As filed with the Securities and Exchange Commission on July 1, 1999
Securities Act Registration No.
Investment Company Act File No.
===========================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No.
THE BLACKROCK PENNSYLVANIA 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)
(800) 227-7236
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein
President, Chief Executive Officer and Chief Financial Officer
The BlackRock Strategic Municipal Trust
345 Park Avenue
New York, New York 10154
(Name and address of Agent for Service)
with a copy to:
Thomas A. DeCapo
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108-3194
--------------------------------------
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>
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Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered(1) Per Share Offering Price Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares, no par value 66,667 $15.00 $1,000,005 $278
============================================================================================
</TABLE>
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
the Registration Statement shall thereafter become effective in accordance
with Section 8 (a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the Commission, acting
pursuant to said Section 8(a), may determine.
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
CROSS REFERENCE SHEET
Part A - Prospectus
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
Item 1. Outside Front Cover...................... Cover Page
Item 2. Cover Pages;
Other Offering Information............. Cover Page
Item 3. Fee Table and Synopsis................... Prospectus Summary;
Summary of Trust Expenses
Item 4. Financial Highlights..................... Not Applicable
Item 5. Plan of Distribution..................... Cover Page; Prospectus
Summary; Underwriting
Item 6. Selling Shareholders..................... Not Applicable
Item 7. Use of Proceeds.......................... Use of Proceeds; the
Trust's Investments
Item 8. General Description of the
Registrant............................. The Trust; The Trust's
Investments; Risks; How
the Trust Manages Risk;
Description of Shares;
Certain Provisions in the
Declaration of Trust
Item 9. Management............................... Management of the Trust;
Custodian and Transfer and
Dividend Disbursing Agent
Item 10. Capital Stock, Long-Term Debt,
and Other Securities................. Description of Shares;
Distributions; Dividend
Reinvestment Plan; Certain
Provisions in the
Declaration of Trust; 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 Information............ Table of Contents for the
Statement 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 History.......... Not Applicable
Item 17. Investment Objective
and Policies......................... Investment Objectives and
Policies; Investment
Policies and Techniques;
Portfolio Transactions
Item 18. Management............................. Management of the Trust;
Portfolio Transactions
Item 19. Control Persons and Principal
Holders of Securities................ Management of the Trust
Item 20. Investment Advisory
and Other Services................... Management of the Trust;
Experts
Item 21. Brokerage Allocation and
Other Practices...................... Portfolio Transactions
Item 22. Tax Status............................. Tax Matters; Distributions
Item 23. Financial Statements..................... Report of Independent
Auditors
Part C - Other Information
Items 24-33 have been answered in Part C of this Registration Statement.
The information in this prospectus is not complete and may be changed. No
person may 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 JULY 1, 1999
____________ Shares
The BlackRock Pennsylvania Strategic Municipal Trust
Common Shares
$15.00 per share
------------
INVESTMENT OBJECTIVES. The Trust is a newly organized, closed-end
management investment company. The Trust's investment objectives are:
o to provide current income exempt from regular Federal and
Pennsylvania income tax; and
o to enhance portfolio value relative to the municipal bond market.
PORTFOLIO CONTENTS. The Trust will invest its net assets in a portfolio of
municipal bonds that are exempt from regular Federal and Pennsylvania
income taxes. Under normal market conditions, the Trust expects to be fully
invested in these tax-exempt municipal bonds. The Trust will invest at
least 80% of its total assets in investment grade
(continued on following page)
------------
INVESTING IN THE COMMON SHARES OFFERED BY THIS PROSPECTUS INVOLVES
CERTAIN RISKS. SEE "RISKS" BEGINNING ON PAGE __.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION 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.
------------
Per Share Total
--------- -----
Public Offering Price
Sales Load
Proceeds to the Trust
The underwriters are offering the common shares subject to various
conditions. The underwriters expect to deliver the common shares to
purchasers on or about _________, 1999.
------------
_____________, 1999
(continued from previous page)
quality municipal bonds. Investment grade quality bonds are those rated by
national rating agencies within the four highest grades (Baa or BBB or
better), or bonds that are unrated but judged to be of comparable quality
by the Trust's investment adviser. The Trust may invest up to 20% of its
total assets in municipal bonds that are rated Ba/BB or B or that are
unrated but judged to be of comparable quality by the Trust'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 Trust's Investments." The Trust cannot
assure you that it will achieve its investment objectives. A substantial
portion of the Trust's income may be subject to the Federal alternative
minimum tax. In addition, capital gains distributions will be subject to
capital gains taxes. The Trust is designed to provide tax benefits to
investors who are residents of Pennsylvania. See "Tax Matters."
NO PRIOR HISTORY. Because the Trust is newly organized, its common shares
have no history of public trading. Shares of closed-end investment
companies frequently trade at a discount from their net asset value. This
risk may be greater for investors expecting to sell their shares in a
relatively short period after completion of the public offering. We have
applied for listing of the common shares on the New York Stock Exchange,
subject to notice of issuance, under the trading or "ticker" symbol
"__________".
PREFERRED SHARES. The Trust intends to offer preferred shares. The Trust
expects that its Preferred Shares will represent about 38% of the Trust's
capital. The issuance of Preferred Shares will leverage your common shares,
meaning that the issuance of the Preferred Shares may cause you to receive
a larger return or loss on your common shares than you would have received
without the issuance of the Preferred Shares. Leverage involves special
risks, but also affords an opportunity for greater return. The Trust's
leveraging strategy may not be successful. See "Preferred Shares and
Leverage" and "Description of Shares--Preferred Shares."
The underwriters named in this prospectus may purchase up to __________
additional common shares from the Trust under certain circumstances.
This prospectus contains important information about the Trust. You should
read the prospectus before deciding whether to invest and retain it for
future reference. A statement of additional information, dated __________,
1999, containing additional information about the Trust, has been filed
with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety into this prospectus. You can review the table of
contents of the statement of additional information on page ___ of this
prospectus. You may request a free copy of the statement of additional
information by calling (800) 257-8787. You may also obtain the statement of
additional information and other information regarding the Trust on the
Securities and Exchange Commission web site (http://www.sec.gov).
The Trust's common shares do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured depository
institution. The Trust's common shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
----------------
TABLE OF CONTENTS
Page
Forward-Looking Statements.................................................
Prospectus Summary.........................................................
Summary of Trust Expenses..................................................
The Trust..................................................................
Use of Proceeds............................................................
The Trust's Investments....................................................
Preferred Shares and Leverage..............................................
Risks......................................................................
How the Trust Manages Risk.................................................
Management of the Trust....................................................
Net Asset Value............................................................
Distributions..............................................................
Dividend Reinvestment Plan.................................................
Description of Shares......................................................
Certain Provisions in the Agreement and Declaration of Trust...............
Closed-End Trust Structure.................................................
Conversion to Open-End Trust...............................................
Repurchase of Shares.......................................................
Tax Matters................................................................
Underwriting...............................................................
Custodian and Transfer and Dividend Disbursing Agent.......................
Legal Opinions.............................................................
Table of Contents for the statement of additional information..............
----------------
You should rely only on the information contained in this prospectus. The
Trust has not authorized anyone to provide you with different information.
The Trust 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.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based
these forward- looking statements largely on our current expectations and
projections about future events and financial trends affecting the
financial condition of our business. These forward- looking statements are
subject to a number of risks, uncertainties and assumptions about The
BlackRock Pennsylvania Strategic Municipal Trust, including, among other
things:
o general economic and business conditions, both generally and in
the markets in which we invest;
o our investment opportunities;
o our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
o anticipated trends in our business;
o existing and future regulations affecting investment companies
like the Trust; and
o other risk factors set forth under "Risks" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intent," "expect" and similar
expressions, as they relate to the Trust or its management, are intended to
identify forward-looking statements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this prospectus may
not occur and actual results could differ materially from those anticipated
in the forward-looking statements.
PROSPECTUS SUMMARY
This is only a summary. This summary may not contain all of the
information that you should consider before investing in our common shares.
You should review the more detailed information contained in this
prospectus and in the statement of additional information.
THE TRUST.............. The BlackRock Pennsylvania Strategic Municipal
Trust is a newly organized, closed-end management
investment company. Throughout the prospectus, we
refer to The BlackRock Pennsylvania Strategic
Municipal Trust simply as the "Trust" or as "we,"
"us" or "our." See "The Trust."
THE OFFERING........... The Trust is offering __________ common shares of
beneficial interest at $15.00 per share through a
group of underwriters led by __________ and
__________. The common shares of beneficial
interest are called "common shares" in the rest of
this prospectus. You must purchase at least 100
common shares. The Trust has given the underwriters
an option to purchase up to __________ additional
common shares to cover orders in excess of
__________ common shares. See "Underwriting."
INVESTMENT
OBJECTIVES............. The Trust's investment objectives are to provide
current income exempt from regular Federal and
Pennsylvania income tax and to enhance portfolio
value relative to the municipal bond market. The
Trust will invest its net assets in a portfolio of
municipal bonds that are exempt from regular
Federal and Pennsylvania income tax. Under normal
market conditions, the Trust expects to be fully
invested in these tax-exempt municipal bonds. The
Trust will invest at least 80% of its total assets
in municipal bonds that at the time of investment
are investment grade quality. Investment grade
quality bonds are bonds rated within the four
highest grades (Baa or BBB or better by Moody's
Investor Service, Inc. ("Moody's"), Standard &
Poors Corporation ("S&P") or Fitch IBCA, Inc.
("Fitch")), or bonds that are unrated but judged to
be of comparable quality by the Trust's investment
adviser. The Trust may invest up to 20% of its
total assets in municipal bonds 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 the Trust's investment
adviser. 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 Trust
may not attain its investment objectives. See "The
Trust's Investments."
SPECIAL
CONSIDERATIONS......... The Trust expects that a substantial portion of its
investments will pay interest that is taxable under
the Federal alternative minimum tax. The Trust may
not be a suitable investment for investors subject
to the Federal alternative minimum tax. In
addition, capital gains distributions will be
subject to capital gains taxes. See "Tax Matters."
PROPOSED OFFERING
OF PREFERRED SHARES.... Approximately [one to three] months after
completion of this offering of the common shares
(subject to market conditions), the Trust intends
to offer preferred shares of beneficial interest
("Preferred Shares") that will represent
approximately 38% of the Trust's capital after
their issuance. The issuance of Preferred Shares
will leverage your shares. Leverage involves
special risks. The Trust's leveraging strategy may
not be successful. See "Risks--Leverage Risk". The
money the Trust obtains by selling the Preferred
Shares will be invested in long-term municipal
bonds that will generally pay fixed rates of
interest over the life of the bond. The Preferred
Shares will pay dividends based on shorter-term
rates, which will be reset frequently. If the rate
of return, after the payment of applicable expenses
of the Trust, on the long-term bonds purchased by
the Trust is greater than the dividends paid by the
Trust on the Preferred Shares, the Trust will
generate more income by investing the proceeds of
the Preferred Shares than it will need to pay
dividends on the Preferred Shares. If so, the
excess income will be used to pay higher dividends
to holders of common shares. However, the Trust
cannot assure you that the issuance of Preferred
Shares will result in a higher yield on your common
shares. Once Preferred Shares are issued, the net
asset value and market price of the common shares
and the yield to holders of common shares will be
more volatile. See "Preferred Shares and Leverage"
and "Description of Shares--Preferred Shares."
INVESTMENT ADVISER..... BlackRock Advisors, Inc. will be the Trust's
investment adviser, and BlackRock Advisors'
affiliate, BlackRock Financial Management, Inc.
("BlackRock"), will handle day-to-day investment
management of the Trust. BlackRock Advisors will
receive an annual fee, payable monthly, in a
maximum amount equal to ___% of the Trust's average
daily total net assets (including assets
attributable to any Preferred Shares that may be
outstanding), [with lower fee levels for assets
that exceed $_____ million ]. [BlackRock Advisors
has agreed to reimburse the Trust for fees and
expenses in the amount of ___% of average daily
total net assets of the Trust for the first five
years of the Trust's operations (through
__________, 2004), and for a declining amount for
an additional five years (through __________,
2009).] BlackRock Advisors is a wholly-owned
subsidiary of PNC Bank, N.A. See "Management of the
Trust."
DISTRIBUTIONS.......... The Trust intends to distribute monthly all or a
portion of its net investment income to holders of
common shares. We expect to declare the initial
monthly dividend on the Trust's common shares
approximately [45 days] after completion of this
offering and to pay that initial monthly dividend
approximately [60 to 90 days] after completion of
this offering. Unless an election is made to
receive dividends in cash, shareholders will
automatically have all dividends and distributions
reinvested in common shares of the Trust purchased
in the open market through the Trust's Dividend
Reinvestment Plan. See "Dividend Reinvestment
Plan."
After the issuance of any Preferred Shares, monthly
distributions to holders of common shares will
consist of net investment income remaining after
the payment of dividends on any outstanding
preferred stock. For Federal income tax purposes,
however, if the Trust realizes net capital gains, a
portion of the distributions will be required to be
allocated pro rata among the holders of common
shares and holders of any Preferred Shares. See
"Distributions."
LISTING............... We have applied for listing of the common shares on
the New York Stock Exchange, under the trading or
"ticker" symbol "_____." See "Description of
Shares--Common Shares."
CUSTODIAN AND
TRANSFER AND DIVIDEND
DISBURSING AGENT...... State Street Bank and Trust Company will serve as
custodian of the Trust's assets. will act as the
Trust's Transfer and Dividend Disbursing Agent. See
"Custodian and Transfer and Dividend Disbursing
Agent."
MARKET PRICE
OF SHARES.............. Shares of closed-end investment companies
frequently trade at prices lower than their net
asset value. Shares of closed-end investment
companies like the Trust that invest predominately
in investment grade municipal bonds have during
some periods traded at prices higher than their net
asset value and during other periods traded at
prices lower than their net asset value. The Trust
cannot assure you that its common shares will trade
at a price higher than net asset value. The Trust's
net asset value will be reduced immediately
following this offering by the sales load and the
amount of the organization and offering expenses
paid by the Trust. See "Use of Proceeds." In
addition to net asset value, the market price of
the Trust's common shares may be affected by such
factors as dividend levels, which are in turn
affected by expenses; call protection; dividend
stability; portfolio credit quality; and liquidity
and market supply and demand. See "Preferred Shares
and Leverage," "Risks," "Description of Shares" and
the Section of the statement of additional
information with the heading "Repurchase of Common
Shares." The common shares are designed primarily
for long-term investors, and you should not
purchase shares of the Trust if you intend to sell
them shortly after purchase.
SPECIAL RISK
CONSIDERATIONS........ No Operating History. The Trust is a newly
organized closed-end investment company with no
history of operations.
Interest Rate Risk. When market interest rates
fall, bond prices rise, and vice versa. Interest
rate risk is the risk that the municipal bonds in
the Trust's portfolio will decline in value because
of increases in market interest rates. The prices
of longer-term bonds fluctuate more than prices of
shorter-term bonds as interest rates change.
Because the Trust will invest primarily in
long-term bonds, net asset value and market price
per share of the common shares will fluctuate more
in response to changes in market interest rates
than if the Trust invested primarily in
shorter-term bonds. The Trust's use of leverage, as
described below, will tend to increase common share
interest rate risk.
Credit Risk. Credit risk is the risk that one or
more municipal bonds in the Trust's portfolio will
decline in price, or fail to pay interest or
principal when due, because the issuer of the bond
experiences a decline in its financial status. The
Trust may invest up to 20% (measured at the time of
investment) of its total assets in municipal bonds
that are rated Ba/BB or B or that are unrated but
judged to be of comparable quality by BlackRock.
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.
Concentration in Pennsylvania Issuers. The Trust's
policy of investing primarily in municipal
obligations of issuers located in Pennsylvania
makes the Trust more susceptible to adverse
economic, political or regulatory occurrences
affecting those issuers.
Leverage Risk. The use of leverage through the
issuance of Preferred Shares creates an opportunity
for increased common share net income, but also
creates special risks for the holders of common
shares. The Trust's leveraging strategy may not be
successful. We anticipate that Preferred Share
dividends will be based on shorter-term municipal
bond rates of return, which would be redetermined
periodically, pursuant to an auction process, and
that the Trust will invest the proceeds of the
Preferred Shares offering in long-term, typically
fixed rate, municipal bonds. So long as the Trust's
municipal bond portfolio provides a higher rate of
return, net of Trust expenses, than the Preferred
Share dividend rate, as reset periodically, the
leverage will cause the holders of common shares to
receive a higher current rate of return than if the
Trust were not leveraged. If, however, long and/or
short-term rates rise, the Preferred Share dividend
rate could exceed the rate of return on long-term
bonds held by the Trust that were acquired during
periods of generally lower interest rates, reducing
return to the holders of common shares. Leverage
creates two major types of risks for the holders of
common shares:
o the likelihood of greater volatility of
net asset value and market price of the
common shares, because changes in the
value of the Trust's bond portfolio,
including bonds bought with the
proceeds of the Preferred Shares
offering, are borne entirely by the
holders of common shares; and
o the possibility either that common
share income will fall if the Preferred
Share dividend rate rises, or that
common share income will fluctuate
because the Preferred Share dividend
rate varies.
Municipal Bond Market Risk. The amount of public
information available about the municipal bonds in
the Trust's portfolio is generally less than that
for corporate equities or bonds, and the investment
performance of the Trust may therefore be more
dependent on the analytical abilities of BlackRock
than would be a stock fund or taxable bond fund.
The secondary market for municipal bonds,
particularly the below-investment-grade bonds in
which the Trust may invest, also tends to be less
well-developed or liquid than many other securities
markets, which may adversely affect the Trust's
ability to sell its bonds at attractive prices.
Non-Diversification. The Trust has registered as a
"non-diversified" investment company under the
Investment Company Act of 1940. For Federal income
tax purposes, the Trust, with respect to up to 50%
of its total assets, will be able to invest more
than 5% (but not more than 25%) of the value of its
total assets in the obligations of any single
issuer. To the extent the Trust invests a
relatively high percentage of its assets in the
obligations of a limited number of issuers, the
Trust may be more susceptible than a more widely
diversified investment company to any single
economic, political or regulatory occurrence.
Anti-takeover Provisions. The Trust's Agreement and
Declaration of Trust includes provisions that could
limit the ability of other entities or persons to
acquire control of the Trust or convert the Trust
to open-end status. These provisions could deprive
the holders of common shares of opportunities to
sell their common shares at a premium over the then
current market price of the common shares.
SUMMARY OF TRUST EXPENSES
The following table assumes the issuance of Preferred Shares in an
amount equal to 38% of the Trust's capital (after their issuance), and
shows Trust expenses both as a percentage of net assets attributable to
common shares and as a percentage of total net assets.
Percentage of
Total Net Assets
----------------
Shareholder Transaction Expenses
Sales Load Paid by You (as a percentage
of offering price)..................... ____%
Dividend Reinvestment Plan Fees......... None*
<TABLE>
<CAPTION>
Percentage of Net
Assets Attributable Percentage of
to Common Shares Total Net Assets
------------------- ----------------
<S> <C> <C>
Annual Expenses
Management Fees......................... . % . %
Fee and Expense Reimbursement
[Years 1-5]............................. (. %)** (. %)**
----- ------
Net Management Fees....................... . %** . %**
Other Expenses............................ . % . %
----
Total Net Annual Expenses................. . %** . %**
==== ===
</TABLE>
- --------------------
[* You will be charged a $2.50 service charge and pay brokerage charges
if you direct the Plan Agent to sell your common shares held in a
dividend reinvestment account.]
[** BlackRock Advisors has agreed to reimburse the Trust for fees and
expenses in the amount of .__% of average daily total net assets for
the first 5 years of the Trust's operations, .__% of average daily
total net assets in year 6, .__% in year 7, .__% in year 8, .__% in
year 9 and .__% in year 10. Without the reimbursement, "Total Net
Annual Expenses" would be estimated to be .__% of average daily total
net assets and ___% of average daily net assets attributable to
common shares.
The purpose of the table above is to help you understand all fees and
expenses that you, as a holder of common shares, would bear directly or
indirectly. The expenses shown in the table are based on estimated amounts
for the Trust's first year of operations and assume that the Trust issues
__________ common shares. See "Management of the Trust" and "Dividend
Reinvestment Plan."
The following example illustrates the expenses (including the sales
load of $__) that you would pay on a $1,000 investment in common shares,
assuming (1) total net annual expenses of .__% of net assets attributable
to common shares and .__% of total net assets [in years 1 through 5,
increasing to __% and .__%, respectively, in year 10] and (2) a 5% annual
return:(/1/)
<TABLE>
<S> <C> <C> <C> <C>
Expenses Based on a Percentage of 1 Year 3 Years 5 Years 10 Years(2)
--------------------------------- ------ ------- ------- -----------
Net Assets Attributable to
Common Shares................... $ $ $ $
Total Net Assets.................. $ $ $ $
</TABLE>
- --------------------
(1) The example should not be considered a representation of future
expenses. The example assumes that the estimated Other Expenses set
forth in the Annual Expenses table are accurate, that fees and
expenses increase as described in note 2 below and that all dividends
and distributions are reinvested at net asset value. Actual expenses
may be greater or less than those assumed. Moreover, the Trust's
actual rate of return may be greater or less than the hypothetical 5%
return shown in the example.
[(2) Assumes reimbursement of fees and expenses of .__% of average daily
net assets in year 6, .__% in year 7, .__% in year 8, .__% in year 9
and .__% in year 10. BlackRock Advisors has not agreed to reimburse
the Trust for any portion of its fees and expenses beyond __________,
2009.]
THE TRUST
The Trust is a recently organized, closed-end, non-diversified
management investment company registered under the Investment Company Act.
The Trust was organized as a Delaware business trust on June 30, 1999,
pursuant to an Agreement and Declaration of Trust governed by the laws of
the State of Delaware. As a newly organized entity, the Trust has no
operating history. The Trust's principal office is located at 345 Park
Avenue, New York, New York 10154, and its telephone number is (800)
___-____. The Trust is designed to provide tax benefits to investors who
are residents of Pennsylvania.
USE OF PROCEEDS
The net proceeds of the offering of common shares will be
approximately $__________ ($__________ if the underwriters exercise the
over-allotment option in full) after payment of the estimated organization
and offering costs. [BlackRock Advisors has agreed to pay (1) all
organizational expenses and (2) offering costs (other than sales load) that
exceed $__________ per common share.] The Trust will invest the net
proceeds of the offering in accordance with the Trust's investment
objectives and policies as stated below. We currently anticipate that the
Trust will be able to invest substantially all of the net proceeds in
municipal bonds that meet the Trust's investment objectives and policies
within three months after the completion of the offering. Pending such
investment, it is anticipated that the proceeds will be invested in
short-term, tax-exempt securities.
THE TRUST'S INVESTMENTS
Investment Objectives and Policies
The Trust's investment objectives are:
o to provide current income exempt from regular Federal and
Pennsylvania income tax; and
o to enhance portfolio value relative to the municipal bond market.
The Trust will invest its net assets in a portfolio of municipal
bonds that are exempt from regular Federal and Pennsylvania income tax.
Under normal market conditions, the Trust expects to be fully invested (at
least 95% of its net assets) in such tax-exempt municipal bonds. The Trust
will invest at least 80% of its total assets in investment grade quality
municipal bonds. Investment grade quality means that such bonds 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. The Trust may invest up to 20% of its
total assets in municipal bonds 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. 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 Trust 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 may consider
such factors as BlackRock'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
A to the statement of additional information contains a general description
of Moody's, S&P's and Fitch's ratings of municipal bonds. See "Risks" below
for a general description of the economic and credit characteristics of
municipal issuers in Pennsylvania. The Trust 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 Trust may invest directly. See
"--Other Investment Companies" and "--Initial Portfolio Composition."
The Trust will invest in municipal bonds that, in BlackRock's
opinion, are underrated or undervalued. attempts to achieve its objectives
by investing in underrated and undervalued municipal bonds. Underrated
municipal bonds are those whose ratings do not, in the opinion of
BlackRock, reflect their true creditworthiness. Undervalued municipal bonds
are bonds that, in the opinion of BlackRock, are worth more than the value
assigned to them in the marketplace. BlackRock 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 may purchase those bonds for the Trust's portfolio
because they represent a market sector or issuer that BlackRock 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 Trust's investment in underrated or undervalued
municipal bonds will be based on BlackRock'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
Trust attempts to increase its portfolio value relative to the municipal
bond market by prudent selection of municipal bonds regardless of the
direction the market may move. Any capital appreciation realized by the
Trust will generally result in the distribution of taxable capital gains to
holders of common shares.
The Trust may purchase municipal bonds that are additionally secured
by insurance, bank credit agreements or escrow accounts. The credit quality
of companies which provide such 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 Trust'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.
During temporary defensive periods, including the period during which
the net proceeds of the offering are being invested, and in order to keep
the Trust's cash fully invested, the Trust 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 Trust 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 Trust invests in taxable short-term investments, a portion of your
dividends would be subject to regular Federal and Pennsylvania income
taxes. See the statement of additional information.
The Trust cannot change its investment objectives 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. 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 shares are present or
represented by proxy, or (2) more than 50% of the shares, whichever is
less. See "Description of Shares-Preferred Shares--Voting Rights" and the
statement of additional information under "Description of Shares--Preferred
Shares" for additional information with respect to the voting rights of
holders of Preferred Shares.
If you are, or as a result of your investment in the Trust would
become, subject to the Federal alternative minimum tax, the Trust may not
be a suitable investment for you because the Trust expects that a
substantial portion of its investments will pay interest that is taxable
under the Federal alternative minimum tax. Special rules apply to corporate
holders. In addition, capital gains distributions will be subject to
capital gains taxes. See "Tax Matters."
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 Trust 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 Trust will only purchase municipal
bonds representing lease obligations where BlackRock believes the issuer
has a strong incentive to continue making appropriations until maturity.
The municipal bonds in which the Trust will invest are generally
issued by the Commonwealth of Pennsylvania, a city in Pennsylvania, or a
political subdivision of such Commonwealth or city, and pay interest that,
in the opinion of bond counsel to the issuer, or on the basis of another
authority believed by BlackRock to be reliable, is exempt from regular
Federal and Pennsylvania income tax. BlackRock will not conduct its own
analysis on the tax status of the interest paid by municipal bonds held by
the Trust. This interest, however, may be subject to the Federal
alternative minimum tax. The Trust may also invest in municipal bonds
issued by United States Territories (such as Puerto Rico or Guam) that are
exempt from regular Federal and Pennsylvania income tax.
The yields on municipal bonds are dependent 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 Trust will primarily invest in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15 to 30
years, but the weighted average maturity of obligations held by the Trust
may be shortened, depending on market conditions.
Special Considerations Relating to Pennsylvania Municipal Bonds. [The
following information provides only a brief summary of the complex factors
affecting the financial situation in Pennsylvania (the "Commonwealth") and
is derived from sources that are generally available to investors and is
believed to be accurate. It is based in part on information obtained from
various state and local agencies in Pennsylvania. No Independent
Verification has been made of the following information.]
[The Commonwealth of Pennsylvania is one of the most populous states,
ranking fifth behind California, New York, Texas and Florida. Pennsylvania
is an established yet growing state with a diversified economy. It is the
headquarters for many major corporations. Pennsylvania has been
historically identified as a heavy industry state. That reputation has
changed over the last thirty years as the coal, steel and railroad
industries declined and the Commonwealth's business environment readjusted
to reflect a more diversified industrial base. This economic readjustment
was a direct result of a long-term shift in jobs, investment and workers
away from the northeast part of the nation. Currently, the major sources of
growth in Pennsylvania are in the service sector, including trade, medical
and the health services, education and financial institutions.]
[Pennsylvania's agricultural industries remain an important component
of the Commonwealth's economic structure, accounting for more than $3.6
billion in crop and livestock products annually. Agribusiness and
food-related industries support $39 billion in economic activity annually.
Over 51,000 farms form the backbone of the State's agricultural economy.
Farmland in Pennsylvania includes over four million acres of harvested
cropland and four million acres of pasture and farm woodlands--nearly
one-third of the Commonwealth's total land area.]
[Employment within the Commonwealth increased steadily from 1984 to
1990. From 1990 to 1992, employment in the Commonwealth declined 1.8%. From
1992 to 1998, employment increased 4.1%. The growth in employment
experienced in the Commonwealth during such periods is slightly higher that
the growth in employment in the Middle Atlantic region of the United
States. Non- manufacturing employment in the Commonwealth has increased
steadily since 1980 to its 1998 level of 82.8% of total Commonwealth
employment. Manufacturing, which contributed 17.1% of 1998 non-agricultural
employment, has fallen behind both the services sector and the trade sector
as the largest single source of employment within the Commonwealth. In
1998, the services sector accounted for 32.3% of all non-agricultural
employment in the Commonwealth while the trade sector accounted for 22.4%.]
[Economic strengths and weakness vary in different parts of the
Commonwealth. In general, heavy industry and manufacturing have been facing
increasing competition from foreign producers. During 1998, the annual
average unemployment rate in the Commonwealth was 4.6%, compared to 4.5%
for the United States. For March 1999, the unadjusted unemployment rate was
4.8% in the Commonwealth and 4.4% in the United States, while the
seasonally adjusted unemployment rate for the Commonwealth was 4.4% and for
the United States was 4.2%.]
For more information, see "Factors Pertaining to Pennsylvania" in the
Statement of Additional Information.
When-Issued and Forward Commitment Securities
The Trust 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 may involve an element of 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 time of delivery may be less or
more than cost. A separate account of the Trust 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 Trust 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 Trust may invest directly. The
Trust 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 Trust receives the proceeds of the offering of its
common shares or 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 Trust will bear its
ratable share of that investment company's expenses, and would remain
subject to payment of the Trust's management, advisory and administrative
fees with respect to assets so invested. Holders of common shares would
therefore be subject to duplicative expenses to the extent the Trust
invests in other investment companies. BlackRock Advisors will take
expenses into account when evaluating the investment merits of an
investment in the investment company relative to available municipal bond
investments. In addition, the securities of other investment companies may
also be leveraged and will therefore be subject to the same leverage risks
to which the Trust is subject. As described in this prospectus in the
section entitled "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.
Initial Portfolio Composition
If current market conditions persist, the Trust expects that
approximately ___% of its initial portfolio will consist of investment
grade quality municipal bonds, rated as such at the time of investment,
meaning that such bonds are rated by national rating agencies within the
four highest grades or are unrated but judged to be of comparable quality
by BlackRock (approximately ___% in Aaa/AAA; ___% in A; and ___% in
Baa/BBB). BlackRock generally expects to select obligations that may not be
redeemed at the option of the issuer for approximately seven to nine years
from the date of purchase by the Trust. Subject to market availability,
BlackRock currently expects to invest approximately ___% of the Trust's
initial portfolio in municipal bonds that are, at the time of investment,
either rated below investment grade or that are unrated but judged to be of
comparable quality by BlackRock Advisors. See "--Investment Objectives and
Policies."
PREFERRED SHARES AND LEVERAGE
Approximately [one to three] months after the completion of the
offering of the common shares, subject to market conditions, the Trust
intends to offer Preferred Shares representing approximately 38% of the
Trust's capital immediately after the issuance of the Preferred Shares. The
Preferred Shares will have complete priority upon distribution of assets
over the common shares. The issuance of Preferred Shares will leverage the
common shares. Leverage involves special risks. The Trust's leveraging
strategy may not be successful. Although the timing and other terms of the
offering and the terms of the Preferred Shares will be determined by the
Trust's board of trustees, the Trust expects to invest the proceeds of the
Preferred Shares offering in long-term municipal bonds. The Preferred
Shares will pay dividends based on shorter-term rates, which would be
redetermined periodically by an auction process. So long as the Trust's
portfolio is invested in securities that provide a higher rate of return
than the dividend rate of the Preferred Shares, after taking expenses into
consideration, the leverage will cause you to receive a higher current rate
of return than if the Trust were not leveraged.
Changes in the value of the Trust's bond portfolio, including bonds
bought with the proceeds of the Preferred Shares offering, will be borne
entirely by the holders of common shares. If there is a net decrease, or
increase, in the value of the Trust's investment portfolio, the leverage
will decrease, or increase as the case may be, the net asset value per
common share to a greater extent than if the Trust were not leveraged.
During periods in which the Trust is using leverage, the fees paid to
BlackRock Advisors for advisory services will be higher than if the Trust
did not use leverage because the fees paid will be calculated on the basis
of the Trust's total net assets, including the proceeds from the issuance
of Preferred Shares.
For tax purposes, the Trust is currently required to allocate net
capital gains and other taxable income, if any, between the common shares
and Preferred Shares in proportion to total distributions paid to each
class for the year in which the net capital gains or other taxable income
is realized. If net capital gains or other taxable income is allocated to
Preferred Shares, instead of solely tax-exempt income, the Trust will
likely have to pay higher total dividends to Preferred shareholders or make
special payments to Preferred shareholders to compensate them for the
increased tax liability. This would reduce the total amount of dividends
paid to the holders of common shares, but would increase the portion of the
dividend that is tax-exempt. If the increase in dividend payments or the
special payments to Preferred shareholders are not entirely offset by a
reduction in the tax liability of, and an increase in the tax-exempt
dividends received by, the holders of common shares, the advantage of the
Trust's leveraged structure to holders of common shares will be reduced.
Under the Investment Company Act, the Trust is not permitted to issue
preferred shares unless immediately after such issuance the value of the
Trust's total net assets is at least 200% of the liquidation value of the
outstanding preferred shares (i.e., the liquidation value may not exceed
50% of the Trust's total net assets). In addition, the Trust is not
permitted to declare any cash dividend or other distribution on its common
shares unless, at the time of such declaration, the value of the Trust's
total net assets is at least 200% of such liquidation value. If Preferred
Shares are issued, the Trust intends, to the extent possible, to purchase
or redeem Preferred Shares from time to time to the extent necessary in
order to maintain coverage of any Preferred Shares of at least 200%. In
addition, as a condition to obtaining ratings on the Preferred Shares, the
terms of any Preferred Shares issued will include asset coverage
maintenance provisions which will require the redemption of the Preferred
Shares in the event of non-compliance by the Trust and may also prohibit
dividends and other distributions on the common shares in such
circumstances. In order to meet redemption requirements, the Trust may have
to liquidate portfolio securities. Such liquidations and redemptions would
cause the Trust to incur related transaction costs and could result in
capital losses to the Trust. Prohibitions on dividends and other
distributions on the common shares could impair the Trust's ability to
qualify as a regulated investment company under the Internal Revenue Code
of 1986, as amended. If the Trust has Preferred Shares outstanding, two of
the Trust's trustees will be elected by the holders of Preferred Shares
voting separately as a class. The remaining trustees of the Trust will be
elected by holders of common shares and Preferred Shares voting together as
a single class. In the event the Trust failed to pay dividends on Preferred
Shares for two years, holders of Preferred Shares would be entitled to
elect a majority of the trustees of the Trust.
The Trust will be subject to certain restrictions imposed by
guidelines of one or more rating agencies that may issue ratings for
Preferred Shares issued by the Trust. These guidelines may impose asset
coverage or portfolio composition requirements that are more stringent than
those imposed on the Trust by the Investment Company Act. It is not
anticipated that these covenants or guidelines will impede BlackRock from
managing the Trust's portfolio in accordance with the Trust's investment
objectives and policies.
The Trust may also borrow money as a temporary measure for
extraordinary or emergency purposes, including the payment of dividends and
the settlement of securities transactions which otherwise might require
untimely dispositions of Trust securities.
Assuming that the Preferred Shares will represent approximately 38%
of the Trust's capital and pay dividends at an annual average rate of ___%,
the income generated by the Trust's portfolio (net of estimated expenses)
must exceed ___% in order to cover the dividend payments and other expenses
specifically related to the Preferred Shares. Of course, these numbers are
merely estimates used for illustration. Actual Preferred Share dividend
rates will vary frequently and may be significantly higher or lower than
the rate estimated above.
The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect
of leverage on common share total return, assuming investment portfolio
total returns (comprised of income and changes in the value of bonds held
in the Trust's portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed
investment portfolio returns are hypothetical figures and are not
necessarily indicative of the investment portfolio returns experienced or
expected to be experienced by the Trust. The table further reflects the
issuance of Preferred Shares representing 38% of the Trust's total capital,
a ___% yield on the Trust's investment portfolio, net of expenses, and a
projected annual Preferred Share dividend rate of ___%. See "Risks" and
"Preferred Shares and Leverage."
Assumed Portfolio Total Return..... (10)% (5)% 0 % 5 % 10 %
Common Share Total Return.......... (__)% (___)% (___)% ___% ___%
Unless and until Preferred Shares are issued, the common shares will
not be leveraged and this section will not apply.
RISKS
The net asset value of the common shares will fluctuate with and be
affected by, among other things, interest rate risk, credit risk,
reinvestment risk and leverage risk, and an investment in common shares
will be subject to market discount risk, inflation risk, municipal bond
market risk and "Year 2000" risk, each of which is more fully described
below.
Newly Organized. The Trust is a newly organized, non-diversified,
closed-end management investment company and has no operating history.
Market Discount Risk. Shares of closed-end management investment
companies frequently trade at a discount from their net asset value.
Interest Rate Risk. Interest rate risk is the risk that bonds, and
the Trust's net assets, will decline in value because of changes in
interest rates. Generally, municipal bonds will decrease in value when
interest rates rise and increase in value when interest rates decline. This
means that the net asset value of the common shares will fluctuate with
interest rate changes and the corresponding changes in the value of the
Trust's municipal bond holdings. The value of the longer-term bonds in
which the Trust generally invests fluctuates more in response to changes in
interest rates than does the value of shorter-term bonds. Because the Trust
will invest primarily in long-term bonds, the net asset value and market
price per share of the common shares will fluctuate more in response to
changes in market interest rates than if the Trust invested primarily in
shorter-term bonds. The Trust's use of leverage, as described below, will
tend to increase common share interest rate risk.
Credit Risk. Credit risk is the risk that an issuer of a municipal
bond 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 Trust's net
asset value or dividends. The Trust may invest up to 20% of its total
assets in municipal bonds 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 the
Trust's investment adviser. 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. 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.
The Trust 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 Trust
bears the investment risk that economic, political or regulatory changes
could hurt many municipal bond issuers, which would likely reduce the value
of the Trust's bond portfolio and the investment in the Trust of a common
shareholder.
Concentration Risk. [Because the Trust primarily purchases municipal
bonds issued by the Commonwealth of Pennsylvania and local government
agencies, shareholders may be exposed to additional risks. In particular,
the Trust is susceptible to political, economic or regulatory factors
affecting issuers of Pennsylvania municipal bonds. There can be no
assurance that Pennsylvania will not experience a decline in economic
conditions or that portions of the Pennsylvania municipal bonds purchased
by the Trust will not be affected by such a decline.]
[For a discussion of economic and other conditions in Pennsylvania,
see "The Trust's Investments--Municipal Bonds."]
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 Trust's portfolio is generally less than that
for corporate equities or bonds, and the investment performance of the
Trust may therefore be more dependent on the analytical abilities of
BlackRock than would be a stock fund or taxable bond fund. The secondary
market for municipal bonds, particularly the below-investment-grade bonds
in which the Trust may invest, also tends to be less well-developed or
liquid than many other securities markets, which may adversely affect the
Trust's ability to sell its bonds at attractive prices.
Reinvestment Risk. Reinvestment risk is the risk that income from the
Trust's bond portfolio will decline if and when the Trust invests the
proceeds from matured, traded or called bonds at market interest rates that
are below the portfolio's current earnings rate. A decline in income could
affect the common shares' market price or their overall returns.
Leverage Risk. Leverage risk is the risk associated with the issuance
of the Preferred Shares to leverage the common shares. There is no
assurance that the Trust's leveraging strategy will be successful. Once the
Preferred Shares are issued, the net asset value and market value of the
common shares will be more volatile, and the yield to the holders of common
shares will tend to fluctuate with changes in the shorter-term dividend
rates on the Preferred Shares. If the dividend rate on the Preferred Shares
approaches the net rate of return on the Trust's investment portfolio, the
benefit of leverage to the holders of the common shares would be reduced.
If the dividend rate on the Preferred Shares exceeds the net rate of return
on the Trust's portfolio, the leverage will result in a lower rate of
return to the holders of common shares than if the Trust were not
leveraged. Because the long-term bonds included in the Trust's portfolio
will typically pay fixed rates of interest while the dividend rate on the
Preferred Shares will be adjusted periodically, this could occur even when
both long-term and short-term municipal rates rise. In addition, the Trust
will pay (and the holders of common shares will bear) any costs and
expenses relating to the issuance and ongoing maintenance of the Preferred
Shares. Accordingly, the Trust cannot assure you that the issuance of
Preferred Shares will result in a higher yield or return to the holders of
the common shares.
Similarly, any decline in the net asset value of the Trust's
investments will be borne entirely by the holders of common shares.
Therefore, if the market value of the Trust's portfolio declines, the
leverage will result in a greater decrease in net asset value to the
holders of common shares than if the Trust were not leveraged. This greater
net asset value decrease will also tend to cause a greater decline in the
market price for the common shares. The Trust might be in danger of failing
to maintain the required 200% asset coverage or of losing its ratings on
the Preferred Shares or, in an extreme case, the Trust's current investment
income might not be sufficient to meet the dividend requirements on the
Preferred Shares. In order to counteract such an event, the Trust might
need to liquidate investments in order to fund a redemption of some or all
of the Preferred Shares. Liquidation at times of low municipal bond prices
may result in capital loss and may reduce returns to the holders of common
shares.
While the Trust may from time to time consider reducing leverage in
response to actual or anticipated changes in interest rates in an effort to
mitigate the increased volatility of current income and net asset value
associated with leverage, there can be no assurance that the Trust will
actually reduce leverage in the future or that any reduction, if
undertaken, will benefit the holders of common shares. Changes in the
future direction of interest rates are very difficult to predict
accurately. If the Trust were to reduce leverage based on a prediction
about future changes to interest rates, and that prediction turns out to be
incorrect, the reduction in leverage would likely operate to reduce the
income and/or total returns to holders of common shares relative to the
circumstance where the Trust had not reduced leverage. The Trust may decide
that this risk outweighs the likelihood of achieving the desired reduction
to volatility in income and share price if the prediction were to turn out
to be correct, and determine not to reduce leverage as described above.
The Trust may invest in the securities of other investment companies.
Such securities may also be leveraged and will therefore be subject to the
leverage risks described above. This additional leverage may in certain
market conditions reduce the net asset value of the Trust's common shares
and the returns to the holders of common shares.
Inflation Risk. Inflation risk is the risk that the value of assets
or income from investment will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real value of the
common shares and distributions on those shares can decline. In addition,
during any periods of rising inflation, Preferred Share dividend rates
would likely increase, which would tend to further reduce returns to the
holders of common shares.
Economic Sector Risk. The Trust may invest 25% or more of its total
assets in municipal obligations of issuers 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 Trust more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular economic sector. For example,
health care related issuers are susceptible to Medicaid reimbursement
policies, and national and state health care legislation. As concentration
increases, so does the potential for fluctuation in the net asset value of
the Trust's common shares.
Non-Diversification. The Trust has registered as a "non-diversified"
investment company under the Investment Company Act. For Federal income tax
purposes, the Trust, with respect to up to 50% of its total assets, will be
able to invest more than 5% (but not more than 25%) of the value of its
total assets in the obligations of any single issuer. To the extent the
Trust invests a relatively high percentage of its assets in the obligations
of a limited number of issuers, the Trust may be more susceptible than a
more widely diversified investment company to any single economic,
political or regulatory occurrence.
"Year 2000" Risk. The Trust, 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 Trust, 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. There is no guarantee, however, that systems will work properly
on January 1, 2000. Year 2000 problems may also hurt issuers whose
securities the Trust holds or securities markets generally.
HOW THE TRUST MANAGES RISK
Investment Limitations
The Trust has adopted certain investment limitations designed to
limit investment risk and maintain portfolio diversification. These
limitations are fundamental and may not be changed without the approval of
the holders of a majority of the outstanding common shares and Preferred
Shares voting together as a single class, and the approval of the holders
of a majority of the Preferred Shares voting as a separate class. The Trust
may not:
o 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; and
o 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 its total
assets.
The Trust may, however, invest more than 25% of its total assets in
broader economic sectors of the market for municipal obligations, such as
revenue obligations of hospitals and other health care facilities or
electrical utility revenue obligations. In addition, the Trust reserves the
right to invest more than 25% of its assets in industrial development bonds
and private activity securities. The Trust may become subject to guidelines
which are more limiting than the investment restrictions set forth above in
order to obtain and maintain ratings from Moody's or S&P on the Preferred
Shares that it intends to issue. The Trust does not anticipate that such
guidelines would have a material adverse effect on the Trust's holders of
common shares or the Trust's ability to achieve its investment objectives.
See "Investment Objectives and Policies--Investment Restrictions" in the
statement of additional information for information about these guidelines
and additional fundamental and non-fundamental investment policies of the
Trust.
Quality Investments
The Trust will invest at least 80% of its total assets in bonds of
investment grade quality at the time of investment. Investment grade
quality means that such bonds are rated by national rating agencies 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.
Limited Issuance of Preferred Shares
Under the Investment Company Act, the Trust could issue Preferred
Shares having a total liquidation value (original purchase price of the
shares being liquidated plus any accrued and unpaid dividends) of up to
one-half of the value of the total net assets of the Trust. If the total
liquidation value of the Preferred Shares was ever more than one-half of
the value of the Trust's total net assets, the Trust would not be able to
declare dividends on the common shares until the liquidation value, as a
percentage of the Trust's assets, was reduced. The Trust intends to issue
Preferred Shares representing about 38% of the Trust's total capital at the
time of issuance, if the Trust sells all the common shares and Preferred
Shares discussed in this prospectus. The fact that the Trust will be less
than 50% leveraged provides a cushion against later fluctuations in the
value of the Trust's portfolio and will subject holders of common shares to
less income and net asset value volatility than if the Trust were more
leveraged. The Trust intends to purchase or redeem Preferred Shares, if
necessary, to keep the liquidation value of the Preferred Shares below
one-half of the value of the Trust's total net assets.
Management of Investment Portfolio and Capital Structure
The Trust may take certain actions if short-term interest rates
increase or market conditions otherwise change (or the Trust anticipates
such an increase or change) and the Trust's leverage begins (or is
expected) to adversely affect holders of common shares. In order to attempt
to offset such a negative impact of leverage on holders of common shares,
the Trust may shorten the average maturity of its investment portfolio (by
investing in short-term, high quality securities) or may attempt to extend
the maturity of outstanding Preferred Shares. The Trust may also attempt to
reduce the leverage by redeeming or otherwise purchasing Preferred Shares.
As explained above under "Risks--Leverage Risk", the success of any such
attempt to limit leverage risk depends on BlackRock Advisors' ability to
accurately predict interest rate or other market changes. Because of the
difficulty of making such predictions, the Trust may never attempt to
manage its capital structure in the manner described above.
If market conditions suggest that additional leverage would be
beneficial, the Trust may sell previously unissued Preferred Shares or
Preferred Shares that the Trust previously issued but later repurchased.
Currently, the Trust may not 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.
This restriction is a non-fundamental policy of the Trust that may be
changed by vote of the Trust's board of trustees.
Duration Management and Other Management Techniques
The Trust may use various investment management techniques and
instruments designed to limit the risk of bond price fluctuations and to
preserve capital. These investment management techniques and instruments
include using financial futures contracts, entering into various interest
rate transactions, purchasing and selling exchange-listed and
over-the-counter put and call options on securities, financial indices and
futures contracts. Successful implementation of investment management
techniques may give rise to taxable income. Accordingly, the Trust does not
at present intend to use these investment management techniques
extensively.
MANAGEMENT OF THE TRUST
Trustees and Officers
The board of trustees is responsible for the management of the Trust,
including supervision of the duties performed by BlackRock Advisors. There
is 1 trustee of the Trust. This sole trustee is an "interested person" (as
defined in the Investment Company Act). The name and business address of
the trustee and officers of the Trust and their principal occupations and
other affiliations during the past five years are set forth under
"Management of the Trust" in the statement of additional information.
Investment Adviser
[BlackRock Advisors, a global asset management firm with assets of
$140 billion under management, will act as the Trust's investment adviser.
BlackRock Advisors is the asset management arm of PNC Bank N.A. with over
550 employees. BlackRock Advisors has appointed BlackRock, one of its
affiliates, to handle the day-to-day investment management of the Trust.
BlackRock was founded in 1988 and provides fixed income, liquidity, equity,
alternative investment, and risk management products for clients worldwide.
BlackRock manages $75 billion in various fixed income sectors, including $8
billion in municipal securities. BlackRock also manages approximately $48
billion in cash or other short term, highly liquid investments, including
$4.4 billion in short term municipal securities. BlackRock has $62 billion
in mutual fund assets under management, including two open-end mutual fund
families, BlackRock Funds and Provident Institutional Funds, 21 publicly
traded closed-end funds and several short-term investment funds. Among
these products, BlackRock manages 11 closed-end, 6 open-end and 6 money
market municipal funds. In addition to asset management services, BlackRock
has become a significant provider of risk management and advisory services
that combine its capital markets expertise with the firm's proprietary risk
management systems and technology.]
[Investment Philosophy. BlackRock'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 all other
sectors of the fixed income market.]
[BlackRock uses a relative value strategy that determines the
trade-off between risk and return to achieve the Trust's investment
objective of generating high income. This strategy is combined with
disciplined risk control techniques and applied in every sector, sub-sector
and individual security selection decision. BlackRock's extensive personnel
and technology resources are the key drivers of the investment philosophy.]
[BlackRock's Municipal Bond Team. BlackRock uses a team approach to
managing municipal portfolios. BlackRock 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's municipal bond team includes three portfolio managers
and six credit research analysts. The team is lead by Kevin Klingert, a
managing director and portfolio manager at BlackRock. Mr. Klingert has over
15 years of experience in the municipal market. Prior to joining BlackRock
in 1991, Mr. Klingert was an Assistant Vice President in the Unit
Investment Trust Department at Merrill Lynch, Pierce, Fenner & Smith. Mr.
Klingert joined Merrill Lynch in 1985 and was responsible for investing
over $1billion annually for municipal UITs and for supervising over $21
billion of existing municipal UITs. The portfolio management team also
includes John Fitzgerald, Vice President, and Craig Kasap, Associate.
Together, Mr. Fitzgerald and Mr. Kasap have over 12 years of experience
investing in municipal securities.]
[BlackRock's municipal bond portfolio managers are responsible for 25
municipal bond portfolios, valued at approximately $5.5 billion, plus 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,
state-specific funds, and portfolios [with various indices.] Currently, the
team manages 11 closed-end municipal funds with over $2 billion in assets.]
[BlackRock's Investment Process. BlackRock has in-depth expertise in
all sectors of the fixed income market. BlackRock applies the same
risk-controlled, active sector rotation style to the management process for
all of its fixed income portfolios. BlackRock 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 leverage the combined experience and expertise of
the entire portfolio management group at BlackRock.]
[BlackRock's portfolio management process emphasizes research and
analysis of specific sectors and securities, not interest rate speculation.
BlackRock believes that market-timing strategies can be highly volatile and
potentially produce inconsistent results. Instead, BlackRock 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.]
[In the municipal market, BlackRock believes one of the most
important determinants of value is supply and demand. BlackRock's ability
to monitor investor flows and frequency and seasonality of issuance is
helpful in anticipating which sectors will be most heavily impacted by the
supply/demand equation. The breadth and expertise of its municipal bond
team allows it to anticipate issuance flows, forecast which sectors will
have the most supply and plan its investment strategy accordingly.]
[BlackRock also believes that over the long-term, intense credit
analysis will add substantial incremental value and avoid significant
relative performance impairments. The municipal credit team is led by Susan
Heide, Ph.D., who has been with BlackRock since 1993 and is a managing
director responsible for our municipal credit research. She co-heads the
Credit Committee and Credit Research, and is assisted by five municipal
research analysts. The group averages 10 years of experience in municipal
credit research.]
[Given the nature of the municipal market (whereby supply is largely
dependent on new issues, as well as the secondary market; and each deal may
be somewhat unique), the credit analysts research potential new issues and
closely monitor our existing holdings. Diversification of sectors, issuers,
geographic regions and security structures is stressed. Communication and
interaction with credit resources throughout BlackRock are facilitated in
formal investment strategy meetings and encouraged informally as well.]
[BlackRock's approach to credit risk incorporates a combination of
sector-based top-down macro-analysis of industry sectors to determine
relative weightings with a name-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 name-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's analytic process focuses on anticipating change in
credit trends before market recognition. Credit research is a critical,
independent element of our municipal process.]
Investment Management Agreement
Pursuant to an investment management agreement between BlackRock
Advisors and the Trust, the Trust has agreed to pay for the services and
facilities provided by BlackRock Advisors an annual management fee (the
"management fee"), payable on a monthly basis, according to the following
schedule:
Management
Daily Total Managed Assets* Fee
For the first $___ million......................... ___%
For the next $___ million.......................... ___%
For the next $___ million.......................... ___%
For the next $___ million.......................... ___%
For the next $___ billion.......................... ___%
For assets over $___ billion....................... ___%
- --------------------
* Managed Assets are the total assets of the Trust minus the sum of accrued
liabilities (other than indebtedness attributable to leverage). From such
management fee, BlackRock Advisors 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. This means that during periods in
which the Trust is using leverage, the fee paid to BlackRock will be higher
than if the Trust did not use leverage because the fee is calculated as a
percentage of the Trust's Managed Assets, including those purchased with
leverage.
In addition to the fee of BlackRock Advisors, the Trust 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, 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 ten years of the Trust's operation, BlackRock Advisors
has agreed to reimburse the Trust for fees and expenses in the amounts, and
for the time periods, set forth below:
Percentage (as a
Year Ending percentage of average
______, daily net assets)
------------------ ---------------------
1999*........... .___%
2000............ .___%
2001............ .___%
2002............ .___%
2003............ .___%
2004............ .___%
Percentage Reimbursed
Year Ending (as a percentage of
______, average daily net assets
------------------ ------------------------
2005............ 0.__%
2006............ 0.__%
2007............ 0.__%
2008............ 0.__%
2009............ 0.__%
- --------------------
* From the commencement of operations.
BlackRock Advisors has not agreed to reimburse the Trust for any
portion of its fees and expenses beyond __________, 2009.]
NET ASSET VALUE
The net asset value of the common shares of the Trust will be
computed based upon the value of the Trust's portfolio securities and other
assets. Net asset 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 the last business day of each week and month. The Trust
calculates net asset value per common share by subtracting the Trust's
liabilities (including accrued expenses, dividends payable and any
borrowings of the Trust) and the liquidation value of any outstanding
shares of preferred stock of the Trust from the Trust's total assets (the
value of the securities the Trust 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 Trust outstanding.
The Trust 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 Trust. 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 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 Trust's board of trustees.
DISTRIBUTIONS
The Trust will distribute to holders of its common shares monthly
dividends of all or a portion of its net investment income after payment of
dividends on any Preferred Shares of the Trust which may be outstanding. It
is expected that the initial monthly dividend on shares of the Trust's
common shares will be declared approximately [45 days and paid
approximately 60 to 90 days] after completion of this offering. The Trust
expects that all or a portion of net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss), if any, will be
distributed once annually. "Net investment income", as used herein,
includes all interest (including tax-exempt interest and accrued income on
zero coupon securities) and other ordinary income earned or accrued by the
Trust on its portfolio holdings and net short-term capital gains, net of
the Trust's expenses.
Various factors will affect the level of the Trust's income,
including the asset mix, the amount of leverage utilized by the Trust and
the effects thereof and the Trust's use of hedging. [To permit the Trust to
maintain a more stable monthly distribution, the Trust will initially
distribute less than the entire amount of net investment income earned in a
particular period. The undistributed net investment income would be
available to supplement future distributions. As a result, the
distributions paid by the Trust for any particular monthly period may be
more or less than the amount of net investment income actually earned by
the Trust during the period. Undistributed net investment income will add
to the Trust's net asset value and, correspondingly, distributions from
undistributed net investment income will deduct from the Trust's net asset
value.] Shareholders will automatically have all dividends and
distributions reinvested in common shares of the Trust purchased in the
open market through the Trust's Dividend Reinvestment Plan unless an
election is made to receive cash. See "Dividend Reinvestment Plan". Monthly
notices regarding distributions will be provided in accordance with the
Investment Company Act.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Trust's Dividend Reinvestment Plan, unless you elect
to receive cash, all dividend and capital gains distributions declared for
your common shares of the Trust will be automatically reinvested by
_______, agent for shareholders in administering the Dividend Reinvestment
Plan (the "Plan Agent") in additional shares of the Trust. If you elect not
to participate in the Dividend Reinvestment Plan you will receive all
dividends and distributions in cash paid by check mailed directly to you
(or, if the shares are held in street or other nominee name, then to such
nominee) by __________, as dividend disbursing agent. You may elect not to
participate in the Dividend Reinvestment Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to ___________, as dividend disbursing agent, at the address
set forth below. Participation in the Dividend Reinvestment Plan is
completely voluntary and may be terminated or resumed at any time without
penalty by written notice if received by the Plan Agent not less than ten
days prior to any dividend record date; otherwise such termination will be
effective with respect to any subsequently declared dividend or
distribution.
Whenever the Trust declares an ordinary income dividend or a capital
gain dividend (collectively referred to in this section as "dividends")
payable either in shares or in cash, non-participants in the Dividend
Reinvestment Plan will receive cash, and participants in the Dividend
Reinvestment Plan will receive the equivalent in shares. The shares will be
acquired by the Plan Agent for the participant's account through receipt of
additional unissued but authorized shares from the Trust ("newly issued
shares"). On the payment date for the dividend, the Plan Agent will invest
the dividend amount in newly issued shares on behalf of the participant.
The number of newly issued common shares to be credited to the
participant's account will be determined by dividing the dollar amount of
the dividend by the net asset value per common share on the date the common
shares are issued, provided that the maximum discount from the then current
market price per share on the date of issuance may not exceed 5%.
The Plan Agent maintains all shareholders' accounts in the Dividend
Reinvestment Plan and furnishes written confirmation of all transactions in
the accounts, including information needed by shareholders for tax records.
Common shares in the account of each Dividend Reinvestment Plan participant
will be held by the Plan Agent on behalf of the Dividend Reinvestment Plan
participant, and each shareholder proxy will include those shares purchased
or received pursuant to the Dividend Reinvestment Plan. The Plan Agent will
forward all proxy solicitation materials to participants and vote proxies
for shares held pursuant to the Dividend Reinvestment Plan in accordance
with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Dividend Reinvestment Plan on the basis of the number of
common shares certified from time to time by the record shareholder's name
and held for the account of beneficial owners who are to participate in the
Dividend Reinvestment Plan.
There will be no brokerage charges with respect to common shares
issued directly by the Trust as a result of dividends or capital gains
distributions payable either in shares or in cash. The automatic
reinvestment of dividends and distributions will not relieve participants
of any Federal, state or local income tax that may be payable (or required
to be withheld) on such dividends. See "Tax Matters." If you participate in
the Dividend Reinvestment Plan, you may receive benefits not available to
shareholders who do not participate in the Dividend Reinvestment Plan.
Experience under the Dividend Reinvestment Plan may indicate that
changes are desirable. Accordingly, the Trust reserves the right to amend
or terminate the Dividend Reinvestment Plan. There is no direct service
charge to participants in the Dividend Reinvestment Plan; however, the
Trust reserves the right to amend the Dividend Reinvestment Plan to include
a service charge payable by the participants.
All correspondence concerning the Dividend Reinvestment Plan should
be directed to the Plan Agent at .
DESCRIPTION OF SHARES
Common Shares
The Trust is an unincorporated business trust organized under the
laws of Delaware pursuant to an Agreement and Declaration of Trust dated
June 30, 1999. The Trust is authorized to issue an unlimited number of
common shares of beneficial interest, par value $_____ per share. Each
common share has one vote and, when issued and paid for in accordance with
the terms of this offering, will be fully paid and non-assessable. Whenever
Preferred Shares are outstanding, the holders of common shares will not be
entitled to receive any distributions from the Trust unless all accrued
dividends on Preferred Shares have been paid, and unless asset coverage (as
defined in the Investment Company Act) with respect to Preferred Shares
would be at least 200% after giving effect to the distributions. See
"--Preferred Shares" below. All common shares are equal as to dividends,
assets and voting privileges and have no conversion, preemptive or other
subscription rights. The Trust will send annual and semi-annual reports,
including financial statements, to all holders of its shares.
The Trust has no present intention of offering any additional shares
other than the Preferred Shares and under the Trust's Dividend Reinvestment
Plan. Any additional offerings of shares will require approval by the
Trust's board of trustees. Any additional offering of common shares will be
subject to the requirements of the Investment Company Act, which requires
that shares may not be issued at a price below the then current net asset
value, exclusive of sales load, except in connection with an offering to
existing holders of common shares or with the consent of a majority of the
Trust's outstanding voting securities.
The Trust has applied for listing of the common shares on the New
York Stock Exchange under the symbol "_____."
The Trust's net asset value per share generally increases when
interest rates decline, and decreases when interest rates rise, and these
changes are likely to be greater because the Trust intends to have a
leveraged capital structure. Net asset value will be reduced immediately
following the offering of common shares by the amount of the sales load and
organization and offering expenses paid by the Trust. [BlackRock has agreed
to pay (1) all organizational expenses and (2) offering costs, other than
the sales load, that exceed $_____ per common share.] See "Use of
Proceeds."
Unlike open-end funds, closed-end funds like the Trust do not
continuously offer shares and do not provide daily redemptions. Rather, if
a shareholder determines to buy additional common shares or sell shares
already held, the shareholder may do so by trading on the New York Stock
Exchange through a broker or otherwise. Shares of closed-end investment
companies may frequently trade on an exchange at prices lower than net
asset value. Shares of closed-end investment companies like the Trust that
invest predominately in investment grade municipal bonds have during some
periods traded at prices higher than net asset value and during other
periods have traded at prices lower than net asset value. Because the
market value of the common shares may be influenced by such factors as
dividend levels, which are in turn affected by expenses; call protection;
dividend stability; portfolio credit quality; net asset value; relative
demand for and supply of such shares in the market; general market and
economic conditions; and other factors beyond the control of the Trust, the
Trust cannot assure you that common shares will trade at a price equal to
or higher than net asset value in the future. The common shares are
designed primarily for long-term investors, and you should not purchase the
common shares if you intend to sell them soon after purchase. See
"Preferred Shares and Leverage" and the statement of additional information
under "Repurchase of Trust Shares."
Preferred Shares
The Agreement and Declaration of Trust provides that the Trust's
board of trustees may classify or reclassify any unissued shares of capital
stock into one or more additional or other classes or series, with rights
as determined by the board of trustees, by action by the board of trustees
without the approval of the holders of the common shares. Holders of common
shares have no preemptive right to purchase any preferred shares that might
be issued.
The Trust's board of trustees has indicated its intention to
authorize an offering of preferred shares, representing approximately 38%
of the Trust's total assets immediately after the preferred shares are
issued, within approximately [one to three months] after completion of this
offering of common shares, subject to market conditions and to the board of
trustees' continuing belief that leveraging the Trust's capital structure
through the issuance of preferred shares (the "Preferred Shares") is likely
to achieve the potential benefits to the holders of common shares described
in this prospectus. The Trust may conduct other offerings of Preferred
Shares in the future subject to the same percentage restriction, after
giving effect to previously issued Preferred Shares. The board of trustees
also reserves the right to change the foregoing percentage limitation and
may issue Preferred Shares to the extent that the aggregate liquidation
preference of all outstanding Preferred Shares do not exceed 50% of the
value of the Trust's total assets. We cannot assure you, however, that any
Preferred Shares will be issued. Although the terms of any Preferred
Shares, including its dividend rate, liquidation preference and redemption
provisions will be determined by the board of trustees, subject to
applicable law and the Agreement and Declaration of Trust, it is likely
that the Preferred Shares will be structured to carry a relatively
short-term dividend rate reflecting interest rates on short-term tax-exempt
debt securities, by providing for the periodic redetermination of the
dividend rate at relatively short intervals through an auction, remarketing
or other procedure. The Trust also believes that it is likely that the
liquidation preference, voting rights and redemption provisions of the
Preferred Shares will be similar to those stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Trust, the holders of
Preferred Shares will be entitled to receive a preferential liquidating
distribution, which is expected to equal the original purchase price per
share plus accrued and unpaid dividends, whether or not declared, before
any distribution of assets is made to holders of common shares. After
payment of the full amount of the liquidating distribution to which they
are entitled, the holders of Preferred Shares will not be entitled to any
further participation in any distribution of assets by the Trust. A
consolidation or merger of the Trust with or into any corporation or
corporations or a sale of all or substantially all of the assets of the
Trust will not be deemed to be a liquidation, dissolution or winding up of
the Trust.
Voting Rights. The Investment Company Act requires that the holders
of any Preferred Shares, voting separately as a single class, have the
right to elect at least two trustees at all times. In addition, subject to
the prior rights, if any, of the holders of any other class of senior
securities outstanding, the holders of any Preferred Shares have the right
to elect a majority of the trustees of the Trust at any time two years'
dividends on any Preferred Shares are unpaid. The Investment Company Act
also requires that, in addition to any approval by shareholders that might
otherwise be required, the approval of the holders of a majority of any
outstanding Preferred Shares, voting separately as a class, would be
required to (1) adopt any plan of reorganization that would adversely
affect the Preferred Shares, and (2) take any action requiring a vote of
security holders pursuant to Section 13(a) of the Investment Company Act,
including, among other things, changes in the Trust's subclassification as
a closed-end investment company or changes in its fundamental investment
restrictions. As a result of these voting rights, the Trust's ability to
take any such actions may be impeded to the extent that there are any
Preferred Shares outstanding. The board of trustees presently intends that,
except as otherwise indicated in this prospectus and except as otherwise
required by applicable law, holders of Preferred Shares will have equal
voting rights with holders of shares of common shares (one vote per share,
unless otherwise required by the Investment Company Act), and will vote
together with holders of common shares as a single class.
It is presently intended that in connection with the election of the
Trust's trustees, on and after issuance of any Preferred Shares, the
holders of all outstanding Preferred Shares, voting as a separate class,
would be entitled to elect two trustees of the Trust, and the remaining
trustees would be elected by holders of common shares and Preferred Shares,
voting together as a single class.
The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, will be required to amend,
alter or repeal any of the preferences, rights or powers of holders of
Preferred Shares so as to affect materially and adversely such preferences,
rights, or powers, or increase or decrease the number of Preferred Shares.
The class vote of holders of Preferred Shares described above will in each
case be in addition to any other vote required to authorize the action in
question.
Redemption, Purchase and Sale of Preferred Shares by the Trust. The
terms of the Preferred Shares are expected to provide that (1) it is
redeemable by the Trust in whole or in part at the original purchase price
per share plus accrued dividends per share, (2) the Trust may tender for or
purchase Preferred Shares and (3) the Trust may subsequently resell any
shares so tendered for or purchased. Any redemption or purchase of
Preferred Shares by the Trust will reduce the leverage applicable to the
common shares, while any resale of shares by the Trust will increase that
leverage.
The discussion above describes the present intention of the board of
trustees with respect to an offering of Preferred Shares. If the board of
trustees determines to proceed with such an offering, the terms of the
Preferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Trust's Agreement and Declaration
of Trust. The board of trustees, without the approval of the holders of
common shares, may authorize an offering of Preferred Shares or may
determine not to authorize such an offering, and may fix the terms of the
Preferred Shares to be offered.
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST
Shareholder Liability
The Trust's Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or any trustee of the Trust. The
Agreement and Declaration of Trust provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet
its obligations, a possibility which we believe is remote. Upon payment of
any liability incurred by the Trust, the shareholder paying that liability
will be entitled to reimbursement from the general assets of the Trust. The
Trust intends to conduct its operations in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for the liabilities
of the Trust.
Anti-Takeover Provisions
The Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other entities or persons to
acquire control of the Trust or to change the composition of its board of
trustees. 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
Trust, which attempts could have the effect of increasing the expenses of
the Trust and disrupting the normal operation of the Trust. The board of
trustees is divided into three classes, with the terms of one class
expiring at each annual meeting of shareholders. At each annual meeting,
one class of trustees is elected to a three-year term. This provision could
delay for up to two years the replacement of a majority of the board of
trustees. A trustee may be removed from office only for cause by a written
instrument signed by at least two-thirds of the remaining trustees or by a
vote of the holders of at least two-thirds of the shares.
In addition, the Trust's Agreement and Declaration of Trust requires
the favorable vote of the holders of at least 75% of the outstanding shares
of each class of the Trust, voting as a class, then entitled to vote to
approve, adopt or authorize certain transactions with five
percent-or-greater holders of a class of shares and their associates,
unless 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 Trust. The transactions subject to these special approval
requirements are:
o the merger or consolidation of the Trust or any subsidiary of
the Trust with or into any Principal Shareholder;
o the issuance of any securities of the Trust to any Principal
Shareholder for cash, except pursuant to the Dividend
Reinvestment Plan;
o the sale, lease or exchange of all or any substantial part of
the assets of the Trust to any Principal Shareholder, except
assets having an aggregate fair market value of less than
$1,000,000, aggregating for the purpose of such computation all
assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period; or
o the sale, lease or exchange to the Trust or any subsidiary of
the Trust, of any assets of any Principal Shareholder, except
assets having an aggregate fair market value of less than
$1,000,000, aggregating for purposes of such computation all
assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period.
The board of trustees has determined that provisions with respect to
the board of trustees and the 75% voting requirements described above, and
the requirements relating to conversion to an open-end trust described
below, which voting requirements are greater than the minimum requirements
under Delaware law or the Investment Company Act, are in the best interest
of shareholders generally. Reference should be made to the Agreement and
Declaration of Trust on file with the Securities and Exchange Commission
for the full text of these provisions.
Reference should be made to the Agreement and Declaration of Trust on
file with the Securities and Exchange Commission for the full text of the
provisions described above.
CLOSED-END TRUST STRUCTURE
The Trust is a newly-organized, non-diversified management investment
company (commonly referred to as a closed-end fund). Closed-end funds
differ from open-end funds (which are generally referred to as mutual
funds) in that closed-end funds generally list their shares for trading on
a stock exchange and do not redeem their shares at the request of the
shareholder. This means that if you wish to sell your shares of a
closed-end fund you must trade them on the market like any other stock at
the prevailing market price at that time. In a mutual fund, if the
shareholder wishes to sell shares of the fund, the mutual fund will redeem
or buy back the shares at "net asset value." Also, mutual funds generally
offer new shares on a continuous basis to new investors, and closed-end
funds generally do not. The continuous inflows and outflows of assets in a
mutual fund can make it difficult to manage the investments. By comparison,
closed-end funds are generally able to stay more fully invested in
securities that are consistent with their investment objectives, and also
have greater flexibility to make certain types of investments, and to use
certain investment strategies, such as financial leverage and investments
in illiquid securities.
Shares of closed-end funds frequently trade at a discount to their
net asset value. Because of this possibility and the recognition that any
such discount may not be in the interest of shareholders, the Trust's board
of trustees might consider from time to time engaging in open market
repurchases, tender offers for shares at net asset value or other programs
intended to reduce the discount. We cannot guarantee or assure, however,
that the Trust's board of trustees will decide to engage in any of these
actions. Nor is there any guarantee or assurance that such actions, if
undertaken, would result in the shares trading at a price equal or close to
net asset value per share. The board of trustees might also consider
converting the Trust to an open-end mutual fund, which would also require a
vote of the shareholders of the Trust. The board of trustees believes,
however, that the closed-end structure is desirable, in light of the
Trust's investment objective and policies. Therefore, you should assume
that it is not likely that the board of trustees would vote to convert the
Trust to an open-end fund.
CONVERSION TO OPEN-END TRUST
The Trust may be converted to an open-end investment company at any
time by an amendment to the Agreement and Declaration of Trust. The
Agreement and Declaration of Trust provides that such an amendment must be
approved by the affirmative vote of two-thirds of the Trust's outstanding
shares, including any Preferred Shares, entitled to vote on the matter,
voting as a single class (or a majority of such shares if the amendment
previously was approved, adopted or authorized by at least two-thirds of
the total number of trustees) and, assuming the Trust has issued Preferred
Shares, by the affirmative vote of a majority of Preferred Shares, voting
as a separate class. Such a vote also would satisfy a separate requirement
in the Investment Company Act that the change be approved by the
shareholders. If approved in the foregoing manner, conversion of the Trust
could not occur until 90 days after the shareholders' meeting at which such
conversion was approved and would also require at least 30 days' prior
notice to all shareholders. Conversion of the Trust to an open-end
investment company would require the redemption of any outstanding
Preferred Shares, which could eliminate or alter the leveraged capital
structure of the Trust with respect to the shares. Following any such
conversion, it is also possible that certain of the Trust's investment
policies and strategies would have to be modified to assure sufficient
portfolio liquidity. In the event of conversion, the common shares would
cease to be listed on the New York Stock Exchange or other national
securities exchanges or market systems. Shareholders of an open-end
investment company may require the company to redeem their shares at any
time, except in certain circumstances as authorized by or under the
Investment Company Act, at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. The
Trust expects to pay all such redemption requests in cash, but intends to
reserve the right to pay redemption requests in a combination of cash or
securities. If such partial payment in securities were made, investors may
incur brokerage costs in converting such securities to cash. If the Trust
were converted to an open-end fund, it is likely that new shares would be
sold at net asset value plus a sales load.
REPURCHASE OF SHARES
Shares of closed-end investment companies often trade at a discount
to their net asset values, and the Trust's shares may also trade at a
discount to their net asset value, although it is possible that they may
trade at a premium above net asset value. The market price of the Trust's
shares will be determined by such factors as relative demand for and supply
of such shares in the market, the Trust's net asset value, general market
and economic conditions and other factors beyond the control of the Trust.
See "Net Asset Value." Although the Trust's shareholders will not have the
right to redeem their shares, the Trust may take action to repurchase
shares in the open market or make tender offers for its shares at their net
asset value. This may have the effect of reducing any market discount from
net asset value.
There is no assurance that, if action is undertaken to repurchase or
tender for shares, such action will result in the shares' trading at a
price which approximates their net asset value. Although share repurchases
and tenders could have a favorable effect on the market price of the
Trust's shares, you should be aware that the acquisition of shares by the
Trust will decrease the total assets of the Trust and, therefore, have the
effect of increasing the Trust's expense ratio. Any share repurchases or
tender offers will be made in accordance with requirements of the
Securities Exchange Act of 1934 and the Investment Company Act.
TAX MATTERS
Federal Income Tax Matters
The discussion below and in the statement of additional information
provides general tax information related to an investment in the common
shares. Because tax laws are complex and often change, you should consult
your tax adviser about the tax consequences of an investment in the Trust.
The Trust primarily invests in municipal bonds from issuers in
Pennsylvania or in municipal bonds whose income is otherwise exempt from
regular Federal and Pennsylvania income tax. Consequently, the regular
monthly dividends you receive will be exempt from regular Federal and
Pennsylvania income taxes. A portion of these dividends, however, will
likely be subject to the Federal alternative minimum tax.
Although the Trust does not seek to realize taxable income or capital
gains, the Trust may realize and distribute taxable income or capital gains
from time to time as a result of the Trust's normal investment activities.
The Trust will distribute at least annually any taxable income or realized
capital gains. Distributions of net short-term gains are taxable as
ordinary income. Distributions of net long-term capital gains are taxable
as long-term capital gains regardless of how long you have owned your
investment. Taxable dividends do not qualify for a dividends received
deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the
tax status of dividends paid to you during the preceding year, including
the source of investment income by state and the portion of income that is
subject to the Federal alternative minimum tax. You will receive this
statement from the firm where you purchased your common shares if you hold
your investment in street name; the Trust will send you this statement if
you hold your shares in registered form.
The tax status of your dividends is not affected by whether you
reinvest your dividends or receive them in cash.
In order to avoid corporate taxation of its earnings and to pay
tax-free dividends, the Trust must meet certain I.R.S. requirements that
govern the Trust's sources of income, diversification of assets and
distribution of earnings to shareholders. The Trust intends to meet these
requirements. If the Trust failed to do so, the Trust would be required to
pay corporate taxes on its earnings and all your distributions would be
taxable as ordinary income. In particular, in order for the Trust to pay
tax-free dividends, at least 50% of the value of the Trust's total assets
must consist of tax-exempt obligations. The Trust intends to meet this
requirement. If the Trust failed to do so, it would not be able to pay
tax-free dividends and your distributions attributable to interest received
by the Trust from any source would be taxable as ordinary income.
In order to pay tax-free dividends, at least 50 percent of the value
of the Trust's total assets must consist of tax-exempt obligations. [The
Trust intends to meet this requirement.] If the Trust failed to do so, it
would not be able to pay tax-free dividends and your distributions
attributable to interest received by the Trust from any source would be
taxable as ordinary income.
The Trust may be required to withhold 31% of certain of your
dividends if you have not provided the Trust with your correct taxpayer
identification number (normally your Social Security number), or if you are
otherwise subject to back-up withholding. If you receive Social Security
benefits, you should be aware that tax-free income is taken into account in
calculating the amount of these benefits that may be subject to Federal
income tax. If you borrow money to buy Trust shares, you may not deduct the
interest on that loan. Under I.R.S. rules, Trust shares may be treated as
having been bought with borrowed money even if the purchase of the Trust
shares cannot be traced directly to borrowed money.
If you are subject to the Federal alternative minimum tax, a portion
of your regular monthly dividends may be taxable.
Pennsylvania Tax Matters
[See "Pennsylvania Tax Matters" in the Statement of Additional
Information for state tax information.]
Please refer to the statement of additional information for more
detailed information. You are urged to consult your tax adviser.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the Trust has agreed to sell to such underwriter, the number
of common shares set forth opposite the name of such underwriter.
Number
Name of Shares
[ ].........................................
----------
Total........................................................
The underwriting agreement provides that the obligations of the
several underwriters to purchase the common shares included in this
offering are subject to approval of certain legal matters by counsel and to
certain other conditions. The underwriters are obligated to purchase all
the common shares (other than those covered by the over-allotment option
described below) if they purchase any of the common shares. The
representatives have advised the Trust that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
The underwriters, for whom __________, __________ and __________ are
acting as representatives, propose to offer some of the common shares
directly to the public at the public offering price set forth on the cover
page of this prospectus and some of the common shares to certain dealers at
the public offering price less a concession not in excess of $0.___ per
common share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.___ per common share on sales to certain
other dealers. If all of the common shares are not sold at the initial
offering price, the representatives may change the public offering price
and other selling terms. Investors must pay for any common shares purchased
on or before __________, 1999.
The Trust has granted to the underwriters an option, exercisable for
45 days from the date of this prospectus, to purchase up to _____
additional common shares at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with this offering. To
the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional common
shares approximately proportionate to such underwriter's initial purchase
commitment.
The Trust and BlackRock Advisors have agreed that, for a period of
180 days from the date of this prospectus, they will not, without the prior
written consent of __________, on behalf of the underwriters, dispose of or
hedge any common shares or any securities convertible into or exchangeable
for common shares. __________ in its sole discretion may release any of the
securities subject to these agreements at any time without notice.
Prior to the offering, there has been no public market for the common
shares. Consequently, the initial public offering price for the common
shares was determined by negotiation among the Trust, BlackRock Advisors
and the representatives. There can be no assurance, however, that the price
at which the common shares will sell in the public market after this
offering will not be lower than the price at which they are sold by the
underwriters or that an active trading market in the common shares will
develop and continue after this offering. An application has been made to
list the common shares on the New York Stock Exchange.
The Trust and BlackRock Advisors have each agreed to indemnify the
several underwriters or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
[The Trust has agreed to pay the underwriters $__________ as partial
reimbursement of expenses incurred in connection with the offering.
BlackRock has agreed to pay (i) all organizational expenses and (ii)
offering costs (other than sales load) that exceed $0.___ per share.]
In connection with the requirements for listing the Trust's common
shares on the New York Stock Exchange, the underwriters have undertaken to
sell lots of 100 or more common shares to a minimum of 2,000 beneficial
owners in the United States. The minimum investment requirement is 100
common shares. Certain underwriters may make a market in the common shares
after trading in the common shares has commenced on the New York Stock
Exchange. No underwriter is, however, obligated to conduct market-making
activities and any such activities may be discontinued at any time without
notice, at the sole discretion of the underwriter. No assurance can be
given as to the liquidity of, or the trading market for, the common shares
as a result of any market-making activities undertaken by any underwriter.
This prospectus is to be used by any underwriter in connection with the
offering and, during the period in which a prospectus must be delivered,
with offers and sales of the common shares in market-making transactions in
the over-the-counter market at negotiated prices related to prevailing
market prices at the time of the sale.
The underwriters have advised the Trust that, pursuant to Regulation
M under the Securities Exchange Act of 1934, certain persons participating
in the offering may engage in transactions, including stabilizing bids,
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of the common shares
at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common shares on
behalf of an underwriter for the purpose of fixing or maintaining the price
of the common shares. A "covering transaction" is a bid for or purchase of
the common shares on behalf of an underwriter to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty
bid" is a contractual arrangement whereby if, during a specified period
after the issuance of the common shares, the underwriters purchase common
shares in the open market for the account of the underwriting syndicate and
the common shares purchased can be traced to a particular underwriter or
member of the selling group, the underwriting syndicate may require the
underwriter or selling group member in question to purchase the common
shares in question at the cost price to the syndicate or may recover from
(or decline to pay to) the underwriter or selling group member in question
any or all compensation (including, with respect to a representative, the
applicable syndicate management fee) applicable to the common shares in
question. As a result, an underwriter or selling group member and, in turn,
brokers may lose the fees that they otherwise would have earned from a sale
of the common shares if their customer resells the common shares while the
penalty bid is in effect. The underwriters are not required to engage in
any of these activities, and any such activities, if commenced, may be
discontinued at any time. [Hot Issue Standby Purchase Agreement?]
The underwriting agreement provides that it may be terminated in the
absolute discretion of the representatives without liability on the part of
any underwriter to the Trust or BlackRock Advisors if, prior to delivery of
and payment for the common shares, (1) trading in the common shares or
securities generally on the New York Stock Exchange, American Stock
Exchange, Nasdaq National Market or the Nasdaq Stock Market shall have been
suspended or materially limited, (2) additional material governmental
restrictions not in force on the date of the Underwriting 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 (3) any outbreak or material
escalation of hostilities or other international or domestic calamity,
crisis or change in political, financial or economic conditions, occurs,
the effect of which is such as to make it, in the judgment of the
representatives, impracticable or inadvisable to commence or continue the
offering of the common 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 common shares by the underwriters.
Representatives that sell at least a specified number of common
shares will share in the syndicate management fee based on the respective
number of shares sold by them.
The Trust anticipates that from time to time the representatives of
the underwriters and certain other underwriters may act as brokers or
dealers in connection with the execution of the Trust's portfolio
transactions after they have ceased to be underwriters and, subject to
certain restrictions, may act as brokers while they are underwriters.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 366, Boston,
Massachusetts 02101, will act as the Trust's Custodian. The Custodian may
employ sub-custodians outside the U.S. approved by the board of trustees in
accordance with regulations under the Investment Company Act. ___________,
will act as the Trust's Transfer and Dividend Disbursing Agent.
LEGAL OPINIONS
Certain legal matters in connection with the common shares will be
passed upon for the Trust by Skadden, Arps, Slate, Meagher & Flom LLP and
for the underwriters by Simpson Thacher & Bartlett.
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
Page
Use of Proceeds................................................. B-
Investment Objectives and Policies.............................. B-
Investment Policies and Techniques.............................. B-
Other Investment Policies and Techniques........................ B-
Management of the Trust.......................................... B-
Portfolio Transactions and Brokerage............................ B-
Description of Shares........................................... B-
Repurchase of Common Shares..................................... B-
Tax Matters..................................................... B-
Performance Related and Comparative Information................. B-
Experts......................................................... B-
Additional Information.......................................... B-
Report of Independent Auditors.................................. B-
Financial Statements............................................ B-
Ratings of Investments (Appendix A)............................. A-
Taxable Equivalent Yield Table (Appendix B)..................... B-
General Characteristics and Risks of Hedging
Strategies (Appendix C)....................................... C-
You should rely only on the information contained in this prospectus. The
Trust has not authorized anyone to provide you with different information.
The Trust 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.
Until __________, 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the common shares, whether or not
participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ----------------------------------------------------------------------------
__________ Shares
The BlackRock Pennsylvania
Strategic Municipal Trust
Common Shares
--------
PROSPECTUS
__________, 1999
--------
- ---------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. No
person may 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 JULY 1, 1999
The BlackRock Pennsylvania Strategic Municipal Trust
STATEMENT OF ADDITIONAL INFORMATION
The BlackRock Pennsylvania Strategic Municipal Trust (the "Trust") is
a newly organized, closed-end, non-diversified management investment
company. This statement of additional information relating to common shares
does not constitute a prospectus, but should be read in conjunction with
the prospectus relating thereto dated __________, 1999. This statement of
additional information does not include all information that a prospective
investor should consider before purchasing common 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 (800)
___-____. 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.
TABLE OF CONTENTS
Page
Use of Proceeds................................................... B-
Investment Objectives and Policies................................ B-
Investment Policies and Techniques................................ B-
Other Investment Policies and Techniques.......................... B-
Management of the Trust........................................... B-
Portfolio Transactions and Brokerage.............................. B-
Description of Shares............................................. B-
Repurchase of Common Shares....................................... B-
Tax Matters....................................................... B-
Performance Related and Comparative Information................... B-
Experts........................................................... B-
Additional Information............................................ B-
Report of Independent Auditors.................................... B-
Financial Statements.............................................. B-
Ratings of Investments (Appendix A)............................... A-
Taxable Equivalent Yield Table (Appendix B)....................... B-
General Characteristics and Risks of Hedging
Strategies (Appendix C)......................................... C-
This statement of additional information is dated __________, 1999.
USE OF PROCEEDS
Pending investment in municipal bonds that meet the Trust's
investment objectives and policies, the net proceeds of the offering will
be invested in high quality, short-term tax-exempt money market securities
or in high quality municipal bonds with relatively low volatility (such as
pre-refunded and intermediate-term bonds), to the extent such securities
are available. If necessary to invest fully the net proceeds of the
offering immediately, the Trust may also purchase, as temporary
investments, short-term taxable investments of the type described under
"Investment Policies and Techniques--Investment in Municipal
Bonds--Portfolio Investments," the income on which is subject to regular
Federal income tax and securities of other open or closed-end investment
companies that invest primarily in municipal bonds of the type in which the
Trust may invest directly.
INVESTMENT OBJECTIVES AND POLICIES
The Trust 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 Trust
expects that a substantial portion of the income it produces will be
includable in alternative minimum taxable income. Common 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 common shares. The suitability of an investment in common
shares will depend upon a comparison of the after-tax yield likely to be
provided from the Trust 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 Trust, 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 other than (a) preferred stock not in
excess of the excess of 50% of its total assets over any senior
securities described in clause (b) below that are outstanding,
(b) senior securities other than preferred stock (including
borrowing money, including on margin if margin securities are
owned and through entering into reverse repurchase agreements)
not in excess of 33 1/3% of its total assets, and (c) borrowing
up to 5% of its total assets for temporary purpose without
regard to the amount of senior securities outstanding under
clauses (a) and (b) above; provided, however, that the Trust's
obligations under interest rate swaps, when issued and forward
commitment transactions and similar transactions are not
treated as senior securities if covering assets are
appropriately segregated; or pledge its assets other than to
secure such issuances or in connection with hedging
transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies. For purposes of
clauses (a), (b) and (c) above, "total assets" shall be
calculated after giving effect to the net proceeds of any such
issuance and net of any liabilities and indebtedness that do
not constitute senior securities except for such liabilities
and indebtedness as are excluded from treatment as senior
securities by the proviso to this item (2);
(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 Trust's investment objective and
policies or the acquisition of securities subject to 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 Trust may be
deemed to be an underwriter;
(5) invest for the purpose of exercising control over any issuer;
(6) purchase or sell real estate or interests therein other than
municipal bonds secured by real estate or interests therein;
(7) purchase or sell commodities or commodity contracts for any
purposes except as, and to the extent, permitted by applicable
law without the Trust becoming subject to registration with the
Commodities Futures Trading Commission as a commodity pool; or
For purposes of the foregoing and "Description of Shares--Preferred
Shares" below, "majority of the outstanding," when used with respect to
particular shares of the Trust, means (i) 67% or more of the shares present
at a meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the 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 Trust 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 Trust reserves the right to
invest more than 25% of its assets in industrial development bonds and
private activity securities.]
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 Trust's assets
that may be invested in municipal bonds insured by any given insurer.
Under the Investment Company Act of 1940, the Trust 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 Trust
will bear its ratable share of that investment company's expenses, and
would remain subject to payment of the Trust's management, advisory and
administrative fees with respect to assets so invested. Holders of common
shares would therefore be subject to duplicative expenses to the extent the
Trust invests in other investment companies. In addition, the securities of
other investment companies may also be leveraged and will therefore be
subject to the same leverage risks described herein. As described in the
prospectus in the section entitled "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
Trust is also subject to the following non-fundamental restrictions and
policies, which may be changed by the board of trustees. The Trust 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 Trust's total
assets and the Trust's aggregate short sales of a particular
class of securities does not exceed 25% of the then outstanding
securities of that class. The Trust 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 Trust 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 Investment Company 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 Trust 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 its 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.
The Trust intends to apply for ratings for the Preferred Shares from
Moody's and/or S&P. In order to obtain and maintain the required ratings,
the Trust will be required to comply with investment quality,
diversification and other guidelines established by Moody's or S&P. Such
guidelines will likely be more restrictive than the restrictions set forth
above. The Trust does not anticipate that such guidelines would have a
material adverse effect on the Trust's holders of common shares or its
ability to achieve its investment objectives. The Trust presently
anticipates that any Preferred Shares that it intends to issue would be
initially given the highest ratings by Moody's ("Aaa") or by S&P ("AAA"),
but no assurance can be given that such ratings will be obtained. No
minimum rating is required for the issuance of Preferred Shares by the
Trust. Moody's and S&P receive fees in connection with their ratings
issuances.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Trust's
investment objectives, policies, and techniques that are described in the
prospectus.
Investment in Municipal Bonds
Portfolio Investments
The Trust will invest its net assets in a portfolio of municipal
bonds that are exempt from regular Federal and Pennsylvania 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 Trust 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 Trust may have greater
difficulty selling its portfolio securities. The Trust will be more
dependent on BlackRock Advisors, Inc.'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 A 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 Trust will primarily invest in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15-30 years,
but the average weighted maturity may be shortened from time to time
depending on market conditions. As a result, the Trust'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 Advisors' 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 Trust 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
Trust may invest directly. The Trust 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 paper. The Trust 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 A for a general description of Moody's,
S&P's and Fitch's ratings of securities in such categories. Taxable
temporary investments of the Trust 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 Trust invests in
taxable investments, the Trust 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 Trust 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 Trust'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 Trust will only purchase Municipal Lease Obligations where
BlackRock Advisors believes the issuer has a strong incentive to continue
making appropriations until maturity.
During temporary defensive periods and in order to keep the Trust's
cash fully invested, including the period during which the net proceeds of
the offering are being invested, the Trust 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. To the extent the
Trust invests in taxable short-term investments, the Trust will not at such
times be in a position to achieve that portion of its investment objective
of seeking current income exempt from Federal income tax. For further
information, see, "-- Short-Term Investments" below.
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.
Short-Term Investments
Short-Term Taxable Fixed Income Securities
For temporary defensive purposes or to keep cash on hand fully
invested, the Trust may invest up to 100% of its total assets in cash
equivalents and short-term taxable fixed-income securities, although the
Trust 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 as 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, 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 instrumentalities, 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. Under
current FDIC regulations, the maximum insurance payable as to
any one certificate of deposit is $100,000; therefore,
certificates of deposit purchased by the Trust may not be fully
insured.
(3) Repurchase agreements, which involve purchases of debt
securities. At the time the Trust 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
Trust 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 Trust to invest temporarily available cash. The Trust 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 Trust may invest. Repurchase
agreements may be considered loans to the seller,
collateralized by the underlying securities. The risk to the
Trust 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 Trust 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 Trust could incur a loss of both principal and interest.
BlackRock Financial Management, Inc. ("BlackRock") 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 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 Trust. If the seller were to
be subject to a Federal bankruptcy proceeding, the ability of
the Trust 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
Trust and a corporation. There is no secondary market for such
notes. However, they are redeemable by the Trust at any time.
BlackRock 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 Trust'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.
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 Trust 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.
Factors Pertaining to Pennsylvania
[The following information provides only a brief summary of the
complex factors affecting the financial situation in Pennsylvania (the
"Commonwealth") and is derived from sources that are generally available to
investors and is believed to be accurate. It is based in part on
information obtained from various state and local agencies in Pennsylvania.
It should be noted that the creditworthiness of obligations issued by local
Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth to make payment on local
government obligations in the event of default or financial difficulty.]
[As described above, except during temporary defensive periods, the
Trust will invest substantially all of its net assets in Pennsylvania
municipal obligations. The Trust is therefore susceptible to political,
economic or regulatory factors affecting issuers of Pennsylvania municipal
obligations. There can be no assurance that the Commonwealth will not
experience a decline in economic conditions or that portions of the
Pennsylvania municipal obligations purchased by the Trust will not be
affected by such a decline.]
[Without intending to be complete, the following briefly summarizes
some of these difficulties and the current financial situation, as well as
some of the complex factors affecting the financial situation in the
Commonwealth. It is derived from sources that are generally available to
investors and is based in part on information obtained from various
agencies in the Commonwealth. No independent verification has been made of
the following information.]
[State Economy--The Commonwealth of Pennsylvania is one of the most
populous states, ranking fifth behind California, New York, Texas and
Florida. Pennsylvania is an established yet growing state with a
diversified economy. It is the headquarters for many major corporations.
Pennsylvania had been historically identified as a heavy industry state.
That reputation has changed over the last thirty years as the coal, steel
and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified industrial base. This
economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation.
Currently, the major sources of growth in Pennsylvania are in the service
sector, including trade, medical and the health services, education and
financial institutions.]
[Pennsylvania's agricultural industries remain an important component
of the Commonwealth's economic structure, accounting for more than $3.6
billion in crop and livestock products annually. Agribusiness and
food-related industries support $39 billion in economic activity annually.
Over 51,000 farms form the backbone of the State's agricultural economy.
Farmland in Pennsylvania includes over four million acres of harvested
cropland and four million acres of pasture and farm woodlands--nearly
one-third of the Commonwealth's total land area. Agricultural diversity in
the Commonwealth is demonstrated by the fact that Pennsylvania ranks among
the top ten states in the production of a number of agricultural products.]
[Employment within the Commonwealth increased steadily from 1984 to
1990. From 1990 to 1992, employment in the Commonwealth declined 1.8%. From
1992 to 1998, employment increased 4.1%. The growth in employment
experienced in the Commonwealth during such periods is slightly higher than
the growth in employment in the Middle Atlantic region of the United
States. Non-manufacturing employment in the Commonwealth has increased
steadily since 1980 to its 1998 level of 82.8% of total Commonwealth
employment. Manufacturing, which contributed 17.1% of 1998 non-agricultural
employment, has fallen behind both the services sector and the trade sector
as the largest single source of employment within the Commonwealth. In
1998, the services sector accounted for 32.3% of all nonagricultural
employment in the Commonwealth while the trade sector accounted for 22.4%.]
[Economic strengths and weakness vary in different parts of the
Commonwealth. In general, heavy industry and manufacturing have been facing
increasing competition from foreign producers. During 1998, the annual
average unemployment rate in the Commonwealth was 4.6%, compared to 4.5%
for the United States. For March 1999, the unadjusted unemployment rate was
4.8% in the Commonwealth and 4.4% in the United States, while the
seasonally adjusted unemployment rate for the Commonwealth was 4.4% and for
the United States was 4.2%.]
[State Budget--The Commonwealth operates under an annual budget that
is formulated and submitted for legislative approval by the Governor each
February. The Pennsylvania Constitution requires that the Governor's budget
proposal consist of three parts: (i) a balanced operating budget setting
forth proposed expenditures and estimated revenues from all sources and, if
estimated revenues and available surplus are less than proposed
expenditures, recommending specific additional sources of revenue
sufficient to pay the deficiency; (ii) a capital budget setting forth
proposed expenditures to be financed from the proceeds of obligations of
the Commonwealth or its agencies or from operating funds; and (iii) a
financial plan for not less than the succeeding five fiscal years, that
includes for each year projected operating expenditures and estimated
revenues and projected expenditures for capital projects. The General
Assembly may add, change or delete any items in the budget prepared by the
Governor, but the Governor retains veto power over the individual
appropriations passed by the legislature. The Commonwealth's fiscal year
begins on July 1 and ends on June 30.]
[All funds received by the Commonwealth are subject to appropriation
in specific amounts by the General Assembly or by executive authorization
by the Governor. Total appropriations enacted by the General Assembly may
not exceed the ensuing year's estimated revenues, plus (less) the
unappropriated fund balance (deficit) of the preceding year, except for
constitutionally authorized debt service payments. Appropriations from the
principal operating funds of the Commonwealth (the General Fund, the Motor
License Fund and the State Lottery Fund) are generally made for one fiscal
year and are returned to the unappropriated surplus of the fund if not
spent or encumbered by the end of the fiscal year. The Constitution
specifies that a surplus of operating funds at the end of a fiscal year
must be appropriated for the ensuing year.]
[Pennsylvania uses the "fund" method of accounting for receipts and
disbursements. For purposes of government accounting, a "fund" is an
independent fiscal and accounting entity with a self-balancing set of
accounts, recording cash and/or other resources together with all related
liabilities and equities that are segregated for the purpose of carrying on
specific activities or attaining certain objectives in accordance with the
fund's special regulations, restrictions or limitations. In the
Commonwealth, over 150 funds have been established by legislative enactment
or in certain cases by administrative action for the purpose of recording
the receipt and disbursement of money's received by the Commonwealth.
Annual budgets are adopted each fiscal year for the principal operating
funds of the Commonwealth and several other special revenue funds.
Expenditures and encumbrances against these funds may only be made pursuant
to appropriation measures enacted by the General Assembly and approved by
the Governor. The General Fund, the Commonwealth's largest fund, receives
all tax revenues, non-tax revenues and federal grants and entitlements that
are not specified by law to be deposited elsewhere. The majority of the
Commonwealth's operating and administrative expenses are payable from the
General Fund Debt service on all bond indebtedness of the Commonwealth,
except that issued for highway purposes or for the benefit of other special
revenue funds, is payable from the General Fund.]
[Financial information for the principal operation funds of the
Commonwealth are maintained on a budgetary basis of accounting, which is
used for the purpose of ensuring compliance with the enacted operating
budget. The Commonwealth also prepares annual financial statements in
accordance with generally accepted accounting principles ("GAAP").
Budgetary basis financial reports are based on a modified cash basis of
accounting as opposed to a modified accrual basis of accounting prescribed
by GAAP. Financial information is adjusted at fiscal year- end to reflect
appropriate accruals for financial reporting in conformity with GAAP.]
[Financial Condition and Results of Operations--The period from
fiscal year 1993 through fiscal 1997 was a time of steady, modest economic
growth and low rates of inflation in the Commonwealth. These economic
conditions, together with tax reductions in the several years following the
tax rate increases and tax base expansions enacted in fiscal 1991 for the
General Fund, produced tax revenue gains averaging 4.1 percent per year
during the period. Total revenues during this same period increased at a
4.7 percent average rate. Intergovernmental revenue recorded the largest
percentage gain during this period, averaging 8.1 percent. Expenditures and
other uses during the fiscal 1993 through fiscal 1997 period rose at a 3.8
percent rate, led by an average 13.8 percent annual increase for protection
of persons and property program costs. This high rate of increase reflects
the cost to acquire, staff and operate expanded prison facilities to house
a greater population. Public health and welfare program costs expanded an
average 5.4 percent annually during this period, the second largest rate of
increase for program categories. At the close of fiscal 1997, the fund
balance for the governmental fund type totaled $2,900.9 million, an
increase of $914.6 million.]
[Financial Results for Recent Fiscal Years (GAAP Basis)--During the
five year period from fiscal 1993 through fiscal 1997, revenues and other
sources increased by an average 4.7 percent annually. Tax revenues during
this same period increased by an annual average of 4.1 percent.
Intergovernmental revenues, at an 8.5 percent annual average rate of
increase, were the revenue source with the largest rate of growth over the
five-year period.]
[Expenditures and other uses during the fiscal 1993 through fiscal
1997 period rose at an average annual rate of 4.9 percent. Program costs
for protection of persons and property increased an average 13.8 percent
annually, the largest growth rate of all programs. Public health and
welfare program costs increased at a 5.7 percent annual average rate during
the period. Efforts to control costs for various social programs and the
presence of favorable economic conditions have helped restrain these
costs.]
[The general fund balance at June 30, 1998 totaled $1,958.9 million.
The general fund balance at June 30, 1997 totaled $1,364.9 million, an
increase of $729.7 million over the $635.2 million balance at June 30,
1996.]
[Fiscal 1996 Financial Results (Budgetary Basis)--The unappropriated
surplus for Commonwealth revenues (prior to transfers to Tax Stabilization
Reserve Fund) at the close of the 1996 fiscal year for the General Fund was
$183.8 million, $65.5 million above estimate. Fiscal 1996 was the fifth
consecutive fiscal year the Commonwealth reported an increase in the fiscal
year-end unappropriated balance. Expenditures from Commonwealth revenues
for the fiscal year, including $113.0 million of supplemental
appropriations but excluding pooled financing expenditures, totaled
$16,074.7 million. Expenditures exceeded available revenues and lapses by
$253.2 million. The difference was funded from a planned partial drawdown
of the $437.0 million fiscal year adjusted beginning unappropriated
surplus.]
[Commonwealth revenues (prior to tax refunds) for the 1996 fiscal
year increased by $113.9 million over the prior fiscal year to $16,338.5
million representing a growth rate of 0.7 percent. The Commonwealth has
estimated that tax changes enacted for the 1996 fiscal year reduced
Commonwealth revenues by $283.4 million representing 1.7 percentage points
of fiscal 1996 growth in Commonwealth revenues. The most significant tax
changes enacted for the 1996 fiscal year were (i) the reduction of the
corporate net income tax rate to 9.99 percent; (ii) double weighing of the
sales factor of the corporate net income apportionment calculation; (iii)
an increase in the maximum annual allowance for a net operating loss
deduction from $0.5 million to $ 1.0 million; (iv) an increase in the basic
exemption amount for the capital stock and franchise tax; (v) the repeal of
the tax on annuities; and (vi) the elimination of inheritance tax on
transfers of certain property to surviving spouses.]
[Fiscal 1997 Financial Results (Budgetary Basis)--The unappropriated
balance of Commonwealth revenues increased during the 1997 fiscal year by
$432.9 million. Higher than estimated revenues and slightly lower
expenditures than budgeted caused the increase. The unappropriated balance
rose from an adjusted amount of $158.5 million at the beginning of fiscal
1997, to $591.4 million (prior to reserves for transfer to the Tax
Stabilization Reserve Fund) at the close of the fiscal year. Transfers to
the Tax Stabilization Reserve Fund for fiscal 1997 operations are expected
to be $88.7 million, which represents the normal fifteen percent of the
ending unappropriated balance, plus an additional $100 million authorized
by the General Assembly when it enacted the fiscal 1998 budget.]
[Commonwealth revenues (prior to tax refunds) during the 1997 fiscal
year totaled $17,320.6 million, $576.1 (3.4 percent) above the estimate
made at the time the budget was enacted. Revenue from taxes was the largest
contributor to higher than estimated receipts. Tax revenue in fiscal 1997
grew 6.1 percent over tax revenues in fiscal 1996. This rate of increase
was not adjusted for legislated tax reductions that affected receipts
during both of those fiscal years and therefor understates the actual
underlying rate of growth of tax revenue during fiscal 1997. Receipts from
the personal income tax produced the largest single component of higher
revenues for the fiscal year. Personal income collections were $236.3
million over estimate representing a 6.9 percent increase over fiscal 1996
receipts. Receipts of the sales and use tax were $185.6 million over
estimate representing a 6.2 percent increase. Collections of corporate
taxes, led by the capital stock and franchise and the gross receipt taxes,
also exceeded their estimates for the fiscal year. Non-tax revenues were
$19.8 million (5.8 percent) over estimate mostly due to higher than
anticipated interest earnings.]
[Expenditures from Commonwealth revenues (excluding pooled financing
expenditures) during fiscal 1997 totaled $16,347.7 million and were close
to the estimate made in February 1997 with the presentation of the
Governor's fiscal 1998 budget request. Total expenditures represent an
increase over fiscal 1996 expenditures of 1.7 percent.]
[Fiscal 1998 Financial Results (Budgetary Basis)--Operations during
the 1998 fiscal year increased the unappropriated balance of commonwealth
revenues during that period by $86.4 million to $488.7 million at June 30,
1998 (prior to reserves for transfer to the Tax Stabilization Reserve
Fund). Higher than estimated revenues, offset in part by increased reserves
for tax refunds, and slightly lower expenditures than budgeted were
responsible for the increase. Transfers to the Tax Stabilization Reserve
Fund for fiscal 1998 operations will total $223.3 million consisting of
$73.3 million representing the required transfer of fifteen percent of the
ending unappropriated surplus balance, plus an additional $150 million
authorized by the General Assembly when it enacted the fiscal 1999 budget.
With these transfers, the balance in the Tax Stabilization Reserve Fund
will exceed $664 million and represents 3.7 percent of fiscal 1998
revenues.]
[Commonwealth revenues (prior to tax refunds) during the 1998 fiscal
year totaled $18,123.2 million, $676.1 million (3.9 percent) above the
estimate made at the time the budget was enacted. Tax revenue received in
fiscal 1998 grew 4.8 percent over tax revenues received during fiscal 1997.
This rate of increase includes the effect of legislated tax reductions that
affected receipts during both fiscal years and therefore understates the
actual underlying rate of growth of tax revenue during fiscal 1998.
Receipts from the personal income tax produced the largest single component
of higher revenues during fiscal 1998. Personal income tax collections were
$416.6 million over estimate representing an 8.5 percent increase over
fiscal 1997 receipts. Receipts of the sales and use tax were $6.2 million
over estimate representing a 1.9 percent increase. Collections of all
corporate taxes exceeded their estimate for the fiscal year, led by the
capital stock and franchise tax and the corporate net income tax which were
over estimate by 7.8 percent and 2.7 percent, respectively. Non-tax
revenues were $27.5 million (8.6 percent) over estimate, mostly due to
greater than anticipated interest earnings for the fiscal year.]
[Expenditures from all fiscal 1998 appropriations of Commonwealth
revenues totaled $17,229.8 million (excluding pooled financing expenditures
and net of current year lapses). This amount represents an increase of 4.5
percent over fiscal 1997 appropriation expenditures.]
[Fiscal 1999 Budget--The budget for fiscal 1999 was enacted in April
1998 at which time the official revenue estimate for the 1999 fiscal year
was established at $18,456.6 million. The official revenue estimate is
based on an economic forecast for national gross domestic product, on a
year-over-year basis, to slow from an estimated annualized 3.9 percent rate
in the fourth quarter of 1997 to a projected 1.8 percent annualized growth
rate by the second quarter of 1999. The forecast of slowing economic
activity is based on the expectation that consumers will reduce their pace
of spending, particularly on motor vehicles, housing and other durable
goods. Business is also expected to trim its spending on fixed investments.
Foreign demand for domestic goods is expected to decline in reaction to
economic difficulties in Asia and Latin America, while an economic recovery
in Europe is expected to proceed slowly. The underlying growth rate,
excluding any effect of scheduled or proposed tax changes, for the General
Fund fiscal 1999 official revenue estimate is 3.0 percent over actual
fiscal 1998 revenues. When adjusted to include the estimated effect of
enacted tax changes, fiscal 1999 Commonwealth revenues are projected to
increase by 1.66 percent over actual Commonwealth revenues for fiscal
1998.]
[Appropriations enacted for fiscal 1999 are 4.1 percent ($705.1
million) above the appropriations enacted for fiscal 1998 (including
supplemental appropriations). Major increases in expenditures budgeted for
fiscal 1999 include: (i) $249.5 million in direct support of local school
district education costs (local school districts will also benefit from an
estimated $104 million of reduced contributions by school districts to
their worker's retirement costs from a reduced employer contribution rate);
(ii) $60.4 million for higher education, including scholarship grants;
(iii) $56.5 million to fund the correctional system including $21 million
to operate a new correctional facility; (iv) $121.1 million for long-term
care medial assistance costs; (v) $14.4 million for technology and Year
2000 investments; (vi) $55.9 million to fund the first year's cost of a
July 1, 1998 annuitant cost of living increase for state and school
district employees and (vii) $20 million to replace bond funding for
equipment loans for volunteer fire and rescue companies. The balance of the
increase is spread over many departments and program operations.]
[The enacted fiscal 1999 budget assumes the draw down of the $265.4
million beginning budgetary balance by approximately $144 million to an
estimated closing balance, prior to transfer of the required portion to the
Tax Stabilization Reserve Fund, of $124.3 million. The amount of the
anticipated draw down does not consider the availability of appropriation
lapses normally occurring during a fiscal year that are used to fund
supplemental appropriations or increase unappropriated surplus.]
[Debt Limits and Outstanding Debt--The Pennsylvania Constitution
permits the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster; (ii) electorate
approved debt; (iii) debt for capital projects subject to an aggregate
outstanding debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years; and (iv) tax anticipation notes payable in the
fiscal year of issuance.]
[Under the Pennsylvania Fiscal Code, the Auditor General is required
to certify to the Governor and the General Assembly certain information
regarding the Commonwealth's indebtedness. According to the August 26, 1998
Auditor General certificate, the average annual tax revenues deposited in
all funds in the five fiscal years ended August 26, 1998 was approximately
$20.4 billion, and, therefore, the net debt limitation for the 1999 fiscal
year is $32.0 billion. Outstanding net debt totaled $3.7 billion at June
30, 1998 approximately equal to the net debt at June 30, 1997. At August
26, 1998, the amount of debt authorized by law to be issued, but not yet
incurred, was $22.7 billion.]
[Debt Ratings--All outstanding general obligation bonds of the
Commonwealth are rated AA by S&P and Aa3 by Moody's.]
[City of Philadelphia--The City of Philadelphia (the "City" or
"Philadelphia") is the largest city in the Commonwealth, with an estimated
population of 1,585,577 according to the 1990 Census. Philadelphia
experienced a series of general fund deficits for fiscal years 1988 through
1992 which culminated in serious financial difficulties for the City. In
its 1992 Comprehensive Annual Financial Report, Philadelphia reported a
cumulative general fund deficit of $71.4 million for fiscal year 1992.]
[In June 1991, the Pennsylvania legislature established the
Pennsylvania Intergovernmental Cooperation Authority ("PICA"), a
five-member board to assist Philadelphia in remedying fiscal emergencies.
PICA is designed to provide assistance through the issuance of funding debt
and to make factual findings and recommendations to Philadelphia concerning
its budgetary and fiscal affairs. The legislation empowered PICA to issue
notes and bonds on behalf of Philadelphia, and also authorized Philadelphia
to levy a one-percent sales tax the proceeds of which would be used to pay
off the bonds. In return for PICA's fiscal assistance, Philadelphia is
required, among other things, to establish five-year financial plans that
include balanced annual budgets. Under the legislation, if Philadelphia
does not comply with such requirements, PICA may withhold bond revenues and
certain state funding. At this time, the City is operating under a
five-year fiscal plan approved by PICA on June 9, 1998. As of November 25,
1998, PICA has issued approximately $1,761.7 million of its Special Tax
Revenue Bonds. The financial assistance has included the refunding of
certain city general obligation bonds, funding of capital projects and the
liquidation of the City's Cumulative General Fund balance deficit as of
June 30, 1992 of $224.9 million.]
[No further PICA bonds are to be issued by PICA for the purpose of
financing a capital project or deficit as the authority for such bond sales
expired on December 31, 1994. PICA's authority to issue debt for the
purpose of financing a cash flow deficit expired on December 31 1996. Its
ability to refund existing outstanding debt is unrestricted. PICA had
$1,055.0 million in Special Tax Revenue Bonds outstanding as of June 30,
1998.]
[The audited General Fund balance of the City as of June 30, 1995,
1996 and 1997 showed a surplus of approximately $80.5 million, $118.5
million and $128.8 million, respectively.]
[S&P's rating on Philadelphia's general obligation bonds is "BBB."
Moody's rating is currently "BBB." Moody's rating is currently "Baa2."]
[Litigation--The Commonwealth is a party to numerous lawsuits in
which an adverse final decision could materially affect the Commonwealth's
governmental operations and consequently its ability to pay debt service on
its obligations. The Commonwealth also faces tort claims made possible by
the limited waiver of sovereign immunity effected by Act 152, approved
September 28, 1978, as amended. Under Act 152, damages for any loss are
limited to $250,000 per person and $1 million for each accident.]
[Year 2000 Planning--A well-established standard in the computer
industry governing traditional programming practices is expected to result
in many current computer systems being unable to recognize dates beyond the
year 1999. As a result, computers worldwide may begin to malfunction by
producing erroneous data or failing completely as the year 2000 draws near.
The Governor has made fixing the year 2000 problem a top priority for
Pennsylvania state agencies. At the Governor's direction, Pennsylvania has
begun an aggressive program to make its computer systems year
2000-compatible and to identify potential problems with entities outside
state government with which the Commonwealth does business or exchanges
data.]
[An initial assessment of state agencies' computer resources was
completed in June, 1996. This overview assessment was used to develop the
Governor's Year 2000 Action Plan, which tracks state agencies' computer
programs through a three-step process of correction, testing, and
implementation. Under this action plan, 45,937 mission-critical and non
mission-critical computer programs used by state agencies are scheduled for
corrective measures to ensure they will be year 2000-compatible.
Mission-critical computer programs are those which impact the health,
safety and welfare of the Commonwealth and its citizens, and for which
failure to be year compliant could have a material and adverse impact upon
operations of the Commonwealth. The projected cost of the Commonwealth's
year 2000 modification work is $39.5 million and is being paid from
appropriations from current revenues.]
Duration Management and Other Management Techniques
The Trust may use a variety of other investment management techniques
and instruments. The Trust 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
Trust's portfolio resulting from trends in the debt securities markets and
changes in interest rates, to protect the Trust's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, 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 Trust to use
them successfully will depend on BlackRock Advisors' ability to predict
pertinent market movements as well as sufficient correlation among the
instruments, which cannot be assured. Inasmuch as any obligations of the
Trust that arise from the use of Additional Investment Management
Techniques will be covered by segregated liquid high grade assets or
offsetting transactions, the Trust and BlackRock Advisors 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 Trust may enter into interest rate
swaps and the purchase or sale of interest rate caps and floors. The Trust
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio as a duration
management technique or to protect against any increase in the price of
securities the Trust anticipates purchasing at a later date. The Trust 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 Trust will not sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by the Trust with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect to
a notional amount of principal. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent
that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
The Trust may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Trust receiving or paying, as the case may be, only
the net amount of the two payments on the payment dates. The Trust will
accrue the net amount of the excess, if any, of the Trust's obligations
over its entitlements with respect to each interest rate swap on a daily
basis and will segregate with a custodian an amount of cash or liquid high
grade securities having an aggregate net asset value at all times at least
equal to the accrued excess. The Trust will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the highest
rating category of at least one nationally recognized 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 Trust will have
contractual remedies pursuant to the agreements related to the transaction.
Futures Contracts and Options on Futures Contracts. The Trust 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 Trust will ordinarily engage in
such transactions only for bona fide hedging, risk management (including
duration management) and other portfolio management purposes. However, the
Trust 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 Trust'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 Trust 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 Trust must be "covered" as long as the
call is outstanding (i.e., the Trust must own the securities or futures
contract subject to the call or other securities acceptable for applicable
escrow requirements). A call sold by the Trust exposes the Trust during the
term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security, index or futures contract
and may require the Trust to hold a security of futures contract which it
might otherwise have sold. The purchase of a call gives the Trust 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 Trust's obligations pursuant to such instruments.
Puts on Securities, Indices and Futures Contracts. The Trust 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 Trust may also sell puts on municipal bonds, indices or
futures contracts on such securities if the Trust's contingent obligations
on such puts are secured by segregated assets consisting of cash or liquid
high grade debt securities having a value not less than the exercise price.
The Trust will not sell puts if, as a result, more than 50% of the Trust's
assets would be required to cover its potential obligations under its
hedging and other investment transactions. In selling puts, there is a risk
that the Trust 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 Trust'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 Trust'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 Trust 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 Trust to engage in Additional Investment
Management Techniques. See "Tax Matters".
Short Sales
The Trust may make short sales of municipal bonds. A short sale is a
transaction in which the Trust sells a security it does not own in
anticipation that the market price of that security will decline. The Trust
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 Trust 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 Trust 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 Trust'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 Trust 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 Trust on such security, the Trust 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 Trust replaces the borrowed security, the
Trust will incur a loss; conversely, if the price declines, the Trust will
realize a gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Trust's gain is limited to
the price at which it sold the security short, its potential loss is
theoretically unlimited.
The Trust 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 Trust's aggregate short sales of a
particular class of securities exceeds 25% of the outstanding securities of
that class. The Trust 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 Trust 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
Under current market conditions, the Trust does not expect to invest
any of its assets in illiquid securities. 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 Trust 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 Trust will enter into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities,
as the case may be. If the Trust disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or
loss. At the time the Trust 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 Trust. There is always a risk that the securities may not be delivered
and that the Trust may incur a loss. Settlements in the ordinary course,
which typically occur monthly for mortgage-related securities, are not
treated by the Trust 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 Trust reserves
the rights to borrow funds to the extent permitted as described under the
caption "Investment Limitations". The proceeds of borrowings may be used
for any valid purpose including, without limitation, liquidity, investing
and repurchases of shares of the Trust. Borrowing is a form of leverage
and, in that respect, entails risks comparable to those associated with the
issuance of Preferred Shares.
Repurchase Agreements
As temporary investments, the Trust 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 Trust'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, if any. The Trust will only enter into repurchase
agreements with registered securities dealers or domestic banks that, in
the opinion of BlackRock Advisors, present minimal credit risk. The risk to
the Trust 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 Trust 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 Trust may be delayed or limited. BlackRock Advisors 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 Trust 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 Trust
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 Trust may lend its portfolio securities to brokers, dealers and
other financial institutions which meet the creditworthiness standards
established by the Board of Trustees of the Trust ("Qualified
Institutions"). By lending its portfolio securities, the Trust attempts to
increase its income through the receipt of interest on the loan. Any gain
or loss in the market price of the securities loaned that may occur during
the term of the loan will be for the account of the Trust. The Trust may
lend its portfolio securities so long as the terms and the structure of
such loans are not inconsistent with the requirements of the Investment
Company Act, which currently require that (a) the borrower pledge and
maintain with the Trust collateral consisting of cash, a letter of credit
issued by a domestic U.S. bank, or securities issued or guaranteed by the
U.S. government having a value at all times not less than 100% of the value
of the securities loaned, (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 Trust at any time and (d) the Trust receive reasonable
interest on the loan (which may include the Trust's investing any cash
collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. The Trust
will not lend portfolio securities if, as a result, the aggregate value of
such loans exceeds 33 1/3% of the value of the Trust's total assets
(including such loans). Loan arrangements made by the Trust will comply
with all other applicable regulatory requirements, including the rules of
the New York Stock Exchange. 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 Trust's board of
trustees.
The Trust may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Trust's board of trustees. In addition, voting rights
may pass with the loaned securities, but if a material event were to occur
affecting such a loan, the loan must be called and the securities voted.
MANAGEMENT OF THE TRUST
Investment Advisory Agreement
Although BlackRock Advisors intends to devote such time and effort to
the business of the Trust as is reasonably necessary to perform its duties
to the Trust, the services of BlackRock Advisors are not exclusive and
BlackRock Advisors provides similar services to other investment companies
and other clients and may engage in other activities.
The Advisory Agreement also provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, BlackRock Advisors is not liable to the Trust or
any of the Trust'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 Trust or the Trust's
shareholders and provides for indemnification by the Trust of BlackRock
Advisors, its directors, officers, employees, agents and control persons
for liabilities incurred by them in connection with their services to the
Trust, subject to certain limitations and conditions.
The Advisory Agreement was approved by the Trust's board of trustees,
on __________, 1999, including a majority of the trustees who are not
parties to the agreement or interested persons of any such party (as such
term is defined in the Investment Company Act). [The Advisory Agreement
will be submitted to shareholders for their approval at the first meeting
of shareholders of the Trust.] The Advisory Agreement will continue in
effect for a period of two years from its effective date, and if not sooner
terminated, will continue in effect for successive periods of 12 months
thereafter, provided that each continuance is specifically approved at
least annually by both (1) the vote of a majority of the Trust's board of
trustees or the vote of a majority of the outstanding voting securities of
the Trust (as such term is defined in the Investment Company Act) and (2)
by the vote of a majority of the trustees who are not parties to such
Agreement or interested persons (as such term is defined in the Investment
Company Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be
terminated as a whole at any time by the Trust, without the payment of any
penalty, upon the vote of a majority of the Trust's board of trustees or a
majority of the outstanding voting securities of the Trust or by BlackRock
Advisors, on 60 days' written notice by either party to the other. The
Advisory Agreement will terminate automatically in the event of its
assignment (as such term is defined in the Investment Company Act and the
rules thereunder).
Sub-Investment Advisory Agreement
Pursuant to the Sub-Investment Advisory Agreement, BlackRock Advisors
has appointed BlackRock, one of its affiliates, to handle the day-to-day
investment management of the Trust. BlackRock will receive a portion of the
advisory fee paid by the Trust to BlackRock Advisors. From the management
fee, BlackRock Advisors will pay BlackRock, for serving as sub-adviser, a
fee equal to an annual rate of 0.___% of the average weekly value of the
Trust's Managed Assets.
The Sub-Investment Advisory Agreement also provides that in the
absence of willful misfeasance, bad faith, gross negligence or disregard of
its obligations thereunder, BlackRock is not liable to the Trust or any of
the Trust's shareholders for any act or omission by BlackRock in the
supervision or management of its respective investment activities or for
any loss sustained by the Trust or the Trust's shareholders and provides
indemnification by the Trust of BlackRock, its directors, officers,
employees, agents and control persons for liabilities incurred by them in
connection with their services to the Trust, subject to certain limitations
and conditions.
Although BlackRock intends to devote such time and effort to the
business of the Trust as is reasonably necessary to perform its duties to
the Trust, the services of BlackRock are not exclusive and BlackRock
provides similar services to other investment companies and other clients
and may engage in other activities.
The Sub-Investment Advisory Agreement was approved by the Trust's
board of trustees on _________, 1999, including a majority of the trustees
who are not parties to the agreement or interested persons of any such
party (as such term is defined in the Investment Company Act). [The
Sub-Investment Advisory Agreement will be submitted to shareholders for
their approval at the first meeting of shareholders of the Trust.] The
Sub-Investment Advisory Agreement will continue in effect for a period of
two years from its effective date, and if not sooner terminated, will
continue in effect for successive periods of 12 months thereafter, provided
that each continuance is specifically approved at least annually by both
(1) the vote of a majority of the Trust's board of trustees or the vote of
a majority of the outstanding voting securities of the Trust (as such term
is defined in the Investment Company Act) and (2) by the vote of a majority
of the trustees, who are not parties to such Agreement for interested
persons (as such term is defined in the Investment Company Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Sub-Investment Advisory Agreement may be terminated as a
whole at any time by the Trust, without the payment of any penalty, upon
the vote of a majority of the Trust's board of trustees or a majority of
the outstanding voting securities of the Trust or by BlackRock Advisors or
by BlackRock, on 60 days' written notice by either party to the other. The
Sub-Investment Advisory Agreement will terminate automatically in the event
of its assignment (as such term is defined in the Investment Company Act
and the rules thereunder).
Trustees and Officers
The officers of the Trust manage its day to day operations. The
officers are directly responsible to the Trust's board of trustees which
sets broad policies for the Trust and chooses its officers. The following
is a list of the trustees and officers of the Trust and a brief statement
of their present positions and principal occupations during the past five
years. Trustees who are interested persons of the Trust (as defined in the
Investment Company Act) are denoted by an asterisk (*). The business
address of the Trust, BlackRock Advisors, BlackRock 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.
<TABLE>
<S> <C> <C>
PRINCIPAL OCCUPATION DURING THE
NAME AND ADDRESS TITLE PAST FIVE YEARS AND OTHER AFFILIATIONS
- ------------------------------------------------- --------------------------------------------
Ralph L. Schlosstein* President, Chief President of BlackRock Financial since
Age: 47 Executive Officer March 1988. Formerly a Managing Director
(Principle Executive of Lehman Brothers, Inc. and co-head of
Officer) and Chief its Mortgage and Savings Institutional
Financial Officer Group. Currently President of certain
(Principle Financial closed-end funds in which BlackRock
and Accounting Financial acts as investment adviser.
Officer) 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>
The address of each officer of the Trust is 345 Park Avenue, New York, New
York 10154. Prior to this offering, all of the outstanding shares of the
Trust were owned by BlackRock.
No officer or employee of the Trust receives any compensation from the
Trust for serving as an officer or trustee of the Trust. The Trust pays
each trustee who is not an "interested person" of the Trust (as defined in
the Investment Company Act) $3,800 per year plus $950 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 Trust 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 Trusts for the fiscal year ending December 31, 1999 as
a whole are estimated as follows:
<TABLE>
<S> <C> <C>
1999 ESTIMATED
AGGREGATE ESTIMATED TOTAL COMPENSATION FROM
COMPENSATION FROM THE TRUST AND FUND
NAME OF BOARD MEMBER TRUST COMPLEX PAID TO BOARD MEMBER*
- ------------------------------ ----------------- ----------------------------------
Ralph L. Schlosstein.......... $ [ ] $ [ ]
</TABLE>
- ------------
* The BlackRock Family of Funds consists of 21 closed-end funds. Total
compensation from Trust and Fund complex paid to each board member is
capped at $160,000.
PORTFOLIO TRANSACTIONS AND BROKERAGE
BlackRock is responsible for decisions to buy and sell securities for
the Trust, the selection of brokers and dealers to effect the transactions
and the negotiation of prices and any brokerage commissions. The securities
in which the Trust invests are traded principally in the over-the-counter
market. In the over-the-counter market, securities are generally traded on
a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although price of the security usually
includes a mark-up to the dealer. Securities purchased in underwritten
offerings generally include, in the price, a fixed amount of compensation
for the manager(s), underwriter(s) and dealer(s). The Trust may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid. Purchases and sales of debt
securities on a stock exchange are effected through brokers who charge a
commission for their services.
BlackRock is responsible for effecting securities transactions of the
Trust and will do so in a manner deemed fair and reasonable to shareholders
of the Trust and not according to any formula. BlackRock's primary
considerations in selecting the manner of executing securities transactions
for the Trust will be prompt execution of orders, the size and breadth of
the market for the security, the reliability, integrity and financial
condition and execution capability of the firm, the size of the difficulty
in executing the order, and the best net price. There are many instances
when, in the judgment of BlackRock, more than one firm can offer comparable
execution services. In selecting among such firms, consideration is given
to those firms which supply research and other services in addition to
execution services. However, it is not the policy of BlackRock, absent
special circumstances, to pay higher commission to a firm because it has
supplied such services.
BlackRock is able to fulfill its obligations to furnish a continuous
investment program to the Trust without receiving such information from
brokers; however, it considers access to such information to be an
important element of financial management. Although such information is
considered useful, its value is not determinable, as it must be reviewed
and assimilated by BlackRock, and does not reduce BlackRock's normal
research activities in rendering investment advice under the Advisory
Agreement. It is possible that BlackRock's expenses could be materially
increased if it attempted to purchase this type of information or generate
it thought its own staff.
One or more of the other investment companies or accounts which
BlackRock manages may own from time to time some of the same investments as
the Trust. Investment decisions for the Trust 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 in its discretion in accordance with the accounts' various
investment objectives. In some cases, this system may adversely affect the
price or size of the position obtainable for the Trust. In other cases,
however, the ability of the Trust to participate in volume transactions may
produce better execution for the Trust. It is the opinion of the Trust's
board of trustees that this advantage, when combined with the other
benefits available due to BlackRock's organization, outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the Trust's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Trust will 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 Trust expenses, including brokerage commissions, dealer mark-ups
and other transaction costs on the sale of securities and on the
reinvestment in other securities.
DESCRIPTION OF SHARES
Common Shares
The Trust 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.
Preferred Shares
Although the terms of the Preferred Shares, including their dividend
rate, voting rights, liquidation preference and redemption provisions, will
be determined by the board of trustees (subject to applicable law and the
Trust's Agreement and Declaration of Trust) when it authorizes a Preferred
Shares offering, the Trust currently expects that the preference on
distributions, liquidation preference, voting rights and redemption
provisions of the Preferred Shares will likely be as stated in the
prospectus.
If the board of trustees determines to proceed with an offering of
Preferred Shares, the terms of the Preferred Shares may be the same as, or
different from, the terms described in the prospectus, subject to
applicable law and the Trust's Agreement and Declaration of Trust. The
board of trustees, without the approval of the holders of common shares,
may authorize an offering of Preferred Shares or may determine not to
authorize such an offering, and may fix the terms of the preferred stock to
be offered.
REPURCHASE OF COMMON SHARES
The Trust is a closed-end investment company and as such its
shareholders will not have the right to cause the Trust to redeem their
shares. Instead, the Trust'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 Trust's board of trustees
has currently determined that[, at least annually, it will 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
Trust 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 Trust's Preferred
Shares are outstanding, the Trust 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 Trust'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
Trust will be borne by the Trust and will not reduce the stated
consideration to be paid to tendering shareholders.
Subject to its investment limitations, the Trust may borrow to
finance the repurchase of shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of
cash by the Trust in anticipation of share repurchases or tenders will
reduce the Trust's net income. Any share repurchase, tender offer or
borrowing that might be approved by the Trust's board of trustees would
have to comply with the Securities Exchange Act of 1934 and the Investment
Company 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
consummated, would (a) result in the delisting of the common shares from
the New York Stock Exchange, or (b) impair the Trust's status as a
regulated investment company under the Internal Revenue Code of 1986 (which
would make the Trust a taxable entity, causing the Trust's income to be
taxed at the corporate level in addition to the taxation of shareholders
who receive dividends from the Trust) or as a registered closed-end
investment company under the Investment Company Act; (2) the Trust would
not be able to liquidate portfolio securities in an orderly manner and
consistent with the Trust'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 Trust,
(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
or Pennsylvania banks in which the Trust invests, (d) material limitation
affecting the Trust 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 Trust 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 Trust of its 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
Trust's shares trading at a price equal to their net asset value.
Nevertheless, the fact that the Trust's shares may be the subject of
repurchase or tender offers at net asset value from time to time, or that
the Trust 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 Trust of its common shares will
decrease the Trust's total assets which would likely have the effect of
increasing the Trust's expense ratio. Any purchase by the Trust of its
common shares at a time when Preferred Shares are outstanding will increase
the leverage applicable to the outstanding common shares then remaining.
[See the prospectus and this statement of additional information under
"Special Considerations Relating to Pennsylvania Municipal Bonds and
Leverage".]
Before deciding whether to take any action if the common shares trade
below net asset value, the Trust's board of trustees would likely consider
all relevant factors, including the extent and duration of the discount,
the liquidity of the Trust's portfolio, the impact of any action that might
be taken on the Trust or its shareholders and market considerations. Based
on these considerations, even if the Trust's shares should trade at a
discount, the board of trustees may determine that, in the interest of the
Trust and its shareholders, no action should be taken.
TAX MATTERS
Federal Income Tax Matters
The following discussion of Federal income tax matters is based upon
the advice of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Trust.
The Trust intends to qualify under Subchapter M of the Internal
Revenue Code of 1986, as amended, for tax treatment as a regulated
investment company. In order to qualify as a regulated investment company,
the Trust must satisfy certain requirements relating to the source of its
income, diversification of its assets, and distributions of its income to
its shareholders. First, the Trust must derive at least 90% of its annual
gross income (including tax-exempt interest) from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies, or other income
(including but not limited to gains from options and futures) derived with
respect to its business of investing in such stock, securities or
currencies (the "90% gross income test"). Second, the Trust must diversify
its holdings so that, at the close of each quarter of its taxable year, (i)
at least 50% of the value of its total assets is comprised of cash, cash
items, United States Government securities, securities of other regulated
investment companies and other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the value of the
Trust'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 value of the
total assets is invested in the securities of any one issuer (other than
United States Government securities and securities of other regulated
investment companies) or two or more issuers controlled by the Trust and
engaged in the same, similar or related trades or business.
As a regulated investment company, the Trust will not be subject to
Federal income tax in any taxable year for which it distributes at least
90% of the sum of (i) its "investment company taxable income" (which
includes dividends, taxable interest, taxable original issue discount and
market discount income, income from securities lending, net short-term
capital gain in excess of long-term capital loss, and any other taxable
income other than "net capital gain" (as defined below) and is reduced by
deductible expenses) and (ii) its net tax-exempt interest (the excess of
its gross tax-exempt interest income over certain disallowed deductions).
The Trust may retain for investment its net capital gain (which consists of
the excess of its net long-term capital gain over its short-term capital
loss). However, if the Trust retains any net capital gain or any investment
company taxable income, it will be subject to tax at regular corporate
rates on the amount retained. If the Trust retains any capital gain, it may
designate the retained amount as undistributed capital gains in a notice to
its holders of common shares who, if subject to Federal income tax on
long-term capital gains, (i) will be required to include in income for
Federal income tax purposes, as long-term capital gain, their share of such
undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Trust against their Federal
income tax liabilities, if any, and to claim refunds to the extent the
credit exceeds such liabilities. For Federal income tax purposes, the tax
basis of shares owned by a holder of common shares of the Trust will be
increased by an amount equal under current law to the difference between
the amount of undistributed capital gains included in the holders of common
shares' gross income and the tax deemed paid by the holders of common
shares under clause (ii) of the preceding sentence. The Trust intends to
distribute at least annually to its shareholders all or substantially all
of its net tax-exempt interest and any investment company taxable income
and net capital gain.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain,
i.e., the excess of net long-term capital gain over net short-term capital
loss for any taxable year, to elect (unless it has made a taxable year
election for excise tax purposes as discussed below) to treat all or part
of any net capital loss, any net long-term capital loss or any net foreign
currency loss incurred after October 31 as if it had been incurred in the
succeeding year.
Distributions by the Trust of net interest received from certain
taxable temporary investments (such as certificates of deposit, commercial
paper and obligations of the U.S. Government, its agencies and
instrumentalities) and net short-term capital gains realized by the Trust,
if any, will be taxable to shareholders as ordinary income whether received
in cash or additional shares. Any net long-term capital gains realized by
the Trust and distributed to shareholders in cash or additional shares will
be taxable to shareholders as long-term capital gains regardless of the
length of time investors have owned shares of the Trust. Distributions by
the Trust that do not constitute ordinary income dividends or capital gain
dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholders' tax basis in his or her shares. Any excess
will be treated as gain from the sale of his or her shares, as discussed
below.
If the Trust engages in hedging transactions involving financial
futures and options, these transactions will be subject to special tax
rules, the effect of which may be to accelerate income to the Trust, defer
the Trust's losses, cause adjustments in the holding periods of the Trust's
securities, convert long-term capital gains into short-term capital gains
and convert short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to holders of common shares.
Prior to purchasing shares in the Trust, an investor should carefully
consider the impact of dividends or distributions which are expected to be
or have been declared, but not paid. Any dividend or distribution declared
shortly after a purchase of such shares prior to the record date will have
the effect of reducing the per share net asset value by the per share
amount of the dividend or distribution.
Although dividends generally will be treated as distributed when
paid, dividends declared in October, November or December, payable to
holders of common shares 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 Trust (and received by the holder of common shares)
on December 31.
The redemption or exchange of common shares normally will result in
capital gain or loss to the holders of common shares. Generally, a
shareholder's gain or loss will be long-term gain or loss if the shares
have been held for more than one year. Present law taxes both long- and
short-term capital gains of corporations at the rates applicable to
ordinary income. For non-corporate taxpayers, however, net capital gains
(i.e., the excess of net long-term capital gain over net short-term capital
loss) with respect to securities will be taxed at a maximum rate of 20%,
while short-term capital gains and other ordinary income will be taxed at a
maximum rate of 39.6%. Because of the limitations on itemized deductions
and the deduction for personal exemptions applicable to higher income
taxpayers, the effective tax rate may be higher in certain circumstances.
All or a portion of a sales charge paid in purchasing common shares
cannot be taken into account for purposes of determining gain or loss on
the redemption or exchange of such shares within 90 days after their
purchase to the extent common shares or shares of another fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Any disregarded portion of such charge
will result in an increase in the shareholder's tax basis in the shares
subsequently acquired. In addition, no loss will be allowed on the
redemption or exchange of common shares if the shareholder purchases other
shares of the Trust (whether through reinvestment of distributions or
otherwise) or the shareholder acquires or enters into a contract or option
to acquire securities that are substantially identical to shares of the
Trust within a period of 61 days beginning 30 days before and ending 30
days after such redemption or exchange. If disallowed, the loss will be
reflected in an adjustment to the basis of the shares acquired.
In order to avoid a 4% Federal excise tax, the Trust must distribute
or be deemed to have distributed by December 31 of each calendar year at
least 98% of its taxable ordinary income for such year, at least 98% of the
excess of its realized capital gains over its realized capital losses
(generally computed on the basis of the one-year period ending on October
31 of such year) and 100% of any taxable ordinary income and any excess of
realized capital gains over realized capital losses for the prior year that
was not distributed during such year and on which the Trust paid no Federal
income tax. For purposes of the excise tax, a regulated investment company
may reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year. The Trust
intends to make timely distributions in compliance with these requirements
and consequently it is anticipated that it generally will not be required
to pay the excise tax.
If in any year the Trust should fail to qualify under Subchapter M
for tax treatment as a regulated investment company, the Trust would incur
a regular corporate Federal income tax upon its income for that year, and
distributions to its shareholders would be taxable to shareholders as
ordinary dividend income for Federal income tax purposes to the extent of
the Trust's earnings and profits.
The Trust is required in certain circumstances to withhold 31% of
taxable dividends and certain other payments paid to non-corporate
shareholders who have not furnished to the Trust 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.
The foregoing is a general and abbreviated summary of the provisions
of the Internal Revenue Code and the Treasury Regulations presently in
effect as they directly govern the taxation of the Trust and its
shareholders. For complete provisions, reference should be made to the
pertinent Internal Revenue Code sections and Treasury Regulations. The
Internal Revenue Code and the Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be
retroactive with respect to Trust transactions. Holders of common shares
are advised to consult their own tax advisers for more detailed information
concerning the Federal taxation of the Trust and the income tax
consequences to its holders of common shares.
Pennsylvania Tax Matters
[The following is based upon the advice of [ ], special
Pennsylvania counsel to the Trust.]
[Shares of the Trust are not subject to any of the personal property
taxes presently in effect in Pennsylvania to the extent of that proportion
of the Trust represented by Pennsylvania municipal obligations. The taxes
referred to above include the County Personal Property Tax, and the
additional personal property taxes imposed on Pittsburgh residents by the
School District of Pittsburgh and by the City of Pittsburgh. Shares of the
Trust may be taxable under the Pennsylvania inheritance and estate taxes. ]
[The proportion of interest income representing interest income from
Pennsylvania municipal obligations distributable to shareholders of the
Trust is not taxable under the Pennsylvania Personal Income Tax or under
the Corporate Net Income Tax, nor will such interest be taxable under the
Philadelphia School District Investment Income tax imposed on Philadelphia
resident individuals.]
[The disposition by the Trust of a Pennsylvania municipal obligation
issued before February 1, 1994 (whether by sale, exchange, redemption or
payment at maturity) will not constitute a taxable event to a shareholder
under the Pennsylvania Personal Income Tax. The disposition of Pennsylvania
municipal obligations issued on or after February 1, 1994 are taxable.
Further, although there is no published authority on the subject, special
Pennsylvania counsel is of the opinion that (i) a shareholder of the Trust
will not have a taxable event under the Pennsylvania state and local income
taxes referred to in the preceding paragraph (other than the Corporate Net
Income Tax) upon the redemption or sale of shares of the Trust to the
extent that the Trust is then composed of Pennsylvania municipal
obligations issued before February 1, 1994 and (ii) the disposition by the
Trust of a Pennsylvania municipal obligation (whether by sale, exchange,
redemption or payment at maturity) will not constitute a taxable event to a
shareholder under the Corporate Net Income Tax for those obligations issued
before February 1, 1994 or the Philadelphia School District Investment
Income Tax. (The School District tax has no application to gain on the
disposition of property held by the taxpayer for more than six months.)]
[The Trust is not subject to the Pennsylvania Corporate Net Income
Tax or Capital Stock/Franchise Tax.]
[If a shareholder is a business subject to the Pennsylvania Capital
Stock/Franchise Tax, the value of shares of shares of the Trust owned by
such shareholder and income derived from their ownership may be taken into
account in determining the "capital stock value" of such shareholder.]
[The foregoing is a general, abbreviated summary of certain of the
provisions of Pennsylvania statutes and administrative interpretations
presently in effect governing the taxation of shareholders of the Trust.
These provisions are subject to change by legislative or administrative
action, and any such change may be retroactive with respect to Trust
transactions. Shareholders are advised to consult with their own tax
advisors for more detailed information concerning Pennsylvania tax
matters.]
PERFORMANCE RELATED AND COMPARATIVE INFORMATION
[The Trust may be a suitable investment for a shareholder resident in
Pennsylvania that is thinking of adding bond investments to his portfolio
to balance the appreciated stocks that the shareholder is holding.
Pennsylvania municipal bonds can provide double, tax-free income (exempt
from both Federal and Pennsylvania income taxes) for Pennsylvania
residents. Because the Trust expects that a substantial portion of its
investments will pay interest that is taxable under the Federal alternative
minimum tax, the Trust may not be a suitable investment for shareholders
that are subject to the Federal alternative minimum tax.]
The Trust may quote certain performance-related information and may
compare certain aspects of its portfolio and structure to other
substantially similar closed-end funds as categorized by Lipper, Inc.
("Lipper"), Morningstar or other independent services. Comparison of the
Trust to an alternative investment should be made with consideration of
differences in features and expected performance. The Trust may obtain data
from sources or reporting services, such as Bloomberg Financial
("Bloomberg") and Lipper that the Trust believes to be generally accurate.
Past performance is not indicative of future results. At the time
holders of common shares sell their shares, they may be worth more or less
than their original investment.
EXPERTS
The Statement of Net Assets of the Trust as of __________, 1999
appearing in this statement of additional information has been audited by
____________________, 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. ____________________, located at ____________________, provides
accounting and auditing services to the Trust.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto,
relating to the shares offered hereby, has been filed by the Trust 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
Trust 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.
REPORT OF INDEPENDENT AUDITORS
The board of trustees and Shareholder
The BlackRock Pennsylvania Strategic Municipal Trust
We have audited the accompanying statement of net assets of The
BlackRock Pennsylvania Strategic Municipal Trust (the "Trust") as of
__________, 1999. This statement of net assets is the responsibility of the
Trust's management. Our responsibility is to express an opinion on this
statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted
accounting standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the statement of net
assets is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
statement of net assets. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement of net assets presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above
presents fairly, in all material respects, the financial position of the
Trust at __________, 1999, in conformity with generally accepted accounting
principles.
THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST
STATEMENT OF NET ASSETS
__________, 1999
ASSETS:
Cash................................................... $100,000
--------
NET ASSETS................................................... $100,000
========
NET ASSETS REPRESENTS:
Cumulative Preferred Shares, $.01 par value;
unlimited number of shares authorized, no
shares outstanding................................... $ --
Common Shares, $.01 par value; unlimited number
of shares authorized, shares outstanding............. --
Paid-in surplus........................................ ________
$100,000
Net asset value per Common Share outstanding ($100,000
divided by __________ Common Shares outstanding).......... $ [ ]
NOTES
[TO COME]
APPENDIX A
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:
Long Term Debt
An S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt 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 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.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default--capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
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 Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade Rating
Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristics these are outweighed by major
uncertainties or major exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also
used for debt subordinated to senior debt that is assigned an actual
or implied "BBB--" rating.
B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB--" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
The "CCC" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "B" or "B--"
rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating.
C The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC--" debt rating. The
"C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
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.
The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
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.
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.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is federally insured by the Federal Savings & Loan
Insurance Corp. or the Federal Deposit Insurance Corp.* and interest
is adequately collateralized. In the case of certificates of deposit
the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity will be honored
for principal and accrued pre-default interest up to the Federal
insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy f 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 concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 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 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
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 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 assessment 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-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category 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, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as 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:
Municipal Bonds
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 edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what 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 characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and 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.
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 B in the public 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
present strong protection by established cash flows,
superior liquidity support or demonstrated broadbased
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. All
security elements are accounted for but there is lacking
the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less
well-established.
MIG 4/VMIG 4 This designation denotes adequate quality.
Protection commonly regarded as required of an investment
security is present and although not distinctly or
predominantly speculative, there is specific risk.
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 capacity 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.
-- 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
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 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 strongest capacity for timely
payment of financial commitments; 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.
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.
APPENDIX B
TAXABLE EQUIVALENT YIELD TABLE
The taxable equivalent yield is the current yield you would need to
earn on taxable investment in order to equal a stated tax-free yield on a
municipal investment. To assist you to more easily compare municipal
investments like the Trust with taxable alternative investments, the table
below presents the taxable equivalent yields for a range of hypothetical
tax-free yields and tax rates:
Taxable Equivalent of Tax-Free Yields
Tax Free Yield
Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00%
28.0%
31.0%
36.0%
39.6%
Pennsylvania
Federal State Combined
Tax Tax Tax
Single Return Joint Return Bracket Bracket* Bracket*
------------- ------------ ------- -------- --------
$0-25,750 $0-43,050 15.00% 2.80% 17.80%
25,750-62,450 43,050-104,050 28.00% 2.80% 30.80%
62,450-130,250 104,050-158,550 31.00% 2.80% 33.80%
130,250-283,150 158,550-283,150 36.00% 2.80% 38.80%
Over 283,150 Over 283,150 39.60% 2.80% 42.40%
- --------
* The State tax brackets are those for 1998. Please note that the table
does not reflect (i) any Federal or state limitations on the amounts
of allowable itemized deductions, phase-outs of personal or dependent
exemption credits or other allowable credits, (ii) any local taxes
imposed, (iii) any taxes other than personal income taxes, or (iv)
income derived from the disposition of Pennsylvania municipal bonds
issued on or after February 1, 1994. The table assumes that Federal
taxable income is equal to state income subject to tax.
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. 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 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
to the cost of the initial premium. Losses due to the use of Additional
Investment Management Techniques will reduce net asset value.
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STATEMENT OF ADDITIONAL INFORMATION
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___________, 1999
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Part A - Report of Independent Accountants.*
Statement of Assets and Liabilities.*
Part B - None.
(2) Exhibits:
(a) Agreement and Declaration of Trust.
(b) By-Laws.
(c) Inapplicable.
(d) Form of Specimen Certificate.*
(e) Form of Dividend Reinvestment Plan.*
(f) Inapplicable.
(g) Form of Investment Management and Administration Agreement.*
(h) Form of Underwriting Agreement.*
(i) Inapplicable.
(j) Form of Custodian Agreement.*
(k) Inapplicable.
(l) Opinion and Consent of Counsel to the Trust.*
(m) Inapplicable.
(n) Consent of Independent Public Accountants.*
(o) Inapplicable.
(p) Initial Subscription Agreement.*
(q) Inapplicable.
(r) Financial Data Schedule.*
(s) Power of Attorney.*
- -----------
* To be Filed by Amendment.
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for the
Registrant's shares of beneficial interest to be filed by amendment to this
registration statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this registration statement:
Registration fees........................................... $ *
New York Stock Exchange listing fee......................... *
Printing (other than certificates).......................... *
Engraving and printing certificates......................... *
Fees and expenses of qualification under
state securities laws (excluding fees
of counsel)............................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
NASD fee.................................................... *
Miscellaneous............................................... *
Total................................................. $ *
* To be furnished by amendment.
Item 27. Persons Controlled by or under Common Control with the Registrant
Prior to June 30, 1999 the Registrant had no existence.
Item 28. Number of Holders of Shares
Number of
Title of class Record Holders
-------------- --------------
Shares of Beneficial Interest 0
Item 29. Indemnification
Article V of the Registrant's Agreement and Declaration of Trust provides
as follows:
Section 5.1. No Shareholder of the Trust shall be subject in such
capacity to any personal liability whatsoever to any Person in connection
with Trust property or the acts, obligations or affairs of the Trust.
Shareholders shall have the same limitation of personal liability as is
extended to stockholders of a private corporation for profit incorporated
under the general corporation law of the State of Delaware. No Trustee or
officer of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the
Trust, save only liability to the Trust or its Shareholders arising from
bad faith, willful misfeasance, gross negligence (negligence in the case of
those Trustees or officers who are directors, officers or employees of the
Trust's investment advisor ("Affiliated Indemnitees")) or reckless
disregard for his duty to such person; and, subject to the foregoing
exception, all such persons shall look solely to the Trust property for
satisfaction of claims of any nature arising in connection with the affairs
of the Trust. If any shareholder, trustee or officer, as such, of the
Trust, is made a party to any suit or proceeding to enforce any such
liability, subject to the foregoing exception, he shall not, on account
thereof, be held to any personal liability.
Section 5.2. a. The Trust hereby agrees to indemnify the Trustees and
officers of the Trust (each such person being an "indemnitee") against any
liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable counsel
fees reasonably incurred by such indemnitee in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while acting in any capacity set
forth above in this Section 5.2 by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall not have
acted in good faith in the reasonable belief that his action was in the
best interest of the Trust or, in the case of any criminal proceeding, as
to which he shall have had reasonable cause to believe that the conduct was
unlawful, provided, however, that no indemnitee shall be indemnified
hereunder against any liability to any person or any expense of such
indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith,
(iii) gross negligence (negligence in the case of Affiliated Indemnitees),
or (iv) reckless disregard of the duties involved in the conduct of his
position (the conduct referred to in such clauses (i) through (iv) being
sometimes referred to herein as "disabling conduct"). Notwithstanding the
foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding
by such indemnitee was authorized by a majority of the Trustees.
b. Notwithstanding the foregoing, no indemnification
shall be made hereunder unless there has been a determination (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" of
the (as defined in Section 2(a)(19) of the Investment Company 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.
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 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.
Item 30. Business and Other Connections of Investment Adviser
Not Applicable
Item 31. Location of Accounts and Records
The Registrant's accounts, books and other documents are currently
located at the offices of the Registrant, c/o BlackRock Advisors, Inc., 345
Park Avenue, New York, New York 10154 and at the offices of State Street
Bank and Trust Company, the Registrant's Custodian and , the Registrant's
Transfer Agent and Dividend Disbursing Agent.
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) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the 1933 Act, the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the 1933 Act shall be deemed to be part
of this registration statement as of the time it was declared effective;
(ii) for the purpose of determining any liability under the 1933 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
(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.
(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.
SIGNATURES
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 1st day of July 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 1st day of July 1999.
Namen Title
/s/ Ralph L. Schlosstein Sole Trustee, President, Chief Executive
- ---------------------------- Officer (Principle Executive Officer) and
Ralph L. Schlosstein Chief Financial Officer (Principle Financial
and Accounting Officer)
INDEX TO EXHIBITS
(a) Agreement and Declaration of Trust.
(b) By-Laws.
(c) Inapplicable.
(d) Form of Specimen Certificate.*
(e) Form of Dividend Reinvestment Plan.*
(f) Inapplicable.
(g) Form of Investment Management and Administration Agreement.*
(h) Form of Underwriting Agreement.*
(i) Inapplicable.
(j) Form of Custodian Agreement.*
(k) Inapplicable.
(l) Opinion and Consent of Counsel to the Trust.*
(m) Inapplicable.
(n) Consent of Independent Public Accountants.*
(o) Inapplicable.
(p) Initial Subscription Agreement.*
(q) Inapplicable.
(r) Financial Data Schedule.*
(s) Power of Attorney.*
- -----------
* To be Filed by Amendment.
Exhibit (a)
THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST
AGREEMENT AND DECLARATION OF TRUST
JUNE 30, 1999
TABLE OF CONTENTS
ARTICLE I
The Trust
1.1 Name...................................................2
1.2 Definitions............................................2
ARTICLE II
Trustees
2.1 Number and Qualification...............................4
2.2 Term and Election......................................4
2.3 Resignation and Removal................................5
2.4 Vacancies..............................................5
2.5 Meetings...............................................6
2.6 Officers...............................................7
ARTICLE III
Powers and Duties of Trustees
3.1 General................................................7
3.2 Investments............................................8
3.3 Legal Title............................................8
3.4 Issuance and Repurchase of Shares......................9
3.5 Borrow Money or Utilize Leverage.......................9
3.6 Delegation; Committees.................................9
3.7 Collection and Payment................................10
3.8 Expenses..............................................10
3.9 By-Laws...............................................11
3.10 Miscellaneous Powers..................................11
3.11 Further Powers........................................12
3.12 Trustee Action by Written Consent.....................12
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1 Advisory and Management Arrangements..................13
4.2 Distribution Arrangements.............................13
4.3 Parties to Contract...................................14
ARTICLE V
Limitations of Liability
and Indemnification
5.1 No Personal Liability of Shareholders,
Trustees, etc....................................14
5.2 Mandatory Indemnification.............................15
5.3 No Bond Required of Trustees..........................17
5.4 No Duty of Investigation; Notice in
Trust Instruments, etc...........................17
5.5 Reliance on Experts, etc..............................18
5.6 Indemnification of Shareholders.......................18
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest...................................19
6.2 Other Securities......................................19
6.3 Rights of Shareholders................................20
6.4 Trust Only............................................19
6.5 Issuance of Shares....................................19
6.6 Register of Shares....................................20
6.7 Transfer Agent and Registrar..........................21
6.8 Transfer of Shares....................................21
6.9 Notices...............................................22
ARTICLE VII
Custodians
7.1 Appointment and Duties................................22
7.2 Central Certificate System............................23
ARTICLE VIII
Redemption
8.1 Redemptions...........................................24
8.2 Disclosure of Holding.................................24
ARTICLE IX
Determination of Net Asset Value
Net Income and Distributions
9.1 Net Asset Value.......................................24
9.2 Distributions to Shareholders.........................24
9.3 Power to Modify Foregoing Procedures..................25
ARTICLE X
Shareholders
10.1 Meetings of Shareholders.............................26
10.2 Voting...............................................26
10.3 Notice of Meeting and Record Date....................27
10.4 Quorum and Required Vote.............................27
10.5 Proxies, etc.........................................28
10.6 Reports..............................................28
10.7 Inspection of Records................................29
10.8 Shareholder Action by Written Consent................29
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration.............................................29
11.2 Termination..........................................30
11.3 Amendment Procedure..................................31
11.4 Merger, Consolidation and
Sale of Assets...................................32
11.5 Incorporation........................................32
11.6 Conversion...........................................33
11.7 Certain Transactions.................................34
ARTICLE XII
Miscellaneous
12.1 Filing...............................................36
12.2 Resident Agent.......................................37
12.3 Governing Law........................................37
12.4 Counterparts.........................................37
12.5 Reliance by Third Parties............................37
12.6 Provisions in Conflict with
Law or Regulation................................38
THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST
AGREEMENT AND DECLARATION OF TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made as
of the 30th day of June, 1999, by the Trustees hereunder, and by the
holders of shares of beneficial interest issued hereunder as hereinafter
provided.
WHEREAS, this Trust has been formed to carry on business as set
forth more particularly hereinafter;
WHEREAS, this Trust is authorized to issue an unlimited number
of its shares of beneficial interest all in accordance with the provisions
hereinafter set forth;
WHEREAS, the Trustees have agreed to manage all property coming
into their hands as Trustees of a Delaware business trust in accordance
with the provisions hereinafter set forth; and
WHEREAS, the parties hereto intend that the Trust created by
this Declaration and the Certificate of Trust filed with the Secretary of
State of the State of Delaware on February 17, 1999 shall constitute a
business trust under the Delaware Business Trust Act and that this
Declaration shall constitute the governing instrument of such business
trust.
NOW, THEREFORE, the Trustees hereby declare that they will hold
all cash, securities, and other assets which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose
of the same upon the following terms and conditions for the benefit of the
holders from time to time of shares of beneficial interest in this Trust as
hereinafter set forth.
ARTICLE I
The Trust
1.1 Name. This Trust shall be known as the "THE BLACKROCK
PENNSYLVANIA STRATEGIC MUNICIPAL TRUST" and the Trustees shall conduct the
business of the Trust under that name or any other name or names as they
may from time to time determine.
1.2 Definitions. As used in this Declaration, the following
terms shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act.
"By-Laws" shall mean the By-Laws of the Trust as amended from
time to time by the Trustees.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
"Commission" shall mean the Securities and Exchange Commission.
"Declaration" shall mean this Agreement and Declaration of
Trust, as amended or amended and restated from time to time.
"Delaware Business Trust Statute" shall mean the provisions of
the Delaware Business Trust Act, 12 Del. C. ss.3801, et. seq., as such Act
may be amended from time to time.
"Fundamental Policies" shall mean the investment policies and
restrictions as set forth from time to time in any Prospectus or contained
in any current Registration Statement of the Trust filed with the
Commission or as otherwise adopted by the Trustees and the Shareholders in
accordance with the requirements of the 1940 Act and designated as
fundamental policies therein as they may be amended in accordance with the
requirements of the 1940 Act.
"Majority Shareholder Vote" shall mean a vote of a majority of
the outstanding voting securities (as such term is defined in the 1940 Act)
of the Trust.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, limited liability companies, associations, joint
ventures and other entities, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of
the Trust, if any, under the Securities Act of 1933, as amended.
"Shareholders" shall mean as of any particular time the holders
of record of outstanding Shares of the Trust, at such time.
"Shares" shall mean the transferable units of beneficial
interest into which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as whole Shares.
In addition, Shares also means any preferred shares or preferred units of
beneficial interest which may be issued from time to time, as described
herein. All references to Shares shall be deemed to be Shares of any or all
series or classes as the context may require.
"Trust" shall mean the trust established by this Declaration,
as amended from time to time, inclusive of each such amendment.
"Trustees" shall mean the signatories to this Declaration, so
long as they shall continue in office in accordance with the terms hereof,
and all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the provisions
hereof and are then in office.
"Trust Property" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time
is owned or held by or for the account of the Trust or the Trustees in such
capacity.
The "1940 Act" refers to the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder and exemptions granted
therefrom, as amended from time to time.
ARTICLE II
Trustees
2.1 Number and Qualification. Prior to a public offering of
Shares there may be a sole Trustee. Thereafter, the number of Trustees
shall be no less than three or more than fifteen, provided, however, that
the number of Trustees may be increased or decreased by a written
instrument signed by a majority of the Trustees then in office. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. An individual
nominated as a Trustee shall be at least 21 years of age and not older than
80 years of age at the time of nomination and not under legal disability.
Trustees need not own Shares and may succeed themselves in office.
2.2 Term and Election. The Board of Trustees shall be divided
into three classes, designated Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the total
number of trustees constituting the entire Board of Trustees. Within the
limits above specified, the number of the Trustees in each class shall be
determined by resolution of the Board of Trustees. The term of office of
all of the Trustees shall expire on the date of the first annual or special
meeting of Shareholders following the effective date of the Registration
Statement relating to the Shares under the Securities Act of 1933, as
amended. The term of office of the first class shall expire on the date of
the second annual meeting of Shareholders or special meeting in lieu
thereof. The term of office of the second class shall expire on the date of
the third annual meeting of Shareholders or special meeting in lieu
thereof. The term of office of the third class shall expire on the date of
the fourth annual meeting of Shareholders or special meeting in lieu
thereof. Upon expiration of the term of office of each class as set forth
above, the number of Trustees in such class, as determined by the Board of
Trustees, shall be elected for a term expiring on the date of the third
annual meeting of Shareholders or special meeting in lieu thereof following
such expiration to succeed the Trustees whose terms of office expire. The
Trustees shall be elected at an annual meeting of the Shareholders or
special meeting in lieu thereof called for that purpose, except as provided
in Section 2.3 of this Article and each Trustee elected shall hold office
until his or her successor shall have been elected and shall have
qualified.
2.3 Resignation and Removal. Any of the Trustees may resign
their trust (without need for prior or subsequent accounting) by an
instrument in writing signed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary and such resignation shall
be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the
aggregate number of Trustees after such removal shall not be less than the
minimum number required by Section 2.1 hereof) by the action of two-thirds
of the remaining Trustees or the holders of two thirds of the Shares. Upon
the resignation or removal of a Trustee, each such resigning or removed
Trustee shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of such resigning or removed
Trustee. Upon the incapacity or death of any Trustee, such Trustee's legal
representative shall execute and deliver on such Trustee's behalf such
documents as the remaining Trustees shall require as provided in the
preceding sentence.
2.4 Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation,
bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office, or removal, of a Trustee. Whenever a vacancy in the
Board of Trustees shall occur, the remaining Trustees may fill such vacancy
by appointing an individual having the qualifications described in this
Article by a written instrument signed by a majority of the Trustees then
in office or by election by the Shareholders, or may leave such vacancy
unfilled or may reduce the number of Trustees (provided the aggregate
number of Trustees after such reduction shall not be less than the minimum
number required by Section 2.1 hereof). Any vacancy created by an increase
in Trustees may be filled by the appointment of an individual having the
qualifications described in this Article made by a written instrument
signed by a majority of the Trustees then in office or by election by the
Shareholders. No vacancy shall operate to annul this Declaration or to
revoke any existing agency created pursuant to the terms of this
Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided herein, the Trustees in office,
regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by
this Declaration.
2.5 Meetings. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman, if any, the President, the Secretary
or any two Trustees. Regular meetings of the Trustees may be held without
call or notice at a time and place fixed by the By-Laws or by resolution of
the Trustees. Notice of any other meeting shall be mailed not less than 48
hours before the meeting or otherwise actually delivered orally or in
writing not less than 24 hours before the meeting, but may be waived in
writing by any Trustee either before or after such meeting. The attendance
of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting
has not been properly called or convened. The Trustees may act with or
without a meeting. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in this Declaration,
any action of the Trustees may be taken at a meeting by vote of a majority
of the Trustees present (a quorum being present) or without a meeting by
written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all
meetings of any such committee shall be a majority of the members thereof.
Unless provided otherwise in this Declaration, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or without a meeting by written consent of
a majority of the members.
With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons in any action to be taken
may be counted for quorum purposes under this Section and shall be entitled
to vote to the extent not prohibited by the 1940 Act.
All or any one or more Trustees may participate in a meeting of
the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other; participation in a
meeting pursuant to any such communications system shall constitute
presence in person at such meeting.
2.6 Officers. The Trustees shall elect a President, a Secretary
and a Treasurer and may elect a Chairman who shall serve at the pleasure of
the Trustees or until their successors are elected. The Trustees may elect
or appoint or may authorize the Chairman, if any, or President to appoint
such other officers or agents with such powers as the Trustees may deem to
be advisable. A Chairman shall, and the President, Secretary and Treasurer
may, but need not, be a Trustee.
ARTICLE III
Powers and Duties of Trustees
3.1 General. The Trustees shall owe to the Trust and its
Shareholders the same fiduciary duties as owed by directors of corporations
to such corporations and their stockholders under the general corporation
law of the State of Delaware. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust
Property and business in their own right, but with such powers of
delegation as may be permitted by this Declaration. The Trustees may
perform such acts as in their sole discretion are proper for conducting the
business of the Trust. The enumeration of any specific power herein shall
not be construed as limiting the aforesaid power. Such powers of the
Trustees may be exercised without order of or resort to any court.
3.2 Investments. The Trustees shall have power, subject to the
Fundamental Policies in effect from time to time with respect to the Trust
to:
(a) manage, conduct, operate and carry on the business of
an investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of any and all sorts of
property, tangible or intangible, including but not limited to securities
of any type whatsoever, whether equity or non-equity, of any issuer,
evidences of indebtedness of any person and any other rights, interests,
instruments or property of any sort and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of said rights,
powers and privileges in respect of any of said investments. The Trustees
shall not be limited by any law limiting the investments which may be made
by fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees, or in the name of the Trust, or in the
name of any other Person as nominee, custodian or pledgee, on such terms as
the Trustees may determine, provided that the interest of the Trust therein
is appropriately protected.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his due election and qualification. Upon the ceasing of any
person to be a Trustee for any reason, such person shall automatically
cease to have any right, title or interest in any of the Trust Property,
and the right, title and interest of such Trustee in the Trust Property
shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
3.4 Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in, Shares,
including Shares in fractional denominations, and, subject to the more
detailed provisions set forth in Articles VIII and IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares
any funds or property whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the State of Delaware
governing business corporations.
3.5 Borrow Money or Utilize Leverage. Subject to the
Fundamental Policies in effect from time to time with respect to the Trust,
the Trustees shall have the power to borrow money or otherwise obtain
credit or utilize leverage to the maximum extent permitted by law or
regulation as such may be needed from time to time and to secure the same
by mortgaging, pledging or otherwise subjecting as security the assets of
the Trust, including the lending of portfolio securities, and to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other person, firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of
the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Trustees or otherwise as the Trustees may deem
expedient, to at least the same extent as such delegation is permitted to
directors of a Delaware business corporation and is permitted by the 1940
Act, as well as any further delegations the Trustees may determine to be
desirable, expedient or necessary in order to effect the purpose hereof.
The Trustees may designate an executive committee which shall have all
authority of the entire Board of Trustees except such committee cannot
declare dividends and cannot authorize removal of a trustee or any merger,
consolidation or sale of substantially all of the assets of the Trust.
3.7 Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property or the Trust, the Trustees or any officer,
employee or agent of the Trust; to prosecute, defend, compromise or abandon
any claims relating to the Trust Property or the Trust, or the Trustees or
any officer, employee or agent of the Trust; to foreclose any security
interest securing any obligations, by virtue of which any property is owed
to the Trust; and to enter into releases, agreements and other instruments.
Except to the extent required for a Delaware business corporation, the
Shareholders shall have no power to vote as to whether or not a court
action, legal proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders.
3.8 Expenses. The Trustees shall have power to incur and pay
out of the assets or income of the Trust any expenses which in the opinion
of the Trustees are necessary or incidental to carry out any of the
purposes of this Declaration, and the business of the Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal, underwriting, syndicating and
brokerage services, as they in good faith may deem reasonable and
reimbursement for expenses reasonably incurred by themselves on behalf of
the Trust. The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or
arrears, for charges of distribution, of the custodian or transfer,
Shareholder servicing or similar agent, a pro rata amount as defined from
time to time by the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends or distributions owed such
Shareholder and/or by reducing the number of shares in the account of such
Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such
Shareholder.
3.9 By-Laws. The Trustees may adopt and from time to time amend
or repeal the By-Laws for the conduct of the business of the Trust.
3.10 Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into
joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisors, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding
any such position or by reason of any action taken or omitted by any such
Person in such capacity, whether or not constituting negligence, or whether
or not the Trust would have the power to indemnify such Person against such
liability; (d) establish pension, profit-sharing, share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers,
employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific,
civic or similar purposes; (f) to the extent permitted by law, indemnify
any Person with whom the Trust has dealings, including without limitation
any advisor, administrator, manager, transfer agent, custodian, distributor
or selected dealer, or any other person as the Trustees may see fit to such
extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year
of the Trust and the method in which its accounts shall be kept; (i)
notwithstanding the Fundamental Policies of the Trust, convert the Trust to
a master-feeder structure; provided, however, the Trust obtains the
approval of shareholders holding at least a majority of the Trust's Shares
present at a meeting of Shareholders at which a quorum is present and (j)
adopt a seal for the Trust but the absence of such seal shall not impair
the validity of any instrument executed on behalf of the Trust.
3.11 Further Powers. The Trustees shall have the power to
conduct the business of the Trust and carry on its operations in any and
all of its branches and maintain offices both within and without the State
of Delaware, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary,
proper or desirable in order to promote the interests of the Trust although
such things are not herein specifically mentioned. Any determination as to
what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The
Trustees will not be required to obtain any court order to deal with the
Trust Property.
3.12 Trustee Action by Written Consent. Any action which may be
taken by Trustees by vote may be taken without a meeting if the number of
Trustees required for approval of such action at a meeting of Trustees
consent to the action in writing and the written consents are filed with
the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Trustees.
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1 Advisory and Management Arrangements. Subject to the
requirements of applicable law as in effect from time to time, the Trustees
may in their discretion from time to time enter into advisory,
administration or management contracts whereby the other party to any such
contract shall undertake to furnish the Trustees such advisory,
administrative and management services, with respect to the Trust as the
Trustees shall from time to time consider desirable and all upon such terms
and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration, the Trustees may
authorize any advisor, administrator or manager (subject to such general or
specific instructions as the Trustees may from time to time adopt) to
effect investment transactions with respect to the assets on behalf of the
Trustees to the full extent of the power of the Trustees to effect such
transactions or may authorize any officer, employee or Trustee to effect
such transactions pursuant to recommendations of any such advisor,
administrator or manager (and all without further action by the Trustees).
Any such investment transaction shall be deemed to have been authorized by
all of the Trustees.
4.2 Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may retain underwriters and/or placement agents to
sell Trust Shares. The Trustees may in their discretion from time to time
enter into one or more contracts, providing for the sale of the Shares of
the Trust, whereby the Trust may either agree to sell such Shares to the
other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and
conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article IV or the By-Laws; and
such contract may also provide for the repurchase or sale of Shares of the
Trust by such other party as principal or as agent of the Trust and may
provide that such other party may enter into selected dealer agreements
with registered securities dealers and brokers and servicing and similar
agreements with persons who are not registered securities dealers to
further the purposes of the distribution or repurchase of the Shares of the
Trust.
4.3 Parties to Contract. Any contract of the character
described in Sections 4.1 and 4.2 of this Article IV or in Article VII
hereof may be entered into with any Person, although one or more of the
Trustees, officers or employees of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable
for any profit realized directly or indirectly therefrom, provided that the
contract when entered into was reasonable and fair and not inconsistent
with the provisions of this Article IV or the By-Laws. The same Person may
be the other party to contracts entered into pursuant to Sections 4.1 and
4.2 above or Article VII, and any individual may be financially interested
or otherwise affiliated with Persons who are parties to any or all of the
contracts mentioned in this Section 4.3.
ARTICLE V
Limitations of Liability
and Indemnification
5.1 No Personal Liability of Shareholders, Trustees, etc. No
Shareholder of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person in connection with Trust Property or the
acts, obligations or affairs of the Trust. Shareholders shall have the same
limitation of personal liability as is extended to stockholders of a
private corporation for profit incorporated under the general corporation
law of the State of Delaware. No Trustee or officer of the Trust shall be
subject in such capacity to any personal liability whatsoever to any
Person, other than the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only liability to the Trust or
its Shareholders arising from bad faith, willful misfeasance, gross
negligence (negligence in the case of those Trustees or officers who are
directors, officers or employees of the Trust's investment advisor
("Affiliated Indemnitees")) or reckless disregard for his duty to such
Person; and, subject to the foregoing exception, all such Persons shall
look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee or officer, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, subject to the foregoing
exception, he shall not, on account thereof, be held to any personal
liability.
5.2 Mandatory Indemnification. (a) The Trust hereby agrees to
indemnify the Trustees and officers of the Trust (each such person being an
"indemnitee") against any liabilities and expenses, including amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and
reasonable counsel fees reasonably incurred by such indemnitee in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative
or investigative body in which he may be or may have been involved as a
party or otherwise or with which he may be or may have been threatened,
while acting in any capacity set forth above in this Section 5.2 by reason
of his having acted in any such capacity, except with respect to any matter
as to which he shall not have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust or, in the case of
any criminal proceeding, as to which he shall have had reasonable cause to
believe that the conduct was unlawful, provided, however, that no
indemnitee shall be indemnified hereunder against any liability to any
person or any expense of such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence (negligence in the case
of Affiliated Indemnitees), or (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct referred to in such
clauses (i) through (iv) being sometimes referred to herein as "disabling
conduct"). Notwithstanding the foregoing, with respect to any action, suit
or other proceeding voluntarily prosecuted by any indemnitee as plaintiff,
indemnification shall be mandatory only if the prosecution of such action,
suit or other proceeding by such indemnitee was authorized by a majority of
the Trustees.
(b) Notwithstanding the foregoing, no indemnification
shall be made hereunder unless there has been a determination (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" of
the Trust (as defined in Section 2(a)(19) of the 1940 Act) nor parties to
the proceeding ("Disinterested Non-Party Trustees"), that the indemnitee is
entitled to indemnification hereunder, or (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.
(d) The rights accruing to any indemnitee under these
provisions shall not exclude any other right to which he may be lawfully
entitled.
(e) Subject to any limitations provided by the 1940 Act
and this Declaration, the Trust shall have the power and authority to
indemnify other Persons providing services to the Trust to the full extent
provided by law as if the Trust were a corporation organized under the
Delaware General Corporation Law provided that such indemnification has
been approved by a majority of the Trustees.
5.3 No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or other security for the performance of any of
his duties hereunder.
5.4 No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, transfer agent or other person dealing with the
Trustees or with any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting
to be made by the Trustees or by said officer, employee or agent or be
liable for the application of money or property paid, loaned, or delivered
to or on the order of the Trustees or of said officer, employee or agent.
Every obligation, contract, undertaking, instrument, certificate, Share,
other security of the Trust, and every other act or thing whatsoever
executed in connection with the Trust shall be conclusively taken to have
been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officers, employees
or agents of the Trust. Every written obligation, contract, undertaking,
instrument, certificate, Share, other security of the Trust made or issued
by the Trustees or by any officers, employees or agents of the Trust in
their capacity as such, shall contain an appropriate recital to the effect
that the Shareholders, Trustees, officers, employees or agents of the Trust
shall not personally be bound by or liable thereunder, nor shall resort be
had to their private property for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to this
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, Shareholders, officers,
employees or agents of the Trust. The Trustees may maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to
cover possible tort liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable or is required by the 1940 Act.
5.5 Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of its duties, be fully and
completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or
other records of the Trust, upon an opinion of counsel, or upon reports
made to the Trust by any of the Trust's officers or employees or by any
advisor, administrator, manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable care by
the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
5.6 Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be held personally liable solely by reason of its
being or having been a Shareholder and not because of its acts or omissions
or for some other reason, the Shareholder or former Shareholder (or its
heirs, executors, administrators or other legal representatives or in the
case of any entity, its general successor) shall be entitled out of the
assets belonging to the Trust to be held harmless from and indemnified to
the maximum extent permitted by law against all loss and expense arising
from such liability. The Trust shall, upon request by such Shareholder,
assume the defense of any claim made against such Shareholder for any act
or obligation of the Trust and satisfy any judgment thereon from the assets
of the Trust.
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into an unlimited number of transferable shares
of beneficial interest, par value $.001 per share. All Shares issued in
accordance with the terms hereof, including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall
be fully paid and, except as provided in the last sentence of Section 3.8,
nonassessable when the consideration determined by the Trustees (if any)
therefor shall have been received by the Trust.
6.2 Other Securities. The Trustees may authorize and issue such
other securities as they determine to be necessary, desirable or
appropriate including preferred interests, debt securities or other senior
securities subject to the Fundamental Policies and the requirements of the
1940 Act. To the extent that the Trustees authorize and issue preferred
shares they are hereby authorized and empowered to amend or supplement this
Declaration as is necessary or appropriate to comply with the requirements
of the 1940 Act relating to such securities or as required to issue such
securities by rating agencies or other persons, all without the approval of
Shareholders. Any such supplement or amendment shall be filed as is
necessary. The Trustees are also authorized to take such actions and retain
such persons as they see fit to offer and sell such securities.
6.3 Rights of Shareholders. The Shares shall be personal
property giving only the rights in this Declaration specifically set forth.
The ownership of the Trust Property of every description and the right to
conduct any business herein before described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they shall have no
right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or
assume any losses of the Trust or, subject to the right of the Trustees to
charge certain expenses directly to Shareholders, as provided in the last
sentence of Section 3.8, suffer an assessment of any kind by virtue of
their ownership of Shares. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights (except as
specified in this Section 6.3, in Section 11.4 or as specified by the
Trustees when creating the Shares, as in preferred shares).
6.4 Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the Trustees
to create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in this Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or
members of a joint stock association.
6.5 Issuance of Shares. The Trustees, in their discretion, may
from time to time without vote of the Shareholders issue Shares including
preferred shares that may have been established pursuant to Section 6.2, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times, and on
such terms as the Trustees may determine, and may in such manner acquire
other assets (including the acquisition of assets subject to, and in
connection with the assumption of, liabilities) and businesses. The
Trustees may from time to time divide or combine the Shares into a greater
or lesser number without thereby changing the proportionate beneficial
interest in such Shares. Issuances and redemptions of Shares may be made in
whole Shares and/or l/l,000ths of a Share or multiples thereof as the
Trustees may determine in such fractions thereof.
6.6 Register of Shares. A register shall be kept at the offices
of the Trust or any transfer agent duly appointed by the Trustees under the
direction of the Trustees which shall contain the names and addresses of
the Shareholders and the number of Shares held by them respectively and a
record of all transfers thereof. Separate registers shall be established
and maintained for each class. Each such register shall be conclusive as to
who are the holders of the Shares of the applicable class and who shall be
entitled to receive dividends or distributions or otherwise to exercise or
enjoy the rights of Shareholders. No Shareholder shall be entitled to
receive payment of any dividend or distribution, nor to have notice given
to him as herein provided, until he has given his address to a transfer
agent or such other officer or agent of the Trustees as shall keep the
register for entry thereon. It is not contemplated that certificates will
be issued for the Shares; however, the Trustees, in their discretion, may
authorize the issuance of share certificates and promulgate appropriate
fees therefore and rules and regulations as to their use.
6.7 Transfer Agent and Registrar. The Trustees shall have power
to employ a transfer agent or transfer agents, and a registrar or
registrars, with respect to the Shares. The transfer agent or transfer
agents may keep the applicable register and record therein, the original
issues and transfers, if any, of the said Shares. Any such transfer agents
and/or registrars shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation, as
modified by the Trustees.
6.8 Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by its agent
thereto duly authorized in writing, upon delivery to the Trustees or a
transfer agent of the Trust of a duly executed instrument of transfer,
together with such evidence of the genuineness of each such execution and
authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the applicable register of the
Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereof and neither the
Trustees nor any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of
the death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the applicable register of Shares as
the holder of such Shares upon production of the proper evidence thereof to
the Trustees or a transfer agent of the Trust, but until such record is
made, the Shareholder of record shall be deemed to be the holder of such
for all purposes hereof, and neither the Trustees nor any transfer agent or
registrar nor any officer or agent of the Trust shall be affected by any
notice of such death, bankruptcy or incompetence, or other operation of
law.
6.9 Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed
duly served or given if mailed, postage prepaid, addressed to any
Shareholder of record at his last known address as recorded on the
applicable register of the Trust.
ARTICLE VII
Custodians
7.1 Appointment and Duties. The Trustees shall at all times
employ a custodian or custodians, meeting the qualifications for custodians
for portfolio securities of investment companies contained in the 1940 Act,
as custodian with respect to the assets of the Trust. Any custodian shall
have authority as agent of the Trust with respect to which it is acting as
determined by the custodian agreement or agreements, but subject to such
restrictions, limitations and other requirements, if any, as may be
contained in the By-Laws of the Trust and the 1940 Act:
(1) to hold the securities owned by the Trust and deliver the
same upon written order;
(2) to receive any receipt for any moneys due to the Trust and
deposit the same in its own banking department (if a bank) or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services;
and
(5) if authorized to do so by the Trustees, to compute the net
income or net asset value of the Trust;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by
it as specified in such vote.
The Trustees may also authorize each custodian to employ one or
more sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions, as may be
agreed upon between the custodian and such sub-custodian and approved by
the Trustees, provided that in every case such sub-custodian shall meet the
qualifications for custodians contained in the 1940 Act.
7.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the
Trust in a system for the central handling of securities established
by a national securities exchange or a national securities association
registered with the Commission under the Securities Exchange Act of 1934,
or such other Person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all securities of
any particular class of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall
be subject to withdrawal only upon the order of the Trust.
ARTICLE VIII
Redemption
8.1 Redemptions. The Shares of the Trust are not redeemable by
the holders.
8.2 Disclosure of Holding. The holders of Shares or other
securities of the Trust shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of
Shares or other securities of the Trust as the Trustees deem necessary to
comply with the provisions of the Code, or to comply with the requirements
of any other taxing or regulatory authority.
ARTICLE IX
Determination of Net Asset Value
Net Income and Distributions
9.1 Net Asset Value. The net asset value of each outstanding
Share of the Trust shall be determined at such time or times on such days
as the Trustees may determine, in accordance with the 1940 Act. The method
of determination of net asset value shall be determined by the Trustees and
shall be as set forth in the Prospectus or as may otherwise be determined
by the Trustees. The power and duty to make the net asset value
calculations may be delegated by the Trustees and shall be as generally set
forth in the Prospectus or as may otherwise be determined by the Trustees.
9.2 Distributions to Shareholders.
(a) The Trustees shall from time to time distribute
ratably among the Shareholders such proportion of the net profits, surplus
(including paid-in surplus), capital, or assets held by the Trustees as
they may deem proper. Such distribution may be made in cash or property
(including without limitation any type of obligations of the Trust or any
assets thereof) or any combination thereof, and the Trustees may distribute
ratably among the Shareholders additional Shares in such manner, at such
times, and on such terms as the Trustees may deem proper.
(b) In the event the Trust has outstanding more than one
class of Shares, the Trustees shall from time to time distribute ratably
among each class of Shareholders of the Trust such proportion of the net
profits, surplus (including paid-in surplus), capital or assets
attributable to such class held by the Trustees as they may deem proper or
as may otherwise be determined in the instrument creating such class of
Shares, and the Trustees may distribute ratably among the Shareholders of
each class of the Trust additional Shares of such class in such manner, at
such times, and on such terms as the Trustees may deem proper. Such
distributions to one class need not be ratable with respect to
distributions to Shares of any other class of the Trust.
(c) Distributions pursuant to this Section 9.2 may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine and specify at the time of declaration.
(d) The Trustees may always retain from the net profits
such amount as they may deem necessary to pay the debts or expenses of the
Trust or to meet obligations of the Trust, or as they otherwise may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business.
(e) Inasmuch as the computation of net income and gains
for Federal income tax purposes may vary from the computation thereof on
the books, the above provisions shall be interpreted to give the Trustees
the power in their discretion to distribute for any fiscal year as ordinary
dividends and as capital gains distributions, respectively, additional
amounts sufficient to enable the Trust to avoid or reduce liability for taxes.
9.3 Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article IX, the Trustees may prescribe,
in their absolute discretion except as may be required by the 1940 Act,
such other bases and times for determining the per share asset value of the
Trust's Shares or net income, or the declaration and payment of dividends
and distributions as they may deem necessary or desirable for any reason,
including to enable the Trust to comply with any provision of the 1940 Act,
or any securities association registered under the Securities Exchange Act
of 1934, or any order of exemption issued by the Commission, all as in
effect now or hereafter amended or modified.
ARTICLE X
Shareholders
10.1 Meetings of Shareholders. The Trust shall hold annual
meetings of the Shareholders. A special meeting of Shareholders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee for any proper purpose upon written request of Shareholders of the
Trust holding in the aggregate not less than 51% of the outstanding Shares
of the Trust or class having voting rights, such request specifying the
purpose or purposes for which such meeting is to be called. Any shareholder
meeting, including a Special Meeting, shall be held within or without the
State of Delaware on such day and at such time as the Trustees shall
designate.
10.2 Voting. Shareholders shall have no power to vote on any
matter except matters on which a vote of Shareholders is required by
applicable law, this Declaration or resolution of the Trustees. Any matter
required to be submitted to Shareholders and affecting one or more classes
shall require separate approval by the required vote of Shareholders of
each affected class; provided, however, that to the extent required by the
1940 Act, there shall be no separate class votes on the election or removal
of Trustees, the selection of auditors for the Trust, approval of any
agreement or contract entered into by the Trust, approval of conversion of
the Trust to a master-feeder structure or any action to liquidate or
dissolve the Trust. Shareholders of a particular class shall not be
entitled to vote on any matter that affects only one or more other classes.
There shall be no cumulative voting in the election or removal of Trustees.
The Trustees shall cause each matter required or permitted to be voted upon
at a meeting or by written consent of Shareholders to be submitted to a
vote of all classes of outstanding Shares entitled to vote thereon, unless
the 1940 Act or other applicable law or regulations require that the
actions of the Shareholders be taken by a separate vote of one or more
classes, or the Trustees determine that any matter to be submitted to a
vote of Shareholders affects only the rights or interests of one or more
(but not all) classes of outstanding Shares, in which case only the
Shareholders of the class or classes so affected shall be entitled to vote
thereon.
10.3 Notice of Meeting and Record Date. Notice of all meetings
of Shareholders, stating the time, place and purposes of the meeting, shall
be given by the Trustees by mail to each Shareholder of record entitled to
vote thereat at its registered address, mailed at least 10 days before the
meeting or otherwise in compliance with applicable law. Only the business
stated in the notice of the meeting shall be considered at such meeting.
Any adjourned meeting may be held as adjourned one or more times without
further notice not later than 130 days after the record date. For the
purposes of determining the Shareholders who are entitled to notice of and
to vote at any meeting the Trustees may, without closing the transfer
books, fix a date not more than 100 days prior to the date of such meeting
of Shareholders as a record date for the determination of the Persons to be
treated as Shareholders of record for such purposes.
10.4 Quorum and Required Vote.
(a) The holders of a majority of outstanding Shares of
the Trust present in person or by proxy shall constitute a quorum at any
meeting of the Shareholders for purposes of conducting business on which a
vote of Shareholders of the Trust is being taken. The holders of a majority
of outstanding Shares of a class present in person or by proxy shall
constitute a quorum at any meeting of the Shareholders of such class for
purposes of conducting business on which a vote of Shareholders of such
class is being taken.
(b) Subject to any provision of applicable law requiring
greater or lesser votes, this Declaration or resolution of the Trustees
specifying a greater or lesser vote requirement for the transaction of any
item of business at any meeting of Shareholders, (i) the affirmative vote
of a majority of the Shares present in person or represented by proxy and
entitled to vote on the subject matter shall be the act of the Shareholders
with respect to such matter, and (ii) where a separate vote of any class is
required on any matter, the affirmative vote of a majority of the Shares of
such class present in person or represented by proxy at the meeting shall
be the act of the Shareholders of such class with respect to such matter.
10.5 Proxies, etc. At any meeting of Shareholders, any holder
of Shares entitled to vote thereat may vote by properly executed proxy,
provided that no proxy shall be voted at any meeting unless it shall have
been placed on file with the Secretary, or with such other officer or agent
of the Trust as the Secretary may direct, for verification prior to the
time at which such vote shall be taken. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or
more Trustees or one or more of the officers or employees of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share
shall be entitled to one vote and fractional Shares shall be entitled to a
vote of such fraction. When any Share is held jointly by several persons,
any one of them may vote at any meeting in person or by proxy in respect of
such Share, but if more than one of them shall be present at such meeting
in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf of
a Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of
unsound mind, and subject to guardianship or to the legal control of any
other person as regards the charge or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and
such vote may be given in person or by proxy.
10.6 Reports. The Trustees shall cause to be prepared at least
annually and more frequently to the extent and in the form required by law,
regulation or any exchange on which Trust Shares are listed a report of
operations containing a balance sheet and statement of income and
undistributed income of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent public
accountant on such financial statements. Copies of such reports shall be
mailed to all Shareholders of record within the time required by the 1940
Act, and in any event within a reasonable period preceding the meeting of
Shareholders. The Trustees shall, in addition, furnish to the Shareholders
at least semi-annually to the extent required by law, interim reports
containing an unaudited balance sheet of the Trust as of the end of such
period and an unaudited statement of income and surplus for the period from
the beginning of the current fiscal year to the end of such period.
10.7 Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Delaware business corporation.
10.8 Shareholder Action by Written Consent. Any action which
may be taken by Shareholders by vote may be taken without a meeting if the
holders entitled to vote thereon of the proportion of Shares required for
approval of such action at a meeting of Shareholders pursuant to Section
10.4 consent to the action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration. Subject to possible termination in accordance
with the provisions of Section 11.2 hereof, the Trust created hereby shall
have perpetual existence.
11.2 Termination.
(a) The Trust may be dissolved, after two thirds of the
Trustees have approved a resolution therefor, upon approval by a majority
of all the Shareholders voting as one class. Upon the dissolution
of the Trust:
(i) The Trust shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall have
been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell, convey, assign,
exchange, merger where the Trust is not the survivor, transfer or
otherwise dispose of all or any part of the remaining Trust Property
to one or more Persons at public or private sale for consideration
which may consist in whole or in part in cash, securities or other
property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; provided that any
sale, conveyance, assignment, exchange, merger in which the Trust is
not the survivor, transfer or other disposition of all or
substantially all the Trust Property of the Trust shall require
approval of the principal terms of the transaction and the nature and
amount of the consideration by Shareholders with the same vote as
required to open-end the Trust.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary for
their protection, the Trustees may distribute the remaining Trust
Property, in cash or in kind or partly each, among the Shareholders
according to their respective rights.
(b) After the winding up and termination of the Trust and
distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination and shall
execute and file a certificate of cancellation with the Secretary of State
of the State of Delaware. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder,
and the rights and interests of all Shareholders shall thereupon cease.
11.3 Amendment Procedure.
(a) Except as provided in subsection (b) of this Section
11.3, this Declaration may be amended, after a majority of the Trustees
have approved a resolution therefor, by the affirmative vote of the holders
of not less than a majority of the affected Shares. The Trustees also may
amend this Declaration without any vote of Shareholders to divide the
Shares of the Trust into one or more classes or additional classes, to
change the name of the Trust or any class, to make any change that does not
adversely affect the relative rights or preferences of any Shareholder, as
they may deem necessary, to conform this Declaration to the requirements of
the 1940 Act or any other applicable federal laws or regulations including
pursuant to Section 6.2 or the requirements of the regulated investment
company provisions of the Code, but the Trustees shall not be liable for
failing to do so.
(b) No amendment may be made to this Section 11.3 or
which would change any rights with respect to any Shares of the Trust by
reducing the amount payable thereon upon liquidation of the Trust or by
diminishing or eliminating any voting rights pertaining thereto, except
with the vote of the holders of two-thirds of the Shares of the Trust.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) An amendment duly adopted by the requisite vote of
the Board of Trustees and, if required, the Shareholders as aforesaid,
shall become effective at the time of such adoption or at such other time
as may be designated by the Board of Trustees or Shareholders, as the case
may be. A certification in recordable form signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted
by the Trustees and, if required, the Shareholders as aforesaid, or a copy
of the Declaration, as amended, in recordable form, and executed by a
majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust or at such other time designated
by the Board.
Notwithstanding any other provision hereof, until such time as
a Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of Shares of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by
the affirmative vote of a majority of the Trustees or by an instrument
signed by a majority of the Trustees.
11.4 Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all
of the Trust Property or the property, including its good will, upon such
terms and conditions and for such consideration when and as authorized by
two-thirds of the Trustees and approved by a majority vote of the affected
Shareholders and any such merger, consolidation, sale, lease or exchange
shall be determined for all purposes to have been accomplished under and
pursuant to the statutes of the State of Delaware.
11.5 Incorporation. Upon approval by Shareholders, the Trustees
may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust,
partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer
the Trust Property to any such corporation, trust, limited liability
company, association or organization in exchange for the shares or
securities thereof, or otherwise, and to lend money to, subscribe for the
shares or securities of, and enter into any contracts with any such
corporation, trust, limited liability company, partnership, association or
organization, or any corporation, partnership, trust, limited liability
company, association or organization in which the Trust holds or is about
to acquire shares or any other interests. The Trustees may also cause a
merger or consolidation between the Trust or any successor thereto and any
such corporation, trust, limited liability company, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to
organize or assist in organizing one or more corporations, trusts, limited
liability companies, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organizations or entities.
11.6 Conversion. (a) The Trust may be converted at any time
from a "closed-end company" to an "open-end company" as those terms are
defined by the 1940 Act, upon the approval of such a proposal, together
with the necessary amendments to this Declaration to permit such a
conversion, by a majority of the Trustees then in office and by the holders
of not less than two-thirds (66-2/3%) of the Trust's outstanding Shares
entitled to vote, except that if such proposal is recommended by two-thirds
of the total number of Trustees then in office, such proposal may be
adopted by a Majority Shareholder Vote. From time to time, the Trustees may
consider recommending to the Shareholders a proposal to convert the Trust
from a "closed-end company" to an "open-end company." Upon the
recommendation and subsequent adoption of such a proposal and the necessary
amendments to this Declaration to permit such a conversion of the Trust's
outstanding Shares entitled to vote, the Trust shall, upon complying with
any requirements of the 1940 Act and state law, become an "open-end"
investment company. Such affirmative vote or consent shall be in addition
to the vote or consent of the holders of the Shares otherwise required by
law, or any agreement between the Trust and any national securities
exchange.
(b) The Trust may be converted at any time to a
master-feeder structure, upon the approval of such a proposal, together
with the necessary amendments to this Declaration to permit such a
conversion, by a majority of the Trustees then in office and by the holders
of not less than a majority of the Trust's outstanding Shares entitled to
vote. From time to time, the Trustees may consider recommending to the
Shareholders a proposal to convert the Trust to a master- feeder structure.
Upon the recommendation and subsequent adoption of such a proposal and the
necessary amendments to this Declaration to permit such a conversion of the
Trust's outstanding Shares entitled to vote, the Trust shall, upon
complying with any requirements of the 1940 Act and state law, convert to a
master-feeder structure.
11.7 Certain Transactions. (a) Notwithstanding any other
provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in
paragraph (c) of this Section shall require the affirmative vote or consent
of the holders of seventy-five percent (75%) of the Shares of each class
outstanding and entitled to vote, voting as a class, when a Principal
Shareholder (as defined in paragraph (b) of this Section) is a party to the
transaction. Such affirmative vote or consent shall be in addition to the
vote or consent of the holders of Shares otherwise required by law or by
the terms of any class or series of preferred stock, whether now or
hereafter authorized, or any agreement between the Trust and any national
securities exchange.
(b) The term "Principal Shareholder" shall mean any corporation,
Person or other entity which is the beneficial owner, directly or
indirectly, of five percent (5%) or more of the outstanding Shares and
shall include any affiliate or associate, as such terms are defined in
clause (ii) below, of a Principal Shareholder. For the purposes of this
Section, in addition to the Shares which a corporation, Person or other
entity beneficially owns directly, (a) any corporation, Person or other
entity shall be deemed to be the beneficial owner of any Shares (i) which
it has the right to acquire pursuant to any agreement or upon exercise of
conversion rights or warrants, or otherwise (but excluding share options
granted by the Trust) or (ii) which are beneficially owned, directly or
indirectly (including Shares deemed owned through application of clause (i)
above), by any other corporation, Person or entity with which its
"affiliate" or "associate" (as defined below) has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of Shares, or which is its "affiliate" or "associate" as those
terms are defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, and (b) the outstanding Shares shall
include Shares deemed owned through application of clauses (i) and (ii)
above but shall not include any other Shares which may be issuable pursuant
to any agreement, or upon exercise of conversion rights or warrants, or
otherwise.
(c) This Section shall apply to the following transactions:
(i) The merger or consolidation of the Trust or any subsidiary
of the Trust with or into any Principal Shareholder.
(ii) The issuance of any securities of the Trust to any
Principal Shareholder for cash(other than pursuant to any automatic
dividend reinvestment plan).
(iii) The sale, lease or exchange of all or any substantial part
of the assets of the Trust to any Principal Shareholder (except assets
having an aggregate fair market value of less than $1,000,000, aggregating
for the purpose of such computation all assets sold, leased or exchanged in
any series of similar transactions within a twelve-month period.)
(iv) The sale, lease or exchange to the Trust or any subsidiary
thereof, in exchange for securities of the Trust of any assets of any
Principal Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purposes of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).
(d) The provisions of this Section shall not be applicable to (i) any
of the transactions described in paragraph (c) of this Section if
two-thirds of the Board of Trustees of the Trust shall by resolution have
approved a memorandum of understanding with such Principal Shareholder with
respect to and substantially consistent with such transaction, or (ii) any
such transaction with any corporation of which a majority of the
outstanding shares of all classes of a stock normally entitled to vote in
elections of directors is owned of record or beneficially by the Trust and
its subsidiaries.
(e) The Board of Trustees shall have the power and duty to determine
for the purposes of this Section on the basis of information known to the
Trust whether (i) a corporation, person or entity beneficially owns five
percent (5%) or more of the outstanding Shares, (ii) a corporation, person
or entity is an "affiliate" or "associate" (as defined above) of another,
(iii) the assets being acquired or leased to or by the Trust or any
subsidiary thereof constitute a substantial part of the assets of the Trust
and have an aggregate fair market value of less than $1,000,000, and (iv)
the memorandum of understanding referred to in paragraph (d) hereof is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this
Section.
ARTICLE XII
Miscellaneous
12.1 Filing. (a) This Declaration and any amendment hereto
shall be filed in such places as may be required or as the Trustees deem
appropriate. Each amendment shall be accompanied by a certificate signed
and acknowledged by a Trustee stating that such action was duly taken in a
manner provided herein, and shall, upon insertion in the Trust's minute
book, be conclusive evidence of all amendments contained therein. A
restated Declaration, containing the original Declaration and all
amendments theretofore made, may be executed from time to time by a
majority of the Trustees and shall, upon insertion in the Trust's minute
book, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
(b) The Trustees hereby authorize and direct a Certificate of Trust,
in the form attached hereto as Exhibit A, to be executed and filed with the
Office of the Secretary of State of the State of Delaware in accordance
with the Delaware Business Trust Act.
12.2 Resident Agent. The Trust shall maintain a resident agent
in the State of Delaware, which agent shall initially be The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 The Trustees
may designate a successor resident agent, provided, however, that such
appointment shall not become effective until written notice thereof is
delivered to the office of the Secretary of the State.
12.3 Governing Law. This Declaration is executed by the
Trustees and delivered in the State of Delaware and with reference to the
laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to laws of said State and reference shall be specifically made to
the business corporation law of the State of Delaware as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists, although such law shall not be viewed as limiting the
powers otherwise granted to the Trustees hereunder and any ambiguity shall
be viewed in favor of such powers.
12.4 Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
12.5 Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the name of the Trust, (c) the due authorization of the
execution of any instrument or writing, (d) the form of any vote passed at
a meeting of Trustees or Shareholders, (e) the fact that the number of
Trustees or Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration, (f) the form of
any By Laws adopted by or the identity of any officers elected by the
Trustees, or (g) the existence of any fact or facts which in any manner
relate to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any person dealing with the Trustees and
their successors.
12.6 Provisions in Conflict with Law or Regulation.
(a) The provisions of this Declaration are severable, and
if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other applicable
laws and regulations, the conflicting provision shall be deemed never to
have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior
to such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other jurisdiction
or any other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused these presents
to be executed as of the day and year first above written.
--------------------------
Ralph L. Schlosstein
Sole Trustee
Exhibit A
CERTIFICATE OF TRUST
OF
THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST
This Certificate of Trust of THE BLACKROCK PENNSYLVANIA
STRATEGIC MUNICIPAL TRUST (the "Trust"), dated June 30, 1999, is being duly
executed and filed by Ralph L. Schlosstein, as sole trustee (the "Sole
Trustee"), to form a business trust under the Delaware Business Trust Act
(12 Del. C. ss.ss. 3801, et seq.).
1. Name. The name of the business trust formed hereby is THE
BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST.
2. Registered Office; Registered Agent. The business address of
the registered office of the Trust in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street in the City of Wilmington,
19801. The name of the Trust's registered agent at such address is The
Corporation Trust Company.
3. Address of Sole Trustee. The business address of the Sole
Trustee is 345 Park Avenue, New York, New York, 10154.
4. Effective Date. This Certificate of Trust shall be effective
upon the date and time of filing.
5. Investment Company. The Trust will become an investment
company registered under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Trust as of the date first above-written.
----------------------------
Ralph L. Schlosstein
Sole Trustee
Exhibit (b)
BY-LAWS
OF
THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST
TABLE OF CONTENTS
Page
ARTICLE I - Shareholder Meetings....................................1
1.1 Chairman.................................................1
1.2 Proxies; Voting..........................................1
1.3 Fixing Record Dates......................................1
1.4 Inspectors of Election...................................1
1.5 Records at Shareholder Meetings..........................2
ARTICLE II - Trustees...............................................3
2.1 Annual and Regular Meetings..............................3
2.2 Chairman; Records........................................3
ARTICLE III - Officers..............................................3
3.1 Officers of the Trust....................................3
3.2 Election and Tenure......................................3
3.3 Removal of Officers......................................4
3.4 Bonds and Surety.........................................4
3.5 Chairman, President, and Vice Presidents.................4
3.6 Secretary................................................5
3.7 Treasurer................................................5
3.8 Other Officers and Duties................................6
ARTICLE IV - Miscellaneous..........................................6
4.1 Depositories.............................................6
4.2 Signatures...............................................7
4.3 Seal.....................................................7
ARTICLE V - Stock Transfers.........................................7
5.1 Transfer Agents, Registrars and the Like.................7
5.2 Transfer of Shares.......................................7
5.3 Registered Shareholders..................................8
ARTICLE VI - Amendment of By-Laws...................................8
6.1 Amendment and Repeal of By-Laws..........................8
THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST
BY-LAWS
These By-Laws are made and adopted pursuant to Section 3.9 of
the Agreement and Declaration of Trust establishing THE BLACKROCK
PENNSYLVANIA STRATEGIC MUNICIPAL TRUST dated as of June 30, 1999, as from
time to time amended (hereinafter called the "Declaration"). All words and
terms capitalized in these By-Laws shall have the meaning or meanings set
forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
1.1 Chairman. The Chairman, if any, shall act as chairman at
all meetings of the Shareholders; in the Chairman's absence, the Trustee or
Trustees present at each meeting may elect a temporary chairman for the
meeting, who may be one of themselves.
1.2 Proxies; Voting. Shareholders may vote either in person or
by duly executed proxy and each full share represented at the meeting shall
have one vote, all as provided in Article 10 of the Declaration.
1.3 Fixing Record Dates. For the purpose of determining the
Shareholders who are entitled to notice of or to vote or act at any
meeting, including any adjournment thereof, or who are entitled to
participate in any dividends, or for any other proper purpose, the Trustees
may from time to time, without closing the transfer books, fix a record
date in the manner provided in Section 10.3 of the Declaration. If the
Trustees do not prior to any meeting of Shareholders so fix a record date
or close the transfer books, then the date of mailing notice of the meeting
or the date upon which the dividend resolution is adopted, as the case may
be, shall be the record date.
1.4 Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on
the request of any Shareholder or Shareholder proxy shall, appoint
Inspectors of Election of the meeting. The number of Inspectors of Election
shall be either one or three. If appointed at the meeting on the request of
one or more Shareholders or proxies, a majority of Shares present shall
determine whether one or three Inspectors of Election are to be appointed,
but failure to allow such determination by the Shareholders shall not
affect the validity of the appointment of Inspectors of Election. In case
any person appointed as Inspector of Election fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by
the person acting as chairman. The Inspectors of Election shall determine
the number of Shares outstanding, the Shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine
all challenges and questions in any way arising in connection with the
right to vote, shall count and tabulate all votes or consents, determine
the results, and do such other acts as may be proper to conduct the
election or vote with fairness to all Shareholders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On
request of the Chairman, if any, of the meeting, or of any Shareholder or
Shareholder proxy, the Inspectors of Election shall make a report in
writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
1.5 Records at Shareholder Meetings. At each meeting of the
Shareholders, there shall be made available for inspection at a convenient
time and place during normal business hours, if requested by Shareholders,
the minutes of the last previous Annual or Special Meeting of Shareholders
of the Trust and a list of the Shareholders of the Trust, as of the record
date of the meeting or the date of closing of transfer books, as the case
may be. Such list of Shareholders shall contain the name and the address of
each Shareholder in alphabetical order and the number of Shares owned by
such Shareholder. Shareholders shall have such other rights and procedures
of inspection of the books and records of the Trust as are granted to
shareholders of a Delaware business corporation.
ARTICLE II
Trustees
2.1 Annual and Regular Meetings. Meetings of the Trustees shall
be held from time to time upon the call of the Chairman, if any, the
President, the Secretary or any two Trustees. Regular meetings of the
Trustees may be held without call or notice and shall generally be held
quarterly. Neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Trustees need be stated in the notice or waiver
of notice of such meeting, and no notice need be given of action proposed
to be taken by unanimous written consent.
2.2 Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in absence of a chairman, the
Trustees present shall elect one of their number to act as temporary
chairman. The results of all actions taken at a meeting of the Trustees, or
by unanimous written consent of the Trustees, shall be recorded by the
person appointed by the Board of Trustees as the meeting secretary.
ARTICLE III
Officers
3.1 Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and
such other officers or assistant officers as may be elected or authorized
by the Trustees. Any two or more of the offices may be held by the same
Person, except that the same person may not be both President and
Secretary. The Chairman, if any, shall be a Trustee, but no other officer
of the Trust need be a Trustee.
3.2 Election and Tenure. At the initial organization meeting,
the Trustees shall elect the Chairman, if any, President, Secretary,
Treasurer and such other officers as the Trustees shall deem necessary or
appropriate in order to carry out the business of the Trust. Such officers
shall serve at the pleasure of the Trustees or until their successors have
been duly elected and qualified. The Trustees may fill any vacancy in
office or add any additional officers at any time.
3.3 Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of
action which any officer may have as a result of removal in breach of a
contract of employment. Any officer may resign at any time by notice in
writing signed by such officer and delivered or mailed to the Chairman, if
any, President, or Secretary, and such resignation shall take effect
immediately upon receipt by the Chairman, if any, President, or Secretary,
or at a later date according to the terms of such notice in writing.
3.4 Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of such officer's duties
in such amount and with such sureties as the Trustees may determine.
3.5 Chairman, President, and Vice Presidents. The Chairman, if
any, shall, if present, preside at all meetings of the Shareholders and of
the Trustees and shall exercise and perform such other powers and duties as
may be from time to time assigned to such person by the Trustees. Subject
to such supervisory powers, if any, as may be given by the Trustees to the
Chairman, if any, the President shall be the chief executive officer of the
Trust and, subject to the control of the Trustees, shall have general
supervision, direction and control of the business of the Trust and of its
employees and shall exercise such general powers of management as are
usually vested in the office of President of a corporation. Subject to
direction of the Trustees, the Chairman, if any, and the President shall
each have power in the name and on behalf of the Trust to execute any and
all loans, documents, contracts, agreements, deeds, mortgages, registration
statements, applications, requests, filings and other instruments in
writing, and to employ and discharge employees and agents of the Trust.
Unless otherwise directed by the Trustees, the Chairman, if any, and the
President shall each have full authority and power, on behalf of all of the
Trustees, to attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds an interest, or
to confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The Chairman, if any, and the President shall
have such further authorities and duties as the Trustees shall from time to
time determine. In the absence or disability of the President, the
Vice-Presidents in order of their rank as fixed by the Trustees or, if more
than one and not ranked, the Vice-President designated by the Trustees,
shall perform all of the duties of the President, and when so acting shall
have all the powers of and be subject to all of the restrictions upon the
President. Subject to the direction of the Trustees, and of the President,
each Vice-President shall have the power in the name and on behalf of the
Trust to execute any and all instruments in writing, and, in addition,
shall have such other duties and powers as shall be designated from time to
time by the Trustees or by the President.
3.6 Secretary. The Secretary shall maintain the minutes of all
meetings of, and record all votes of, Shareholders, Trustees and the
Executive Committee, if any. The Secretary shall be custodian of the seal
of the Trust, if any, and the Secretary (and any other person so authorized
by the Trustees) shall affix the seal, or if permitted, facsimile thereof,
to any instrument executed by the Trust which would be sealed by a Delaware
business corporation executing the same or a similar instrument and shall
attest the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall also
perform any other duties commonly incident to such office in a Delaware
business corporation, and shall have such other authorities and duties as
the Trustees shall from time to time determine.
3.7 Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees
and of the President all powers and duties normally incident to the office.
The Treasurer may endorse for deposit or collection all notes, checks and
other instruments payable to the Trust or to its order. The Treasurer shall
deposit all funds of the Trust in such depositories as the Trustees shall
designate. The Treasurer shall be responsible for such disbursement of the
funds of the Trust as may be ordered by the Trustees or the President. The
Treasurer shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together
with all other property of the Trust in the Treasurer's possession, shall
be subject at all times to the inspection and control of the Trustees.
Unless the Trustees shall otherwise determine, the Treasurer shall be the
principal accounting officer of the Trust and shall also be the principal
financial officer of the Trust. The Treasurer shall have such other duties
and authorities as the Trustees shall from time to time determine.
Notwithstanding anything to the contrary herein contained, the Trustees may
authorize any adviser, administrator, manager or transfer agent to maintain
bank accounts and deposit and disburse funds of any series of the Trust on
behalf of such series.
3.8 Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of
the Trust. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of the
office. Each officer, employee and agent of the Trust shall have such other
duties and authority as may be conferred upon such person by the Trustees
or delegated to such person by the President.
ARTICLE IV
Miscellaneous
4.1 Depositories. In accordance with Section 7.1 of the
Declaration, the funds of the Trust shall be deposited in such custodians
as the Trustees shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or agents (including
the adviser, administrator or manager), as the Trustees may from time to
time authorize.
4.2 Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by its properly authorized officers, agent
or agents, as provided in the Declaration or By-laws or as the Trustees may
from time to time by resolution provide.
4.3 Seal. The Trust is not required to have any seal, and the
adoption or use of a seal shall be purely ornamental and be of no legal
effect. The seal, if any, of the Trust may be affixed to any instrument,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and affixed manually in the same manner and with the same force
and effect as if done by a Delaware business corporation. The presence or
absence of a seal shall have no effect on the validity, enforceability or
binding nature of any document or instrument that is otherwise duly
authorized, executed and delivered.
ARTICLE V
Stock Transfers
5.1 Transfer Agents, Registrars and the Like. As provided in
Section 6.7 of the Declaration, the Trustees shall have authority to employ
and compensate such transfer agents and registrars with respect to the
Shares of the Trust as the Trustees shall deem necessary or desirable. In
addition, the Trustees shall have power to employ and compensate such
dividend disbursing agents, warrant agents and agents for the reinvestment
of dividends as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
5.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees
or a transfer agent of the Trust of proper documentation as provided in
Section 6.8 of the Declaration. The Trust, or its transfer agents, shall be
authorized to refuse any transfer unless and until presentation of such
evidence as may be reasonably required to show that the requested transfer
is proper.
5.3 Registered Shareholders. The Trust may deem and treat the
holder of record of any Shares as the absolute owner thereof for all
purposes and shall not be required to take any notice of any right or claim
of right of any other person.
ARTICLE VI
Amendment of By-Laws
6.1 Amendment and Repeal of By-Laws. In accordance with Section
3.9 of the Declaration, the Trustees shall have the power to amend or
repeal the By-Laws or adopt new By-Laws at any time; provided, however,
that By-Laws adopted by the Shareholders may, if such By-Laws so state, be
altered, amended or repealed only by the Shareholders by an affirmative
vote of a majority of the outstanding voting securities of the Trust, and
not by the Trustees. Action by the Trustees with respect to the By-Laws
shall be taken by an affirmative vote of a majority of the Trustees. The
Trustees shall in no event adopt By-Laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in favor of
the related provisions in the Declaration.
