212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or by any
other means shall be sent to DTC's Reorganization Department as indicated in
Paragraph 5.
4. In the event of a full or partial redemption of the outstanding
securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
number of Securities to be redeemed; and (b) the date such notice is to be
distributed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed to
assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be not less
than 30 days nor more than 60 days prior to the redemption date. Notices to DTC
pursuant to this Paragraph by telecopy shall be sent to DTC's Call Notification
Department at (516) 227-4039 or (516) 227-4190. If the party sending the notice
does not receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to:
Manager: Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
<PAGE>
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions by telecopy shall be sent to
DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt
of such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
6. All notices and payment advices sent to DTC shall contain the CUSIP number
of the Securities (listed on Schedule A hereto) and the accompanying description
of such Security, which, as of the date of this letter is "CUSIP 09248T2D8
(Series W)."
7. The Document indicates that the dividend rate for the Securities may vary
from time to time. Absent other existing arrangements with DTC, Issuer or Trust
Company shall give DTC notice of each such change in the dividend rate, on the
same day that the new rate is determined, by telephoning the Supervisor of DTC's
Dividend Announcement Section at (212) 709-1270, or by telecopy sent to (212)
709-1723. Such verbal or telecopy notice shall be followed by prompt written
confirmation sent by a secure means in the manner set forth in Paragraph 4 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
8. The Document indicates that each purchaser of Securities must sign a
purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full amount
of all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities, even if the credits of Securities to the DTC accounts
of any DTC Participant ("Participant") result from transfers or failures to
transfer in violation of the provisions of the purchaser's letter. Issuer and
Trust Company acknowledge that DTC shall treat any Participant having Securities
credited to its DTC accounts as entitled to the full benefits of ownership of
such Securities. Without limiting the generality of the preceding sentence,
Issuer and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 12 and 13, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.) DTC shall not have any responsibility to ascertain
whether any transfer of Securities is made in accordance with the provisions of
the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of dividend payment
and distribution information to a standard dividend announcement service
subscribed to by DTC as soon as the information is available. In the unlikely
event that no such service exists, Issuer or Trust Company shall provide this
information directly to DTC electronically, as previously arranged by Issuer or
Trust Company and DTC, as soon as the information is available. If electronic
transmission has not been arranged, absent any other arrangements between Issuer
or Trust Company and DTC, such information should be sent by telecopy to DTC's
Dividend Department at (212) 709-1723 or (212) 709-1686, and receipt of such
notices shall be confirmed by telephoning (212) 709-1270. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
<PAGE>
Manager: Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
10. Issuer or Trust Company shall provide CUSIP-level detail for dividend
payments and distributions to DTC no later than noon (Eastern Time) on the
payment date.
11. Dividend payments and distributions shall be received by Cede & Co. as
nominee of DTC, or its registered assigns in same-day funds no later than
2:30 p.m. (Eastern Time) on each payment date. Absent any other arrangements
between Issuer or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-026776
12. Redemption payments shall be received by Cede & Co., as nominee of DTC, or
its registered assigns in same-day funds no later than 2:30 p.m. (Eastern Time)
on the payment date. Absent any other arrangements between Issuer or Trust
Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account # 066-027306
13. Reorganization payments and CUSIP-level detail resulting from corporate
actions (such as tender offers, remarketings, or mergers) shall be received by
Cede & Co., as nominee of DTC, or its registered assigns in same-day funds no
later than 2:30 p.m. (Eastern Time) on the first payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-027608
14. DTC may direct Issuer or Trust Company to use any other number or address
as the number or address to which notices, or payments of dividends,
distributions, or redemption proceeds may be sent.
15. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Trust
Company's invitation) necessitating a reduction in the number of Securities
outstanding, or an advance refunding of part of the Securities outstanding DTC,
in its discretion: (a) may request Issuer or Trust Company to issue and
authenticate a new Security certificate; or (b) may make an appropriate notation
on the Security certificate indicating the date and amount of such reduction in
the number of Securities outstanding, except in the case of final redemption, in
which case the certificate will be presented to Issuer or Trust Company prior to
payment, if required.
<PAGE>
16. In the event that Issuer determines that beneficial owners of Securities
shall be able to obtain certificated Securities, Issuer or Trust Company shall
notify DTC of the availability of certificates. In such event, Issuer or Trust
Company shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
17. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to Issuer or
Trust Company (at which time DTC will confirm with Issuer or Trust Company the
aggregate principal amount of Securities outstanding). Under such circumstances,
at DTC's request Issuer and Trust Company shall cooperate fully with DTC by
taking appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
18. Issuer hereby authorizes DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorization to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 5.
This authorization, unless revoked by Issuer, shall continue with respect to
the Securities while any Securities are on deposit at DTC, until and unless
Trust Company shall no longer be acting. In such event, Issuer shall provide DTC
with similar evidence, satisfactory to DTC, of the authorization of any
successor thereto so to act.
19. Nothing herein shall be deemed to require Agent to advance funds on
behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
21. This Letter of Representations is governed by, and shall be constructed
in accordance with, the laws of the State of New York.
22. The following riders, attached hereto, are hereby incorporated into this
Letter of Representations:
Rider Amending DTC Letter of Representations -- BED Auction-Rate/Money
________________________________________________________________________
Market Preferred/and Remarketed Preferred Securities
________________________________________________________________________
Notes:
- ------
A. If there is an Agent (as defined
in this Letter of Representations),
Agent as well as Issuer must sign
this Letter. If there is no Agent,
in signing this Letter Issuer itself
undertakes to perform all of the
obligations set forth herein. Very truly yours,
B. Schedule B contains statements
that DTC believes accurately
describe DTC, the method of
effecting book-entry transfers of
securities distributed through DTC,
and certain related matters.
The BlackRock Strategic Municipal Trust
_______________________________________
Issuer
By:____________________________________
(Authorized Officer's Signature)
Bankers Trust Corporation
____________________________________
(Agent)
By:____________________________________
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:____________________________________
cc: Underwriter
Underwriter's Counsel
<PAGE>
SCHEDULE A
----------
- --------------------------------------------------------------------------------
The BlackRock Strategic Municipal Trust Municipal Auction Rate Cumulative
Preferred Shares
- --------------------------------------------------------------------------------
(Describe issue)
CUSIP Number Share Total Offering ($) Value
- ------------ ----------- ------------------
09248T208 (Series W)
<PAGE>
SCHEDULE B
----------
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(Prepared by DTC-bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commerical Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants'' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities: DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed. DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed].
<PAGE>
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts, upon DTC's receipt of payment and
corresponding detail information from Issuer or Trust Company on payable date in
accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trust Company, or Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions and dividends to
Cede & Co. is the responsibility of Issuer or Trust Company, disbursement of
such payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to Trust Company [or
Tender/Remarketing Agent], and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to Trust Company [or Tender/Remarketing Agent].
The requirement for physical delivery of Securities in connection with an
optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Securities are transferred by Direct Participants on
DTC's records and followed by a book-entry credit of tendered Securities to
Trustee's [or Tender/Remarketing Agent's] DTC account.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trust Company. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
<PAGE>
[LOGO APPEARS HERE]
Rider Amending DTC Letter of Representations - BEO Auction-Rate/Money Market
----------------------------------------------------------------------------
Preferred/and Remarketed Preferred Securities
----------------------------------------------------------------------------
DTC's Reorganization and Dividend Departments have relocated to 55 Water Street.
Following are revisions to the Letter of Representations including current
addresses, telephone numbers, and telecopy numbers.
Paragraph 3 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-6896 and (212) 709-6897 (212) 855-5181 and (212) 855-5182
The confirmation number (formerly (212) 709-6870) is now (212) 855-5202.
Paragraph 5 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-1093 and (212) 709-1094 (212) 855-5278
Paragraph 5 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Number:
(212) 709-1093 and (212) 709-1094 (Stock Dividends) (212) 855-5278
The confirmation number (formerly (212) 709-6884) is now (212) 855-5280.
<PAGE>
The current address is: Manager: Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
Paragraph 7 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-1723 (212) 855-4555
The confirmation number (formerly (212) 709-1270) is now (212) 855-4550.
The current address is: Manager: Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
Paragraph 9 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-1723 and (212) 709-1686 (212) 855-4555 and (212) 855-4556
The confirmation number (formerly (212) 709-1270) is now (212) 855-4550.
The following additional text relates to Paragraph 10 of the Letter of
- ----------------------------------------------------------------------
Representations: Such information shall be conveyed by automated notification.
- ---------------
If the circumstances prevent the funds being paid to Cede & Co., as nominee of
DTC, by 2:30 p.m. ET from equaling the dollar amount associated with detail
payments by 12:00 noon ET, Issuer or Agent must provide CUSIP-level
reconciliation to DTC no later than 2:30 p.m. ET. Reconciliation may be provided
by automated means or in written format.
The following additional text relates to Paragraph 11 of the Letter of
- ----------------------------------------------------------------------
Representations: Issuer must remit free funds to Agent by 1:00 p.m. ET on each
- ---------------
payment date, or at such earlier time as required by Agent to guarantee timely
credit to the Dividend Deposit Account of Cede & Co.
The following additional text relates to Paragraph 12 of the Letter of
- ----------------------------------------------------------------------
Representations: Issuer must remit free funds to Agent by 1:00 p.m. ET on each
- ---------------
payment date, or at such earlier time as required by Agent to guarantee timely
credit to the Redemption Deposit Account of Cede & Co. Issuer or Agent shall
deliver CUSIP-level detail regarding such payments to DTC no later than 2:30
p.m. ET on each payment date.
The following additional text relates to Paragraph 13 of the Letter of
- ----------------------------------------------------------------------
Representations: Issuer must remit free funds to Agent by 1:00 p.m. ET on each
- ---------------
payment date, or at such earlier time as required by Agent to guarantee timely
credit to the Reorganization Deposit Account of Cede & Co. Issuer or Agent shall
deliver CUSIP-level detail regarding such payments to DTC no later than 2:30
p.m. ET on each payment date.
-2-
<PAGE>
EXHIBIT (n)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1
to Registration Statement No. 333-86589 of The BlackRock
Strategic Municipal Trust of our report dated August 20, 1999
appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 25, 1999
