File No. 811-09703
As filed with the Securities and Exchange Commission on February 17, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
BCT SUBSIDIARY INC.
(Exact Name of Registrant as Specified in Charter)
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(Address of Principal Executive Offices) (Zip Code)
(212) 754-5560
(Registrant's Telephone Number, including Area Code)
RALPH L. SCHLOSSTEIN, PRESIDENT
BCT SUBSIDIARY INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(Name and Address of Agent for Service)
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Copies to:
RICHARD T. PRINS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036
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BCT SUBSIDIARY INC.
FORM N-2
CROSS REFERENCE SHEET
Part A
Item No. Caption Prospectus Caption
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<S> <C> <C>
1. Cover Page..................................... Not Applicable
2. Inside Front and Outside Back Cover Page....... Not Applicable
3. Fee Table and Synopsis......................... Fee Table and Synopsis;
Expense Information
4. Financial Highlights........................... Not Applicable
5. Plan of Distribution........................... Not Applicable
6. Selling Shareholders........................... Not Applicable
7. Use of Proceeds................................ Not Applicable
8. General Description of the Registrant.......... General Description of the
Registrant; General;
Investment Objectives and
Policies; Risk Factors
9. Management..................................... Management; General
Description of the Registrant;
General
10. Capital Stock, Long-Term Debt, and Other Capital Stock, Long-Term
Securities..................................... Debt and Other Securities;
Capital Stock; General
Description of the Registrant;
General; Taxes; Outstanding
Securities;
11. Defaults and Arrears on Senior Securities...... Not Applicable
12. Legal Proceedings.............................. Not Applicable
13. Table of Contents of Statement of Additional
Information.................................... Not Applicable
Statement of
Part B Additional Infor-
Item No. mation Caption
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14. Cover Page.................................... Not Applicable
15. Table of Contents............................. Not Applicable
16. General Information and History............... General Description of the
Registrant; General
17. Investment Objective and Policies............. Not Applicable
18. Management.................................... Management
19. Control Persons and Principal Holders of
Securities.................................... Control Persons
20. Investment Advisory and Other Services........ Management
21. Brokerage Allocation and Other Practices. . . Not Applicable
22. Tax Status.................................... Tax Status; Taxation of the
Fund
23. Financial Statements.......................... Not Applicable
</TABLE>
Part C
Item No.
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Information required to be included in Part C is set forth, under the
appropriate item so numbered, in Part C of this registration statement.
PART A
ITEM 1. COVER PAGE
Not Applicable.
ITEM 2. INSIDE FRONT AND OUTSIDE BACK COVER PAGE
Not Applicable.
ITEM 3. FEE TABLE AND SYNOPSIS
1. Expense Information
Annual Expenses
Management Fees........................................ 0.55%
Interest Payments on Borrowed Funds.................... 2.46%
Other Expenses......................................... 0.48%
Total Annual Expenses.................................. 3.49%
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Example 1 year 3 years 5 years 10 years
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You would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return: $35.16 $107.08 $181.20 $376.50
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The purpose of the preceding table is to assist the investor in
understanding the various costs and expenses that an investor in BCT
Subsidiary Inc. (the "Fund") will bear directly or indirectly.
"Other Expenses" are based on estimated amounts for the current fiscal
year. The example above should not be considered a representation of future
expenses, which may be higher or lower.
2. Not Applicable.
3. Not Applicable.
ITEM 4. FINANCIAL HIGHLIGHTS
Not Applicable.
ITEM 5. PLAN OF DISTRIBUTION
Not Applicable.
ITEM 6. SELLING SHAREHOLDERS
Not Applicable.
ITEM 7. USE OF PROCEEDS
Not Applicable.
ITEM 8. GENERAL DESCRIPTION OF THE REGISTRANT
8.1. General. The Fund was incorporated under the laws of the State of
Maryland on November 12, 1999, and is a diversified closed-end management
investment company. The Fund was incorporated solely for the purpose of
receiving all or a substantial portion of the assets of The BlackRock Broad
Investment Grade 2009 Term Trust Inc., incorporated under the laws of the
State of Maryland on October 1, 1992 (the "BCT Trust").
8.2. Investment Objective and Policies.
The Fund's investment objective is to manage a portfolio of fixed
income securities that will assist its parent company, BCT Trust, in
returning $15 per Share (the initial public offering price per share of BCT
Trust) to investors on or about December 31, 2009 while providing high
monthly income. No assurance can be given that the Fund's investment
objective will be achieved.
The Fund will seek to achieve high monthly income by investing in
(i) Corporate Debt Securities rated at the time of investment at least BBB
by S&P or Baa by Moody's, (ii) Mortgage-Backed Securities and Asset-Backed
Securities rated AAA or AA by S&P or Aaa or Aa by Moody's at the time of
investment, or (iii) with respect to each of the foregoing determined by
the Adviser with respect to an aggregate of 20% of the Fund's total assets
to be of equivalent credit quality. The Fund may also invest in other
securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities. In addition, the Fund will actively manage its assets in
relation to market conditions, interest rate changes and the remaining term
of the Fund.
The Adviser will manage the Fund's assets so as to cause the
dollar-weighted average maturity of the assets to shorten over time as the
remaining term of the Fund decreases.
The securities in which the Fund intends to invest are expected to
be of the type included in "broad investment grade" bond indices published
by major investment banking firms that cover a wide universe of fixed rate
institutionally traded corporate, mortgage, U.S. Treasury and agency
securities. The Adviser will use its discretion in determining the
allocation of the Fund's assets among these securities, and the Fund's
portfolio composition may not necessarily correlate with the relative
percentages of the securities comprising the indices. In allocating among
these sectors, the Adviser will consider a number of factors including the
interest rate environment, mortgage prepayment trends, optional redemption
provisions, credit quality and yields on securities relative to Treasury
benchmarks.
Corporate Debt Securities providing for payment of interest and
principal are issued by U.S. and foreign corporate entities, are
denominated in U.S. dollars and have maturities ranging from one month to
30 years or more. These securities typically have fixed or variable
interest rates and a fixed maturity, which may be subject to redemption
provisions.
Mortgage-Backed Securities are securities that directly or
indirectly represent a participation in, or are secured by and payable
from, mortgage loans secured by real property. There are currently three
basic types of Mortgage-Backed Securities: (i) those issued or guaranteed
by the U.S. government or one of its agencies or instrumentalities, such as
the Government National Mortgage Association ("Ginnie Mae" or "GNMA"), the
Federal National Mortgage Association ("Fannie Mae" or "FNMA") and the
Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC"); (ii)
those issued by private issuers that represent an interest in or are
collateralized by Mortgage-Backed Securities issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities; and (iii)
those issued by private issuers that represent an interest in or are
collateralized by whole mortgage loans or Mortgage-Backed Securities
without a government guarantee but usually having some form of private
credit enhancement. Under current market conditions, the Fund intends to
invest approximately 40% of its assets in Mortgage-Backed Securities. See
"Mortgage-Backed Securities".
Zero Coupon Securities are debt obligations which do not entitle
the holder to any periodic payments prior to maturity and are issued and
traded at a discount from their face amounts. The discount varies depending
on the time remaining until maturity, prevailing interest rates, liquidity
of the security and perceived credit quality of the issuer. Zero Coupon
Securities may be created by separating the interest and principal
components of securities (i) issued or guaranteed by the U.S. government or
one of its agencies and instrumentalities, (ii) issued or guaranteed by
Municipal Issuers or (iii) issued by private corporate issuers. The market
prices of Zero Coupon Securities are generally more volatile than the
market prices of securities that pay interest periodically and are likely
to respond to changes in interest rates to a greater degree than securities
having similar maturities and credit quality that do pay periodic interest.
The Fund may also invest in Asset-Backed Securities, which have
structural characteristics similar to Mortgage-Backed Securities but have
underlying assets that are not mortgage loans or interests in mortgage
loans, and up to 10% of its assets in non-U.S. dollar denominated debt
securities. See "Asset-Backed Securities" and "Other Investment Practices
- -- Non-U.S. Securities".
In addition, the Fund may utilize certain options, futures
contracts, interest rate swaps and related transactions. Subject to
applicable law, the Fund may invest up to 10% of its assets in money market
funds advised by unaffiliated investment advisers if the Adviser determines
that the return from or liquidity of such investments justifies the
duplication of investment advisory fees and expenses paid to such money
fund. For purposes of enhancing liquidity and/or preserving capital, on a
temporary defensive basis, the Fund may invest without limit in securities
issued by the U.S. government or its agencies and instrumentalities,
repurchase agreements collateralized by such securities, or certificates of
deposit, time deposits or bankers' acceptances. The Fund may also invest in
Other Debt Securities, other debt obligations of corporate issuers, such as
commercial paper and interest-bearing savings accounts of banks having
assets greater than $1 billion and which are members of the Federal Deposit
Insurance Corporation. The Fund does not intend, under normal
circumstances, to invest more than 5% of its assets in any particular type
of security other than Corporate Debt Securities, Mortgage- Backed
Securities and Asset-Backed Securities (including derivatives), securities
issued or guaranteed by the U.S. government or its agencies and
instrumentalities, and related repurchase agreements and hedging
instruments and, in the later years of the Fund, Zero Coupon Securities.
In general, the Fund's yield will be affected by the yields on
instruments in which the Fund is able to reinvest the proceeds of payments
and prepayments. Accelerated prepayments on securities purchased by the
Fund at a premium also impose a risk of loss of principal because the
premium may not have been fully amortized at the time the principal is
repaid in full.
For purposes of both the foregoing and Item 8.3:
CORPORATE DEBT SECURITIES
Corporations issue debt securities of various types, including
bonds and debentures (which are long-term), notes (which may be short- or
long-term), certificates of deposit (unsecured borrowings by banks),
bankers acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, which may
be adjustable or fixed rate with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed.
Adjustable rate Corporate Debt Securities may have interest rate caps and
floors as well as other features similar to those of Mortgage-Backed
Securities. The majority of the Corporate Debt Securities in which the Fund
will seek to invest will have no provisions for optional redemption by the
issuer prior to maturity or will have at least a 10-year period prior to
optional redemption by the issuer.
The Fund expects that at the time of investment substantially all
of its Corporate Debt Securities will be rated investment grade. The lowest
investment grade rating for the securities in which the Fund intends to
invest is "BBB" by S&P or "Baa" by Moody's. "BBB" securities (including
those rated as low as BBB-) are considered by S&P "as having an adequate
capacity to pay interest and repay principal. [Such securities] normally
exhibit adequate protection parameters, but adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay." "Baa" securities (including those rated as low as Baa3) are
considered by Moody's "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 [securities] lack outstanding investment
characteristics and in fact have speculative characteristics as well."
The ratings of agencies such as Moody's and S&P represent their
opinions as to the credit quality of the securities that they undertake to
rate; the ratings are relative and subjective and are not absolute
standards of quality. The Adviser's judgment as to the credit quality of a
security may therefore differ from that suggested by the ratings published
by a rating service. The policies of the Fund described herein as to
ratings of investments will apply only at the time of the purchase of a
security, and the Fund will not be required to dispose of a security in the
event Moody's or S&P downgrades its assessment of the credit
characteristics of such security. In general, the Fund expects that no more
than 5%, if any, of its assets will consist of securities whose ratings
have been downgraded below investment grade.
It should be emphasized that ratings are general and are not
absolute standards of quality. Consequently, securities with the same
maturity, coupon and rating may have different yields while securities of
the same maturity and coupon with different ratings may have the same
yield. The market value of outstanding securities will vary with changes in
prevailing interest rate levels and as a result of changing evaluations of
the ability of their issuers to meet interest and principal payments.
MORTGAGE-BACKED SECURITIES
The following describes certain characteristics of Mortgage-Backed
Securities. It should be noted that new types of Mortgage-Backed Securities
are developed and marketed from time to time and that, consistent with its
investment limitations, the Fund expects to invest in those new types of
Mortgage-Backed Securities that the Adviser believes may assist the Fund in
achieving its investment objective.
BACKGROUND
Mortgage-Backed Securities were introduced in the 1970s when the
first pool of mortgage loans was converted into a mortgage pass-through
security. Since the 1970s, the Mortgage-Backed Securities market has vastly
expanded and a variety of structures have been developed to meet investor
needs.
YIELD CHARACTERISTICS
The yield characteristics of Mortgage-Backed Securities differ from
Corporate Debt Securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if the
Fund purchases such a security at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety
of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. Generally,
however, prepayments on fixed rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising
interest rates. Accordingly, amounts available for reinvestment by the Fund
are likely to be greater during a period of relatively low interest rates
and, as a result, likely to be reinvested at lower interest rates than
during a period of relatively high interest rates. This prepayment effect
has been particularly pronounced during the past two years as borrowers
have refinanced higher interest rate mortgages into lower interest rate
mortgages available in the marketplace. Mortgage-Backed Securities and
Asset-Backed Securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES
The Fund will invest in mortgage pass-through securities
representing participation interests in pools of residential mortgage loans
originated by U.S. governmental or private lenders and guaranteed, to the
extent provided in such securities, by the U.S. government or one of its
agencies or instrumentalities. Such securities, which are ownership
interests in the underlying mortgage loans, differ from conventional debt
securities, which provide for periodic payment of interest in fixed amounts
(usually semi-annually) and principal payments at maturity or on specified
call dates. Mortgage pass-through securities provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees paid to the guarantor of such securities
and the servicer of the underlying mortgage loans. The guaranteed mortgage
pass-through securities in which the Fund will invest will include those
issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac.
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and
Urban Development. The full faith and credit of the U.S. government is
pledged to the payment of all amounts that may be required to be paid under
any guarantee. The Ginnie Mae Certificates will represent a pro rata
interest in one or more pools of the following types of mortgage loans: (i)
fixed rate level payment mortgage loans; (ii) fixed rate graduated payment
mortgage loans; (iii) fixed rate growing equity mortgage loans; (iv) fixed
rate mortgage loans secured by manufactured (mobile) homes; (v) mortgage
loans on multifamily residential properties under construction; (vi)
mortgage loans on completed multifamily projects; (vii) fixed rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ("buydown" mortgage
loans); (viii) mortgage loans that provide for adjustments in payments
based on periodic changes in interest rates or in other payment terms of
the mortgage loans; and (ix) mortgage-backed serial notes. All of these
mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on
one- to four-family housing units.
Fannie Mae Certificates. Fannie Mae is a federally chartered and
privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act. Each Fannie Mae Certificate will
entitle the registered holder thereof to receive amounts representing such
holder's pro rata interest in scheduled principal payments and interest
payments (at such Fannie Mae Certificate's pass-through rate, which is net
of any servicing and guarantee fees on the underlying mortgage loans), and
any principal prepayments on the mortgage loans in the pool represented by
such Fannie Mae Certificate and such holder's proportionate interest in the
full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on
each Fannie Mae Certificate will be guaranteed by Fannie Mae, which
guarantee is not backed by the full faith and credit of the U.S.
government. Each Fannie Mae Certificate will represent a pro rata interest
in one or more pools of FHA Loans, VA Loans or conventional mortgage loans
(i.e., mortgage loans that are not insured or guaranteed by any
governmental agency) of the following types: (i) fixed rate level payment
mortgage loans; (ii) fixed rate growing equity mortgage loans; (iii) fixed
rate graduated payment mortgage loans; (iv) variable rate California
mortgage loans; (v) other adjustable rate mortgage loans; and (vi) fixed
rate mortgage loans secured by multifamily projects.
Freddie Mac Certificates. Freddie Mac is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended (the "FHLMC Act"). Freddie Mac guarantees
to each registered holder of a Freddie Mac Certificate the timely payment
of interest at the rate provided for by such Freddie Mac Certificate,
whether or not received. Freddie Mac also guarantees to each registered
holder of a Freddie Mac Certificate ultimate collection of all principal of
the related mortgage loans, without any offset or deduction, but does not,
generally, guarantee the timely payment of scheduled principal. Freddie Mac
may remit the amount due on account of its guarantee of collection of
principal at any time after default on an underlying mortgage loan, but not
later than 30 days following (i) foreclosure sale, (ii) payment of a claim
by any mortgage insurer, or (iii) the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. The obligations of Freddie Mac under its guarantee are
obligations solely of Freddie Mac and are not backed by the full faith and
credit of the U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group
of mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie
Mac. The mortgage loans underlying the Freddie Mac Certificates will
consist of fixed rate or adjustable rate mortgage loans with original terms
to maturity of between ten and thirty years, substantially all of which are
secured by first liens on one- to four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards
set forth in the FHLMC Act. A Freddie Mac Certificate group may include
whole loans, participation interests in whole loans and undivided interests
in whole loans and participations comprising another Freddie Mac
Certificate group.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES
Private mortgage pass-through securities ("Private Pass-Throughs")
are structured similarly to the Ginnie Mae, Fannie Mae and Freddie Mac
mortgage pass-through securities described above and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Private Pass-Throughs are
usually backed by a pool of conventional fixed rate or adjustable rate
mortgage loans. Since Private Pass-Throughs typically are not guaranteed by
an entity having the credit status of Ginnie Mae, Fannie Mae or Freddie
Mac, such securities generally are structured with one or more types of
credit enhancement. See "Mortgage-Backed Securities-Types of Credit
Support."
TYPES OF CREDIT SUPPORT
Mortgage-Backed Securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen
the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection
against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to
ensure that the receipt of payments on the underlying pool occurs in a
timely fashion. Protection against losses resulting from ultimate default
ensures ultimate payment of the obligations on at least a portion of the
assets in the pool.
Examples of credit support arising out of the structure of the
transaction include "senior- subordinated securities" (multiple class
securities with one or more classes subordinate to other classes as to the
payment of principal thereof and interest thereon, with the result that
defaults on the underlying assets are borne first by the holders of the
subordinated class), creation of "reserve funds" (where cash or
investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and
"overcollateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of
the securities and pay any servicing or other fees). Delinquencies or
losses in excess of those anticipated could adversely affect the return on
an investment in such issue.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
Certificates, but also may be collateralized by whole loans or Private
Pass-Throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests
in a trust composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multiclass pass-through
securities. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service
on the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be sponsored by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche", is issued at
a specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause
the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrues on all classes of
the CMOs on a monthly, quarterly or semi-annual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes
of a series of a CMO in innumerable ways. In one structure, payments of
principal, including any principal prepayments, on the Mortgage Assets are
applied to the classes of a CMO in the order of their respective stated
maturities or final distribution dates, so that no payment of principal
will be made on any class of CMOs until all other classes having an earlier
stated maturity or final distribution date have been paid in full.
The Fund may also invest in, among others, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are
structured to provide payments of principal on each payment date to more
than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each
class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier. PAC
Bonds generally call for payments of a specified amount of principal on
each payment date.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative
multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that
receive different proportions of the interest and principal distributions
on a pool of Mortgage Assets. A common type of SMBS will have at least one
class receiving only a small portion of the interest and a larger portion
of the principal from the Mortgage Assets, while the other classes will
receive primarily interest and only a small portion of the principal. In
the most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying Mortgage Assets, and a
rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, the Fund may fail to
recoup fully its initial investment in these securities even if the
securities are rated AAA by S&P or Aaa by Moody's. See "Investment
Objective and Policies".
CMO RESIDUALS
Under Current market conditions the Fund does not expect to
purchase CMO Residuals. CMO Residuals are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. government or by
private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks
and special purpose subsidiaries of the foregoing.
The cash flow generated by the Mortgage Assets underlying a series
of CMOs is applied first to make required payments of principal of and
interest on the CMOs and second to pay the related administrative expenses
of the issuer. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making the foregoing
payments. Each payment of such excess cash flow to a holder of the related
CMO Residual represents dividend or interest income and/or a return of
capital. The amount of residual cash flow resulting from a CMO will depend
on, among other things, the characteristics of the Mortgage Assets, the
coupon rate of each class of CMOs, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the Mortgage
Assets. In particular, the yield to maturity on CMO Residuals is extremely
sensitive to prepayments on the related underlying Mortgage Assets in the
same manner as an IO class of SMBS. As described above with respect to
SMBS, in certain circumstances, the Fund may fail to recoup fully its
initial investment in a CMO Residual. In addition, with respect to certain
CMO Residuals, the Fund may be required to report taxable income in excess
of the economic income derived therefrom. See "Taxation-Consequences of
Certain Trust Investments".
Since January 1, 1992, every newly-created CMO issuer must elect to
be taxed as a Real Estate Mortgage Investment Conduit (a "REMIC"). See
"Taxation". Ownership by the Fund of REMIC Residual Interests involves
complex issues regarding taxation of the Fund and its shareholders.
Accordingly, the Fund will not invest in REMIC Residual Interests, and thus
the Fund will not acquire any CMO Residuals issued after January 1, 1992.
ASSET-BACKED SECURITIES
The securitization techniques used to develop Mortgage-Backed
Securities are now being applied to a broad range of assets. Through the
use of trusts and special purpose corporations, various types of assets,
primarily automobile and credit card receivables, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure
("Asset-Backed Securities"). The Fund may invest in these and other types
of Asset-Backed Securities that may be developed in the future. Although
under current market conditions the Fund will not purchase Asset-Backed
Securities initially, if cost and yield considerations become favorable in
the future the Fund will consider purchasing such securities and such
securities may represent more than 5% of the Fund's assets in the later
years of the Fund.
In general, the collateral supporting Asset-Backed Securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments, although certain of the factors that affect the
rate of prepayments on Mortgage-Backed Securities also affect the rate of
prepayments on Asset-Backed Securities. However, during any particular
period, the predominant factors affecting prepayment rates on
Mortgage-Backed Securities and Asset- Backed Securities may be different.
As with Mortgage-Backed Securities, Asset-Backed Securities are often
backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques. See
"Mortgage-Backed Securities --Types of Credit Support".
Asset-Backed Securities present certain risks that are not
presented by Mortgage-Backed Securities. Primarily, these securities do not
have the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due. Most issuers of
Asset-Backed Securities backed by automobile receivables permit the
servicers of such receivables to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related Asset-Backed Securities. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of Asset-Backed Securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
ZERO COUPON SECURITIES
Zero Coupon Securities are debt obligations which do not entitle
the holder to any periodic payments prior to maturity and therefore are
issued and traded at a discount from their face amounts. There are
currently two basic types of Zero Coupon Securities, those created by
separating the interest and principal components of a previously issued
interest-paying security and those originally issued in the form of a face
amount only security with no payments prior to maturity. Zero Coupon
Securities of the U.S. government and certain of its agencies and
instrumentalities, foreign governments, private and tax exempt issuers,
including state and local governments and certain of their agencies and
instrumentalities, are currently available. Under current market conditions
the Fund expects to invest only in Zero Coupon Securities of Municipal
Issuers in amounts not exceeding 10% of its assets.
Private issuers may issue Zero Coupon Securities directly. This
type of security consists of a single payment due at the maturity of the
security, with no amounts being paid during the life of the security.
Zero Coupon Securities may also be issued by state and local
governments and political subdivisions and instrumentalities thereof
("Municipal Issuers"). As with Treasury securities, investment banks may
strip the securities of Municipal Issuers and sell the strips under
proprietary names. The obligations of Municipal Issuers include debt
obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports,
highways, bridges, schools, hospitals, housing, mass transportation
systems, streets, and water and sewer works. They may also be issued for
other public purposes such as the refunding of outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to lend
to other public institutions and facilities.
The two principal classifications of the debt obligations of
Municipal Issuers are (i) "general obligation" bonds and (ii) "revenue"
bonds. General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facility or project or, in a few cases,
from the proceeds of a special excise or other tax, but are not supported
by the issuer's power to levy taxes. There are variations in the security
and credit quality of municipal obligations, both within a particular
classification and between classifications, depending on numerous factors.
The yields and market values of municipal obligations are dependent on a
variety of factors, including general economic and monetary conditions,
money market factors, conditions of the municipal obligation market, the
size of a particular offering, the maturity of the obligation and the
rating of the issue.
Because accrued income on Zero Coupon Securities of Municipal
Issuers is generally not taxable to holders, Zero Coupon Securities of
Municipal Issuers have lower yields than other Zero Coupon Securities. The
accrued income on securities in which the Fund intends to invest will
generally not be taxable to the Fund; however, when distributed to
stockholders, the accrued income will be taxed in the same manner as other
distributions. Any accrued income from Zero Coupon Securities of Municipal
Issuers which is not distributed will increase the net asset value of the
Fund's Shares. Tax-exempt income attributable to Zero Coupon Securities of
Municipal Issuers and retained by the Fund is expected to constitute a
portion of the liquidating distribution returned to investors at the end of
the Fund's term. See "Dividends and Distributions".
Zero Coupon Securities do not entitle the holder to any periodic
payments prior to maturity and therefore are issued and trade at a discount
from their face or par value. The discount, in the absence of financial
difficulties of the issuer, decreases as the final maturity of the security
approaches. Zero Coupon Securities can be sold prior to their due date in
the secondary market at the then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing levels of interest
rates and the perceived credit quality of the issuer. The market prices of
Zero Coupon Securities are more volatile than the market prices of
securities of comparable quality and similar maturity that pay interest
periodically and may respond to a greater degree to fluctuations in
interest rates than do such non-Zero Coupon Securities.
Current federal income tax law requires a holder of a Zero Coupon
Security to report as income each year the portion of the original issue
discount on such security (other than tax- exempt original issue discount
from a Zero Coupon Security of a Municipal Issuer) that accrues during that
year even though the holder receives no cash payments during the year.
Current federal income tax law also requires companies such as the Fund
which seek to qualify for federal income tax treatment as regulated
investment companies to distribute substantially all of their net
investment income each year, including tax-exempt and non-cash income. See
"Taxation". Accordingly, although the Fund will receive no payments on its
Zero Coupon Securities prior to their maturity, it will be required, in
order to maintain its desired tax treatment, to include in its distribution
calculation the income attributable to its Zero Coupon Securities. See
"Dividends and Distributions".
OTHER DEBT SECURITIES
"Other Debt Securities" include debt securities other than Zero
Coupon Securities issued by Municipal Issuers as well as advance refunded
obligations of Municipal Issuers. An advance refunded security is one as to
which the issuer has deposited funds with the trustee for such obligation;
the trustee then applies the funds to purchase other securities which are
intended to satisfy the obligations of the Municipal Issuer. The income
from Other Debt Securities is generally exempt from federal taxation which
generally causes such securities to have lower yields than taxable
securities of comparable quality and maturity.
The Fund may invest in Other Debt Securities and retain the net
income thereon to the extent all net investment income regained by the Fund
in any year is less than 10% of its total net investment income for that
year. Such retained income, to the extent it consists of tax-exempt income,
would not be taxable to the Fund; however, if distributed to stockholders,
such income would be taxed in the same manner as other distributions. Any
income from Other Debt Securities which is not distributed will increase
the net asset value of the Fund's Shares. Tax- exempt income attributable
to Other Debt Securities and retained by the Fund could constitute a
portion of the liquidating distribution returned to investors as the end of
the Fund's term. See " Dividends and Distributions".
The Fund may invest in any of the securities described in this
section although currently it does not expect that any of them will
constitute more than 5% of its total assets at any time during the term of
the Fund.
OTHER INVESTMENT PRACTICES
DURATION MANAGEMENT AND OTHER MANAGEMENT TECHNIQUES
As a basic element of its overall investment strategy the Fund
intends to use a variety of other investment management techniques and
instruments. The Fund may purchase and sell futures contracts, enter into
various interest rate transactions and may purchase and sell
exchange-listed and over-the-counter put and call options on securities,
financial indices and futures contracts (collectively, "Additional
Investment Management Techniques"). These Additional Investment Management
Techniques may be used for duration management and other risk management to
attempt to protect against possible changes in the market value of the
Fund's portfolio resulting from trends in be debt securities markets and
changes in interest rates, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to establish a position in the
securities markets as a temporary substitute for purchasing particular
securities and to enhance income or gain. There is no particular strategy
that requires use of one technique rather than another as the decision to
use any particular strategy or instrument is a function of market
conditions and the composition of the portfolio. The Additional Investment
Management Techniques are described below. The ability of the Fund to use
them successfully will depend on the Adviser's ability to predict pertinent
market movements as well as sufficient correlation among the instruments,
which cannot be assured. Inasmuch as any obligations of the Fund that arise
from the use of Additional Investment Management Techniques will be covered
by segregated liquid high grade assets or offsetting transactions, the Fund
and the Adviser believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to its
borrowing restrictions, Futures contracts and options thereon are regulated
by the Commodities Futures Trading Commission (be "CFTC") and have specific
margin requirements described below and are not treated as senior
securities.
Interest Rate Transactions. The Fund may enter into interest rate
swaps and the purchase or sale of interest rate caps and floors. The Fund
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio as a duration
management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund will
ordinarily use these transactions as a hedge or floor duration or risk
management although it is permitted to enter into them to enhance income or
gain. The Fund will not sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by the Fund with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect to
a notional amount of principal. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent
that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments on the payment dates. The Fund will accrue
the net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap on a daily basis and
will segregate with a custodian an amount of cash or liquid high grade
securities having an aggregate net asset value at all times at least equal
to the accrued excess. The Fund will not enter into any interest rate swap,
cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the highest
rating category of at least one nationally recognized statistical rating
organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
Futures Contracts and Options on Futures Contracts. The Fund may
also enter into contracts for the purchase or sale for future delivery
("futures contracts") of debt securities, aggregates of debt securities or
indices or prices thereof, other financial indices and U.S. government debt
securities or options on the above. The Fund will ordinarily engage in such
transactions only for bona fide hedging, risk management (including
duration management) and other portfolio management purposes. However, the
Fund may also enter into such transactions 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 for non-hedging
purposes if at such time more than 5% of the Fund's net assets would be
posted as initial or variation margin with respect to such non-hedging
transactions.
Calls on Securities, Indices and Futures Contracts. The Fund may
sell or purchase call options ("calls") on U.S. Treasury securities,
Corporate Debt Securities, Mortgage-Backed Securities, Asset-Backed
Securities, Zero Coupon Securities, Other Debt Securities, indices,
Eurodollar instruments that are traded on U.S. and foreign securities
exchanges and in the over- the-counter markets and futures contracts. A
call gives the purchaser of the option the right to buy, and obligates the
seller to sell, the underlying security, futures contract or index at the
exercise price at any time or at a specified time during the option period.
All such calls sold by the Fund must be "covered" as long as the call is
outstanding (i.e., the Fund must own the securities or futures contract
subject to the call or other securities acceptable for applicable escrow
requirements). A call sold by the Fund exposes the Fund during the term of
the option to possible loss of opportunity to realize appreciation in the
market price of the underlying security, index or futures contract and may
require the Fund to hold a security or futures contract which it might
otherwise have sold. The purchase of a call gives the Fund the light to buy
a security, futures contract or index at a fixed price. Calls on futures on
U.S. Treasury securities, Mortgage- Backed Securities, Asset-Backed
Securities, Corporate Debt Securities, Zero Coupon Securities, Other Debt
Securities and Eurodollar instruments must also be covered by deliverable
securities or the futures contract or by liquid high grade debt securities
segregated to satisfy the Fund's obligations pursuant to such instruments.
Puts on Securities, Indices and Futures Contracts. The Fund may
purchase put options ("puts") that relate to U.S. Treasury securities,
Corporate Debt Securities, Mortgage-Backed Securities, Asset-Backed
Securities, Zero Coupon Securities, Other Debt Securities and Eurodollar
instruments (whether or not it holds such securities in its portfolio),
indices or futures contracts. The Fund may also sell puts on U.S. Treasury
securities, Corporate Debt Securities, Mortgage-Backed Securities,
Asset-Backed Securities, Zero Coupon Securities, Other Debt Securities,
Eurodollar instruments, indices or futures contracts on such securities if
the Fund's contingent obligations on such puts are secured by segregated
assets consisting of cash or liquid high grade debt securities having a
value not less than the exercise price. The Fund will not sell puts if, as
a result, more than 50% of the Fund's assets would be required to cover its
potential obligations under its hedging and other investment transactions.
In selling puts, there is a risk that the Fund may be required to buy the
underlying instrument at a price higher than the current market price.
Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are essentially U.S. dollar denominated
futures contracts or options thereon which are linked to the London
Interbank Offered Rate ("LIBOR"). Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings. Ordinarily, the Fund intends to use
Eurodollar futures contracts and options thereon to hedge against changes
in LIBOR, to which many interest rate swaps are linked although it may
utilize such investment to enhance income or gain.
Short Sales. The Fund may make short sales of securities. A short
sale is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. The Fund
may make short sales to hedge positioning for duration and risk management
in order to maintain portfolio flexibility or to enhance income or gain.
When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short
sale as collateral for its obligation to deliver the security upon
conclusion of the sale. The Fund may have to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities.
The Fund's obligation to replace the borrowed security will be
secured by collateral deposited with the broker-dealer, usually cash, U.S.
government securities or other high grade liquid securities. The Fund will
also be required to segregate similar collateral with its custodian to the
extent, if any, necessary so that the aggregate collateral value is at all
times at least equal to the current market value of the security sold
short. Depending on arrangements made with the broker-dealer from which it
borrowed the security regarding payment over of any payments received by
the Fund on such security, the Fund may not receive any payments (including
interest) on its collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, the
Fund will incur a loss; conversely, if the price declines, the Fund will
realize a gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to
the price at which it sold the security short, its potential loss is
theoretically unlimited.
The Fund will not make a short sale if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the
value of its total assets and the Fund's aggregate short sales of a
particular class of securities exceeds 25% of the outstanding securities of
that class. The Fund may also make short sales "against the box" without
respect to such limitations. In this type of short sale, at the time of the
sale, the Fund owns or has the immediate and unconditional right to acquire
at no additional cost the identical security.
When-Issued and Forward Commitment Securities. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. If the
Fund disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a
forward commitment, it can incur a gain or loss. At the time the Fund
enters into a transaction on a when-issued or forward commitment basis, it
will segregate with its custodian cash or other liquid high grade debt
securities with a value not less than the value of the when-issued or
forward commitment securities. The value of these assets will be monitored
daily to ensure that their marked to market value will at all times equal
or exceed the corresponding obligations of the Fund. There is always a risk
that the securities may not be delivered and that the Fund may incur a
loss. Settlements in the ordinary course, which typically occur monthly for
mortgage-related securities, are not treated by the Fund as when- issued or
forward commitment transactions and accordingly are not subject to the
foregoing restrictions.
Appendix A contains further information about the characteristics,
risks and possible benefits of Additional Investment Management Techniques
and the Fund's other policies and limitations (which are not fundamental
policies) relating to investment in futures contracts and options. The
principal risks relating to the use of futures contracts and other
Additional Investment Management Techniques are: (a) less than perfect
correlation between the prices of the instrument and the market value of
the securities in the Fund's portfolio; (b) possible lack of a liquid
secondary market for closing out a position in such instruments; (c) losses
resulting from interest rate or other market movements not anticipated by
the Adviser; and (d) the obligation to meet additional variation margin or
other payment requirements, all of which could result in the Fund being in
a worse position than if such techniques had not been used.
LEVERAGE AND BORROWING
The Fund is authorized to borrow money from banks or otherwise such
that its borrowings combined with those of BCT Trust, are as much as 331/3%
of the total assets of the Fund and BCT Subsidiary (including the amount
borrowed), less all liabilities and indebtedness other than the bank or
other borrowing. Under current market conditions, the Fund intends to
borrow or obtain equivalent leverage in an amount equal to approximately
331/3% of the Fund's total assets. The Fund is also authorized to borrow an
additional 5% of its total assets without regard to the foregoing
limitation for temporary purposes such as clearance of portfolio
transactions and share repurchases. The Fund will only borrow when the
Adviser believes that such borrowings will benefit the Fund after taking
into account considerations such as interest income and possible gains or
losses upon liquidation.
Borrowing by the Fund creates an opportunity for increased net
income but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the
Shares and in the yield on the Fund's portfolio. Although the principal of
such borrowings will be fixed, the Fund's assets may change in value during
the time the borrowing is outstanding. Borrowing will create interest
expenses for the Fund which can exceed the income from the assets retained.
Furthermore, if the Fund borrows on a short-term basis and invests the
proceeds in long-term securities, an increase in interest rates could
reduce or eliminate the interest rate differential usually available
between short-term and long-term rates and could reduce the value of the
Fund's securities, thereby exposing the Fund to adverse yields and risk of
loss on disposition of its securities. The Fund may also borrow for
emergency purposes, for the payment of dividends, for share repurchases or
for the clearance of transactions.
Because few or none of its assets will consist of margin
securities, the Fund does not expect to borrow on margin. The Fund may also
leverage by entering into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements (as discussed
below). Under a reverse repurchase agreement, the Fund sells securities and
agrees to repurchased them at a mutually agreed date and price. At the time
the Fund enters into a reverse repurchase agreement, an approved custodian
will segregate liquid, high grade debt securities having a value not less
than the repurchase price (including accrued interest). Reverse repurchase
agreements involve the risk that the market value of the securities
retained in lieu of sale by the Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its Fundee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities and the Fund's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending
such decision. Reverse repurchase agreements create leverage, a speculative
factor, and will be considered as borrowings for purposes of the Fund's
limitation on borrowing.
The Fund may enter into dollar rolls in which the Fund sells fixed
income securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and
maturity) securities on a specified future date. During the roll period,
the Fund foregoes principal and interest paid on such securities. The Fund
is compensated by the difference between the current sales price and the
forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale.
Dollar rolls are treated by the Fund in the same manner as reverse
repurchase agreements for leverage purposes.
The Fund expects that some of its borrowings may be made on a
secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made
with (i) the lender to act as a subcustodian if the lender is a bank or
otherwise qualifies as a custodian of investment company assets or (ii) a
suitable subcustodian.
REPURCHASE AGREEMENTS
The Fund may invest temporarily, without limitation, in repurchase
agreements, which are agreements pursuant to which securities are acquired
by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These
agreements may be made with respect to any of the portfolio securities in
which the Fund is authorized to invest. Repurchase agreements may be
characterized as loans secured by the underlying securities. The Fund may
enter into repurchase agreements with (i) member banks of the Federal
Reserve System having total assets in excess of $500 million and (ii)
securities dealers, provided that such banks or dealers meet the
creditworthiness standards established by the Fund's board of directors
("Qualified Institutions"). The Adviser will monitor the continued
creditworthiness of Qualified Institutions, subject to the supervision of
the Fund's board of directors. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. The collateral
is marked to market daily. Such agreements permit the Fund to keep all its
assets earning interest while retaining "overnight" flexibility in pursuit
of investments of a longer-term nature.
The use of repurchase agreements involves certain risks. For
example, if the seller of securities under a repurchase agreement defaults
on its obligation to repurchase the underlying securities, as a result of
its bankruptcy or otherwise, the Fund will seek to dispose of such
securities, which action could involve costs or delays. If the seller
becomes insolvent and subject to liquidation or reorganization under
applicable bankruptcy or other laws, the Fund's ability to dispose of the
underlying securities may be restricted. Finally, it is possible that the
Fund may not be able to substantiate its interest in the underlying
securities. To minimize this risk, the securities underlying the repurchase
agreement will be held by the custodian at all times in an amount at least
equal to the repurchase price, including accrued interest. If the seller
fails to repurchase the securities, the Fund may suffer a loss to the
extent proceeds from the sale of the underlying securities are less than
the repurchase price.
LENDING OF SECURITIES
The Fund may lend its portfolio securities to Qualified
Institutions. By lending its portfolio securities, the Fund attempts to
increase its income through the receipt of interest on the loan. Any gain
or loss in the market price of the securities loaned that may occur during
the term of the loan will be for the account of the Fund. The Fund may lend
its portfolio securities so long as the terms and the structure of such
loans are not inconsistent with the requirements of the 1940 Act, which
currently require that (a) the borrower pledge and maintain with the Fund
collateral consisting of cash, a letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the U.S. government having a
value at all times not less than 100% of the value of the securities
loaned, (b) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the value of the loan is "marked to the
market" on a daily basis), (c) the loan be made subject to termination by
the Fund at any time and (d) the Fund receive reasonable interest on the
loan (which may include the Fund's investing any cash collateral in
interest bearing short-term investments), any distributions on the loaned
securities and any increase in their market value. The Fund will not lend
portfolio securities if, as a result, the aggregate of such loans exceeds
331/3% of the value of the Fund's total assets (including such loans). Loan
arrangements made by the Fund will comply with all other applicable
regulatory requirements, including the rules of the American Stock
Exchange, which rules presently require the borrower, after notice, to
redeliver the securities within the normal settlement time of five business
days. All relevant facts and circumstances, including the creditworthiness
of the Qualified Institution, will be monitored by the Adviser, and will be
considered in making decisions with respect to lending of securities,
subject to review by the Fund's Board of Directors.
The Fund may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Fund's Board of Directors. 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.
RESTRICTED AND 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. In no event will the Fund
invest more than 20% of its assets in CMO Residuals and the total of all
illiquid investments will not exceed 40% of the Fund's assets. Securities
eligible for trading among qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933 may be considered liquid by the Fund
if it concludes under procedures adopted by its Board of Directors that
such securities are liquid.
NON-U.S. SECURITIES
The Fund may invest up to 10% of its assets in non-U.S. dollar
denominated securities. The Fund may also invest without limitation in U.S.
dollar denominated debt securities of non- U.S. issuers. Investments in
securities of non-U.S. issuers involve certain risks not ordinarily
associated with investments in securities of domestic issuers. Such risks
include fluctuations in foreign exchange rates (with respect to any foreign
currency denominated securities), future political and economic
developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since Eurodollar instruments are
denominated or quoted in the U.S. dollar, changes in foreign currency
exchange rates will not affect the value of such securities in the
portfolio nor will such changes affect the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned.
Securities denominated or quoted in currencies other than the U.S. dollar
will have their value affected by changes in foreign currency exchange
rates and such changes may affect unrealized appreciation or depreciation,
although the Fund will attempt to hedge such risks. With respect to certain
countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Non-U.S. securities
markets (other than Japan), while growing in volume, have, for the most
part, substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their prices more volatile than
securities of comparable U.S. companies. Transaction costs on non-U.S.
securities markets are generally higher than in the United States and
settlement procedures are often not as regularized as in the United States.
There is generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the United States. The Fund may have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in
U.S. courts.
Interest income from non-U.S. securities may be subject to
withholding taxes imposed by the country in which the issuer is located and
the Fund will not be able to pass through to its stockholders foreign tax
credits or deductions with respect to these taxes.
INVESTMENT LIMITATIONS
The Fund's investment objective and the following investment
restrictions are fundamental and cannot be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities
(defined in the 1940 Act as the lesser of (a) more than 50% of the
outstanding shares or (b) 67% or more of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented).
All other investment policies or practices are considered by the Fund not
to be fundamental and accordingly may be changed without stockholder
approval. If a percentage restriction on investment or use of assets set
forth below is adhered to at the time a transaction is effected, later
changes in percentage resulting from changing market values will not be
considered a deviation from policy. The Fund may not:
(1) with respect to 75% of its total assets, invest more
than 5% of the value of its total assets (taken at market value at
time of purchase) in the outstanding securities of any one issuer,
or own more than 10% of the outstanding voting securities of any
one issuer, in each case other than securities issued or guaranteed
by the U.S. government or any agency or instrumentality thereof,
(2) invest 25% or more of the value of its total assets in
any one industry;
(3) issue senior securities (including borrowing money,
including on margin if margin securities are owned) in excess of
331/3% of its total assets (including the amount of senior
securities issued but excluding any liabilities and indebtedness
not constituting senior securities) except that the Fund may borrow
up to an additional 5% of its total assets for temporary purposes;
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.
The Fund's obligations under interest rate swaps are not treated as
senior securities;
(4) make loans of money or property to any person, except
through loans of portfolio securities, the purchase of fixed income
securities consistent with the Fund's investment objective and
policies or the acquisition of securities subject to repurchase
agreements;
(5) 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 shares the Fund may be deemed to
be an underwriter;
(6) invest for the purpose of exercising control over
management of any company other than CMO issuers;
(7) purchase real estate or interests therein other than
Mortgage-Backed Securities and similar instruments;
(8) purchase or sell commodities or commodity contracts for
any purposes except as, and to the extent, permitted by applicable
law without the Fund becoming subject to registration with the
Commodity Futures Trading Commission as a commodity pool; or
(9) make any short sale of securities except in conformity
with applicable laws, rules and regulations and unless, giving
effect to such sale, the market value of all securities sold short
does not exceed 25% of the value of the Fund's total assets and the
Fund's aggregate short sales of a particular class of securities
does not exceed 25% of the then outstanding securities of that
class.
8.3 Risk Factors. Investment in the Fund involves special considerations as
the Fund is a closed-end investment company with no history of operations
and invests in securities with special risk characteristics. For its
investors, the Fund is intended to be a long-term investment and not a
short-term trading vehicle.
Corporate Debt Securities. The Fund intends to invest a portion of
its assets in Corporate Debt Securities, the value of which generally
varies inversely with changes in prevailing market interest rates. The
Fund's yield will be affected by the yields on instruments in which the
Fund invests. Corporate Debt Securities may be subject to optional
redemption before their maturity by their issuers and the Fund may be
subject to certain reinvestment risk in environments of declining interest
rates. The Fund will attempt to reduce reinvestment risk by seeking to
invest in Corporate Debt Securities the majority of which will have no
provisions for optional redemption by the issuer of approximately December
31, 2009 prior to maturity or which have a minimum period to optional
redemption by the issuer.
The Fund expects that at the time of investment substantially all
of its Corporate Debt Securities will be rated investment grade. The lowest
grade rating for securities is "BBB" by S&P or "Baa" by Moody's. "BBB"
securities (including those rated as low as BBB-) are considered by S&P "as
having an adequate capacity to pay interest and repay principal. [Such
securities] normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay." "Baa" securities (including those rated as low
as Baa3) are considered by Moody's "as medium grade obligations, i.e., they
are neither highly protected nor poor 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 securities lack outstanding investment
characteristics as well." The Fund's ability to preserve principal is a
function of, among other things, the ability of issuers of the fixed income
securities in which the Fund invests to make timely payments of interest
and principal and the ability of the Adviser to select and monitor such
securities and to minimize the potential adverse impact of rating
downgrades. In general, the Fund expects that no more than 5%, if any, of
its assets will consists of securities whose ratings have been downgraded
below investment grade.
Mortgage-Backed Securities. The yield characteristics of
Mortgage-Backed Securities differ from Corporate Debt Securities. The major
differences typically include more frequent interest and principal
payments, usually monthly, and the possibility that prepayments of
principal may be made at any time without penalty. Prepayment rates are
influenced by changes in current interest rates and a variety of other
economic, geographic, social and other factors. In general, changes in the
rate of prepayments on a Mortgage-Backed Security will change the yield to
maturity of the security. As a result of usual prepayment patterns on
Mortgage-Backed Securities, amounts available for reinvestment from such
securities by the a Fund are likely to be greater during a period of
relatively low interest rates and, therefore likely to be reinvested at
lower interest rates than during a period of relatively high interest
rates. This prepayment effect has been particularly pronounced during the
past two years as borrowers have refinanced higher rate mortgages into
lower interest rate mortgages available in the marketplace. The Fund will
attempt to reduce prepayment risk resulting from refinancings of underlying
mortgages by purchasing pass-through Mortgage-Backed Securities newly
issued by Ginnie Mae, Fannie Mae and Freddie Mac with coupon rates
reflecting the current relatively low interest rate environment.
Prepayments resulting from home sales generally are not affected by
interest rates.
The Fund intends to invest a portion of its assets in securities
such as stripped Mortgage- Backed Securities and CMO Residuals, which are
highly sensitive to changes in prepayment and interest rates. Under current
market conditions, the Fund does not intend to invest in CMO Residuals, and
under no circumstances will the aggregate of stripped Mortgage-Backed
Securities and CMO Residuals exceed 20% of the Fund's assets. Under certain
interest rate or prepayment rate scenarios, the Fund may fail to recoup
fully its investment in such securities notwithstanding that such
securities may be rated "AAA".
Certain Mortgage-Backed Securities may decrease in value as a
result of increases in interest rates and may benefit less than the
Corporate Debt Securities comprising the majority of the Fund's portfolio
from decreases in interest rates. Asset-Backed Securities have yield
considerations similar to Mortgage-Backed Securities.
Dividend Considerations. The Fund's income and dividends paid by
the Fund may decline to some extent over the term of the Fund due to the
anticipated shortening of the dollar- weighted average maturity of the
Fund's assets over the term of the Fund.
Return of Initial Investment. The BCT Trust will seek to return $15
per BCT Trust Share to investors on or about December 31, 2009 by
preserving capital through, among other things, active management of its
portfolio. If the Fund realizes capital losses on dispositions of
securities that are not offset by capital gains over the life of the Fund
on the disposition of other securities, the Fund may be unable to
distribute to the BCT Trust an amount sufficient to enable the BCT Trust,
together with its own assets to distribute to its stockholders an amount
equal to $15 for each BCT Trust Share outstanding on or about December 31,
2009.
Leverage. The Fund is authorized to borrow funds and utilize
leverage (including through reverse repurchase agreements and dollar rolls)
in amounts not exceeding 33-1/3% of its total assets (including the amount
borrowed) and under current market conditions intends to borrow or obtain
equivalent leverage up to such amount. The use of leverage by the Fund
creates an opportunity for increased net income, but, at the same time,
creates special risks. In particular, if the Fund borrows on a short-term
basis and invests the proceeds in long-term securities, an increase in
interest rates may (i) reduce or eliminate the interest rate differential
usually available between short-term and long-term rates and (ii) reduce
the value of the Fund's long-term securities, thereby exposing the Fund to
lower yields and risk of loss on disposition of its long-term securities.
The Fund will only borrow or use leverage when the Adviser believes that
such activities will benefit the Fund. The Fund may also borrow up to an
additional 5% of its total assets for temporary purposes without regard to
the foregoing limitation.
As noted above, the Fund expects to engage in other investment
management techniques such as reverse repurchase agreements and dollar
rolls which provide leverage in much the same manner as borrowings but
which are not considered to be borrowings or senior securities by the
Securities and Exchange Commission (the "Commission") if investments
therein are appropriately collateralized by high grade liquid assets of the
Fund.
Zero Coupon Securities. The market prices of Zero Coupon Securities
are generally more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest
rates to a greater degree than do securities have similar maturities and
credit quality which do pay periodic interest.
Illiquid Securities. The Fund may invest in securities that lack an
established secondary trading market or are otherwise considered illiquid,
although under current market conditions it does not expect to do so.
Liquidity of a security relates to the ability to easily dispose of
securities and the price to be obtained, and does not necessarily relate to
the credit risk or likelihood of receipt of cash at maturity. Illiquid
securities may trade at a discount from comparable, more liquid
investments.
Non-U.S. Securities. The Fund may invest up to 10% of its assets in
non-U.S. dollar denominated debt securities although under current market
conditions the Fund does not expect to invest in such securities. The Fund
may also invest without limitation in U.S. dollar denominated debt
securities of non-U.S. issuers. Investing in non-U.S. securities involves
certain special risks including, among other factors, political and
economic events in the countries where such issuers are located.
Other Investment Management Techniques. The Fund may use various
other investment management techniques that also involve special
considerations including engaging in hedging transactions and short sales,
selling listed and over-the-counter covered call options, making forward
commitments, entering into repurchase agreements, investing in Eurodollar
instruments, and lending its portfolio securities.
Shares Unsecured. Although certain portfolio securities purchased
by the Fund are collateralized by, or represent ownership interests in,
specific assets, the Shares themselves are not so secured.
ITEM 9. MANAGEMENT
1. General.
(a) Board of Directors. The Directors set broad policies for the
Fund and choose its officers. The Adviser manages the day-to-day operations
of the Fund and supplies officers to the Fund for this purpose. The Fund
has eight (8) directors. Under the bylaws, which the Directors may amend,
the Directors shall consist at all times of no less than two (2) Directors,
unless the Fund has three (3) or more stockholders during which time the
number of Directors shall never be less than three (3), and no more than
nine (9) Directors. No more than 60% of the Directors are "interested
persons" of the Fund, as defined in the 1940 Act.
(b) Investment Adviser. The Adviser, BlackRock Advisors Inc., is
located at 400 Bellevue Parkway, Wilmington, Delaware 19809. The Advisor
utilizes the resources of its subsidiary, BlackRock Financial Management,
Inc. 345 Park Avenue, New York, New York 10154, for a portion of its
services to the Fund. The Adviser and its affiliates currently serve as the
investment advisor to institutional and individual fixed income and equity
investors in the U.S. and overseas through a number of funds and separately
managed accounts with combined total assets in excess of $165 billion as of
December 31, 1999.
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement"),
the Fund has retained the Adviser to manage the investment of its assets,
to provide such investment research, advice and supervision, in conformity
with its investment objective and policies, as may be necessary for the
operations of the Fund. The Advisory Agreement was approved by the
Directors on November 18, 1999 and by the Fund's sole shareholder on
November 18, 1999 .
As compensation for its services rendered to the Fund, the Adviser will
receive a Management Fee directly from the BCT Trust.
(c) Portfolio Management. The Fund's portfolio manager will be the
Adviser.
(d) Administration Agreement. Under the Administration Agreement
with the Fund, Princeton Administrators L.P., 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, administers the Fund's corporate affairs
subject to the supervision of the Directors and furnishes the Fund with
office facilities and ordinary clerical and bookkeeping services.
The Fund and BCT Trust will pay the Administrator a monthly fee based on
their combined weekly net asset value computed at the per annum rate of
.08%.
(e) Custodian. State Street Bank & Trust Company, One Heritage
Drive, North Quincy, Massachusetts 02171 will serve as custodian for the
Fund's portfolio securities and cash, and in such capacity, maintains
certain financial and accounting books and records pursuant to agreements
with the Fund. The Fund may also periodically enter into arrangements with
other qualified custodians with respect to certain types of securities or
other transactions.
(f) Expenses. The Advisory Agreement provides, among other things,
that the Adviser will bear all expenses of its employees and overhead
incurred in connection with its duties under the Advisory Agreement, and
the expense of services rendered by any employee of the Adviser in such
employee's capacity as a Director or officer of the Fund.
ITEM 10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES
1. Capital Stock. The Fund is authorized to issue up to 200 million
shares of capital stock of all classes, all of which have a par value of
one cent ($.01) per share. The shares have no preemptive, conversion,
exchange or redemption rights. Each share has equal voting, dividend,
distribution and liquidation rights. Shareholders of the Fund do not have
cumulative voting rights on the election of Directors and are entitled to
one vote per share on all other matters subject to shareholder approval.
When issued against payment therefor, the shares will be fully paid and
non-assessable. No person has any liability for liabilities of the Fund by
reason of owning shares.
2. Long Term Debt. None.
3. General. None.
4. Taxes. The Fund and the Adviser intend to qualify the Fund as a
Regulated Investment Company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986. In order to qualify as a RIC, the Fund must satisfy
certain tests regarding the nature and distribution of its income and
assets. If the Fund so qualifies, the Fund will not be subject to federal
income tax on its net investment income and net short-term capital gain, if
any, realized during any fiscal year to the extent that the Fund
distributes such income and capital gains to shareholders. However, the
Fund will be subject to federal and possibly state corporate income tax on
any undistributed income other than tax exempt income from municipal Zero
Coupon Securities. Under the Code, amounts not distributed by a RIC on a
timely basis in accordance with a calendar year distribution requirement
are subject to a 4% excise tax. To the extent that the Fund realizes net
capital gains, the Fund intends to distribute such gains at least annually
and designate them as capital gain dividends. See Item 22 for additional
information regarding Taxes.
<TABLE>
<CAPTION>
5. Outstanding Securities.
Amount Held by Amount Outstanding Exclusive
Amount Registrant or for its of Amount Shown Under
Title of Class Authorized Account Previous Column
-------------- ------------------ ---- ----------
<S> <C> <C> <C>
Voting Shares 200 million shares None 2,957,093 shares
</TABLE>
6. Securities Ratings.
None.
ITEM 11. DEFAULTS AND ARREARS ON SENIOR SECURITIES
1. None.
2. None.
ITEM 12. LEGAL PROCEEDINGS
None.
ITEM 13. TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION
Not Applicable.
PART B
ITEM 14. COVER PAGE
Not Applicable.
ITEM 15. TABLE OF CONTENTS
Not Applicable.
ITEM 16. GENERAL INFORMATION AND HISTORY
The Fund has no history. See Item 8 - General Description of the
Registrant, for general information.
ITEM 17. INVESTMENT OBJECTIVES AND POLICIES
Additional detail on BCT Trust's investment objectives and policies is
provided in its Registration Statement filed with the SEC on June 18, 1993.
ITEM 18. MANAGEMENT
The following individuals are the officers and Directors of the Fund. A
brief statement of their present positions and principal occupations during
the past five years is also provided.
<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Andrew F. Brimmer Director President of Brimmer & Company, Inc., a Washington,
4400 MacArthur Blvd., D.C. based economic and financial consulting firm.
N.W. Director of CarrAmerica Realty Corporation and Borg-
Suite 302 Warner Automotive. Formerly member of the Board of
Washington, DC 20007 Governors the Federal Reserve System. Formerly
Age: 73 Director of AirBorne Express, BankAmerica
Corporation (Bank of America), BellSouth Corporation,
College Retirement Equities Fund (Trustee),
Commodity Exchange, Inc. (Public Governor),
Connecticut Mutual Life Insurance Company, E.I.
duPont de Nemours & Company, Equitable Life
Assurance Society of the United States, Gannett
Company (publishing), MNC Financial Corporation
(American Security Bank), NMC Capital Management,
Navistar International Corporation (truck
manufacturing), andnUALaCorporationn(United
Airlines).
Richard E. Cavanagh Director President and Chief Executive Officer of The
845 Third Avenue Conference Board, Inc., a leading global business
New York, NY 10022 membership organization, from 1995-present. Former
Age: 53 Executive Dean of the John F. Kennedy School of
Government at Harvard University from 1988-1995.
Acting Director, Harvard Center for Government
(1991- 1993). Formerly Partner (principal) of
McKinsey & Company, Inc. (1980-1988). Former
Executive Director of Federal Cash Management,
White House Office of Management and Budget
(1977-1979). Co-author, THE WINNING PERFORMANCE
(best selling management book published in 13
national editions). Trustee, Wesleyan University,
Drucker Foundation, Educational Testing Services (ETS)
and Airplanes Group, Aircraft Finance Trust (AFT).
Director, Arch Chemicals (chemicals), Fremont Group
(investments) and The Guardian Life Insurance Company
of America (insurance).
Kent Dixon Director Consultant/Investor. Former President and Chief
9495 Blind Pass Road Executive Officer of Empire Federal Savings Bank of
Unit #602 America and Banc PLUS Savings Association, former
St. Petersburg, FL 33706 Chairman of the Board, President and Chief Executive
Age: 62 Officer of Northeast Savings. Former Director of ISFA
(the owner of INVEST, a national securities brokerage
service designed for banks and thrift institutions).
Frank J. Fabozzi Director Consultant. Editor of THE JOURNAL OF PORTFOLIO MANAGEMENT
858 Tower View Circle and Adjunct Professor of Finance at the School of Management
New Hope, PA 18938 at Yale University. Director, Guardian Mutual Trusts Group.
Age: 51 Author and editor of several books on fixed income
portfolio management. Visiting Professor of Finance and
Accounting at the Sloan School of Management, Massachusetts
Institute of Technology from 1986 to August 1992.
Laurence D. Fink* ** Director Chairman and Chief Executive Officer of BlackRock
Age: 47 Financial Management, Inc. BlackRock Advisors, Inc.
and BlackRock, Inc. Formerly a Managing Director of
The First Boston Corporation, member of its
Management Committee, co-head of its Taxable Fixed
Income Division and head of its Mortgage and Real
Estate Products Group (December 1980-March 1988).
Currently, Chairman of the board and Director of each
of BlackRock Financial Management, Inc.'s Trusts and
Anthracite Capital, Inc. Trustee of New York
University Medical Center, Dwight Englewood School,
National Outdoor Leadership School and Phoenix
House. A Director of VIMRx Pharmaceuticals, Inc. and
Innovir Laboratories, Inc.
James Clayburn LaForce, Jr. Director Dean Emeritus of The John E. Anderson Graduate
P.O. Box 1595 School of Management, University of California since
Pauma Valley, CA 92061 July 1, 1993. Director, Jacobs Engineering Group, Inc.,
Age: 69 Rockwell International Corporation, Payden & Rygel
Investment Trusts (investment companies), Timken
Company (roller bearing and steel) and Motor Cargo
Industries (transportation). Acting Dean of The
School of Business, Hong Kong University of Science and
Technology 1990-1993. From 1978 to September 1993, Dean
of The John E. Anderson Graduate School of Management,
University of California.
Walter F. Mondale Director Partner, Dorsey & Whitney, a law firm (December
220 South Sixth Street 1996-present, September 1987-August 1993). Formerly
Minneapolis, MN 55402 U.S. Ambassador to Japan (1993-1996). Formerly Vice
Age: 71 President of the United States, U.S. Senator and
Attorney General of the State of Minnesota. 1984
Democratic Nominee for President of the United States.
Ralph L. Schlosstein* ** Director and President of BlackRock Financial Management, Inc.
Age: 48 President BlackRock Advisors, Inc. and Black Rock, Inc.
Formerly a Managing Director of Lehman Brothers, Inc.
and co-head of its Mortgage and Savings Institutional
Group. Currently President of each of the closed-end
funds in which BlackRock Advisors, Inc. acts as
investment adviser. Trustee of Denison University and
New Visions for Public Education in New York City.
A Director of the Pulte Corporation and a member of
the Visiting Board of Overseers of the John F. Kennedy
School of Government at Harvard University.
Scott Amero Vice President Managing Director of BlackRock Financial Management, Inc.
Age: 36 From 1985 to 1990, Vice President at the First Boston
Corporation in the Fixed Income Research Department.
Keith T. Anderson Vice President Managing Directors of BlackRock Advisors, Inc. since
Age: 40 February, 1988. Managing Director of BlackRock
Financial Management, Inc. since January 1991.
Director of BlackRock Financial Management, Inc.
from April 1988 to January 1991. From February 1987
to April 1988, Vice President at The First Boston
Corporation in the Fixed Income Research Department.
Previously Vice President and Senior Portfolio Manager
at Criterion Investment Management Company (now
Nicholas-Applegate).
Henry Gabbay Treasurer Managing Director of BlackRock Advisors, Inc. since
Age: 52 January, 1990. Managing Director of BlackRock
Financial Management, Inc. since January 1990.
Director of BlackRock Financial Management, Inc.
from February 1989 to January 1990. From September
1984 to February 1989, Vice President at The First
Boston Corporation.
Michael C. Huebsch Vice President Managing Director of BlackRock Financial
Management, Inc. since January 1991. Director of
BlackRock Financial Management, Inc. from January
1989 to January 1991. From July 1985 to January 1989,
Vice President at the First Boston Corporation in the
Fixed Income Research Department.
Robert S. Kapito Vice President Vice Chairman of BlackRock Advisors, Inc. since
Age: 42 March, 1988. Vice Chairman of BlackRock Financial
Management, Inc. since March 1988. Formerly Vice
President the First Boston Corporation in the Mortgage
Products Group (from December 1985 to March 1988).
James Kong Assistant Treasurer Managing Director of BlackRock Financial
Age: 39 Management, Inc. since January 1996. Director of
BlackRock Financial Management, Inc. from January
1993 to January 1996. Vice President and Associate of
BlackRock Financial Management, Inc. from January
1991 and April 1989 to January 1993 and January 1991,
respectively. From April 1987 to April 1989, Assistant
Vice President at The First Boston Corporation in the
CMO/ABO Administration Department. Previously
affiliated with Deloitte Haskins & Sells (now Deloitte &
Touche LLP).
Karen H. Sabath Secretary Managing Director of BlackRock Advisors, Inc. since
Age: 34 January, 1993. Managing Director of BlackRock
Financial Management, Inc. since January 1993. Vice
President and Associate of BlackRock Financial
Management, Inc. from January 1989 and August 1988
to January 1993 and January 1989, respectively. From
June 1986 to July 1988, Associate at The First Boston
Corporation in the Mortgage Finance Department.
From August 1988 to December 1992, Associate Vice
President of BlackRock Advisers.
Richard M. Shea, Esq. Vice President Effective January 2000 Managing Director of
Age: 40 BlackRock Financial Management, Inc. Director of
BlackRock Financial Management, Inc. from January
1996 to January 2000. Vice President of BlackRock
Financial Management, Inc. from February 1993 to
January 1996. From December 1988 to February 1993,
Associate Vice President and Tax Counsel at Prudential
Securities Incorporated. From August 1984 to
December 1988, Senior Tax Specialist at Laventhol &
Horwath.
</TABLE>
* Directors who are directors, officers or employees of the Adviser.
** Directors who may be deemed to be "interested persons" of the Fund.
Each Director (other than any Director who is a partner, director, officer
or employee of the Adviser or any affiliate thereof or successor thereto)
will receive no compensation for serving as Director of the Fund. Inasmuch
as each Director is also a Director of the Trusts and the other closed-end
investment companies in the BlackRock fund complex, it is anticipated that
the aggregate annual compensation to each Director for service to
investment companies in the BlackRock fund complex will be approximately
$160,000. Each Director is entitled to one vote on each matter requiring
the Directors to take any action or consent to the taking of any action. In
all cases in which a Director vote is required, only the vote of the
Directors present (whether in person or by telephone) and eligible to vote
with respect to such matter will be taken into consideration in determining
whether consent has been given or withheld. On each matter on which
Directors vote, each Director may give or withhold his or her vote as he or
she deems appropriate in his or her sole discretion.
Messrs. Fink, Schlosstein, Kapito, Gabbay, Kong, Sabath and Shea also serve
in the same capacity as a director and/or officer, as the case may be, of
each of the other closed end investment companies in the BlackRock fund
complex. In addition, the Adviser or a subsidiary serves as investment
adviser to the BlackRock open-end funds consisting of 7 Fund and 36
Portfolios, and serves as sub-adviser for one other company.
ITEM 19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
1. The BCT Trust, which has offices at 345 Park Avenue, New
York, New York 10154, owns 100% of the voting shares of the
Registrant. The BCT Trust was incorporated under the laws of
the State of Maryland on October 1, 1992.
2. See Item 19.1.
3. None.
ITEM 20. INVESTMENT ADVISORY AND OTHER SERVICES
1-6. See Item 9 - Management.
7. Deloitte & Touche LLP, 2 World Financial Center, New York,
New York 10281- 1431. They will serve as independent
auditors of the Fund and express an opinion on the financial
statement based on the audit.
8. None.
ITEM 21. BROKERAGE ALLOCATION AND OTHER PRACTICES
1. Not Applicable.
2. None.
3. Not Applicable.
4. None.
5. None.
ITEM 22. TAX STATUS
The following discussion is based on the advice of Skadden, Arps, Slate,
Meagher & Flom LLP and, except as otherwise indicated, reflects provisions
of the Internal Revenue Code of 1986, as amended (the "Code") as of the
date of this registration statement. In addition, the following discussion
is a general summary of certain of the current federal income tax laws
regarding the Fund and investors in the shares, and does not purport to
deal with all of the federal income tax consequences or any of the state or
other tax considerations applicable to the Fund, or to all categories of
investors, some of which may be subject to special rules. Prospective
investors should consult their own tax advisors regarding the federal,
state, local, foreign and other tax consequences to them of investments in
the Fund, including the effects of any changes, including proposed changes,
in the tax laws.
Taxation of the Fund. The Fund and the Adviser intend to qualify the Fund
as a RIC under Subchapter M of the Code. If the Fund so qualifies, the Fund
will not be subject to federal income tax on its net investment income and
net short-term capital gains, if any, realized during any fiscal year to
the extent that the Fund distributes such income and capital gains to
shareholders.
In order to qualify as a RIC, the Fund must, among other things, (a) derive
at least 90% of its gross income from dividends, interest, payments with
respect to loans of securities and gains from the sale or other disposition
of securities or certain other related income; (b) diversify its holdings
so that at the end of each fiscal quarter (i) at least 50% of the value of
the Fund's assets is represented by cash, United States government
securities, securities of other RICs, and other securities which, with
respect to any one issuer, do not represent more than 5% of the value of
the Fund's assets nor more than 10% of the voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's assets is
invested in securities of any one issuer other than United States
government securities or the securities of other RICs; and (c) distribute
to its shareholders at least 90% of its net investment income (including
tax-exempt interest and net short-term capital gain but not net capital
gain, which is the excess of net long-term capital gain over net short-term
capital loss). If for any other reason the Fund does not qualify as a RIC,
the Fund will be taxable as an ordinary corporation which would have a
material adverse effect on the Fund.
So long as the Fund qualifies as a RIC, the Fund will not be subject to
federal tax on the income so distributed. However, the Fund would be
subject to federal and possibly state corporate income tax (currently at a
maximum federal tax rate of 35%) on any undistributed income other than
tax-exempt income from municipal securities. Under the Code, amounts not
distributed by a RIC on a timely basis in accordance with a calendar year
distribution requirement are subject to a 4% excise tax. To avoid the
imposition of such tax, the Fund must distribute, in each calendar year, an
amount at least equal to the sum of (a) 98% of the ordinary income for such
calendar year; (b) 98% of the net capital gains for the one-year period
ending on October 31 of such calendar year (unless the Fund has a fiscal
year ending in November or December and irrevocably elects to use that
fiscal year as the one-year period); and (c) 100% of all ordinary income
and net capital gains from prior years that were not previously
distributed. For purposes of the excise tax, any income or capital gains
retained by, and taxed in the hands of, the Fund are treated as having been
distributed.
Liquidating distributions which in the aggregate exceed a shareholder's
basis in shares will be treated as gain from the sale of shares. If a
shareholder receives in the aggregate liquidating distributions which are
less than such basis, such shareholder will recognize a loss to that
extent.
Dividends and other distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made. Any
dividends declared by the Fund in October, November or December and made
payable to shareholders of record in such a month will be taxable to
shareholders as of December 31, provided that the dividend is paid in the
following January.
If a shareholder purchases shares at a cost that reflects an anticipated
dividend, such dividend will be taxable even though it represents
economically in whole or in part a return of the purchase price.
The Fund will, within 60 days after the close of its taxable year, send
written notices to its sole shareholder regarding the tax status of all
distributions made during the year.
In general, if a share of the Fund is sold, the seller will recognize gain
or loss equal to the difference between the amount realized on the sale and
the seller's adjusted basis in the share. Any gain or loss realized upon a
sale of shares by a shareholder who is not a dealer in securities will be
treated as capital gain or loss, and will be long-term capital gain or loss
if the shares were held for more than six months. However, any loss
recognized by a shareholder within six months of purchasing the shares will
be treated as a long-term capital loss to the extent of any long-term
capital gain distributions received by the shareholder and the
shareholder's share of undistributed long-term capital gains. In addition,
any loss realized on a sale of shares will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30
days before the disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.
ITEM 23. FINANCIAL STATEMENTS
Not Applicable.
PART C
ITEM 24.
FINANCIAL STATEMENTS AND EXHIBITS
(1) Not Applicable.
(2) (a) Articles of Incorporation.
(b) By-Laws.
(c) None.
(d) Form of Stock Certificate.
(e) None.
(f) None.
(g) Form of Investment Advisory Agreement.
(h) Form of Placement Agent Agreement.
(i) None.
(j) Form of Custodian Agreement.
(k) Form of Administration Agreement.
(l) Not Applicable.
(m) None.
(n) Not Applicable.
(o) Not Applicable.
(p) None.
(q) None.
(r) None.
ITEM 25. MARKETING ARRANGEMENTS
None.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not Applicable.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Fund does not control any person.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES OF THE FUND
Title of Class Number of Record Holders
-------------- ------------------------
Voting Shares 1
ITEM 29. INDEMNIFICATION
Under the Fund's By-laws, the Fund agrees to indemnify the Directors or
officers of the Fund (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 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 Fund
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 those Directors or officers who are directors,
officers or employees of the Adviser ("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 Directors.
Further, pursuant to the Advisory Agreement, the Fund agrees to indemnify
the Adviser and each of the Adviser's partners, officers, employees,
agents, associates and controlling persons and the partners, officers,
employees and agents thereof (including any individual who serves at the
Adviser's request as director, officer, partner, trustee or the like of
another corporation)(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 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 with respect to the services provided hereunder or thereafter
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 Fund 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 or (iv)
reckless disregard of the duties involved in the conduct of his position.
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 Directors.
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "1933 Act") may be permitted to the Directors and
officers, the Fund has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such
liabilities under the 1933 Act (other than for expenses incurred in a
successful defense) is asserted against the Fund by the Directors or
officers in connection with the shares, the Fund 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 of
whether such indemnification by it is against public policy as expressed in
such Act and will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and directors of the Adviser,
reference is made to the Adviser's current Form ADV filed under the
Investment Advisors Act of 1940, as amended, incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Fund are maintained in part at the office
of the Adviser at 400 Bellevue Parkway, Wilmington, Delaware 19809, or its
subsidiary, BlackRock Financial Management Inc., at 345 Park Avenue, New
York, New York 10154, in part at the offices of the Custodian and in part
at the offices of the Administrator, State Street Bank & Trust Company,
with offices at One Heritage Drive, North Quincy, Massachusetts, 02121 and
Princeton Administrators L.P., 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, respectively.
ITEM 32. MANAGEMENT SERVICES
Except as described above in Item 9 - Management, the Fund is not a party
to any management service related contract.
ITEM 33. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of 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, State of New York, on the 17th day of February, 2000.
BCT Subsidiary Inc.
(Registrant)
By /s/ James Kong
----------------------------
Title: Assistant Treasurer
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Page
Number Exhibit Number
Exhibit A Articles of Incorporation......................................
Exhibit B By-Laws........................................................
Exhibit C None...........................................................
Exhibit D Form of Stock Certificate......................................
Exhibit E None...........................................................
Exhibit F None...........................................................
Exhibit G Form of Investment Advisory Agreement..........................
Exhibit H Form of Placement Agent Agreement..............................
Exhibit I None...........................................................
Exhibit J Form of Custodian Agreement....................................
Exhibit K Form of Administration Agreement...............................
Exhibit L Not Applicable.................................................
Exhibit M None...........................................................
Exhibit N Not Applicable.................................................
Exhibit O Not Applicable.................................................
Exhibit P None...........................................................
Exhibit Q None...........................................................
Exhibit R None...........................................................
ARTICLES OF INCORPORATION
OF
BCT SUBSIDIARY INC.
* * * * *
ARTICLE I
THE UNDERSIGNED, Asher Martin Rubin, whose post office
address is 10 Light Street, Baltimore, Maryland 21202, being at least
eighteen (18) years of age, hereby forms a corporation under and by virtue
of the Maryland General Corporation Law.
ARTICLE II
NAME
The name of the Corporation is BCT Subsidiary Inc. (the
"Corporation").
ARTICLE III
PURPOSES AND POWERS
The purposes for which the Corporation is formed are to act
as an investment company under the federal Investment Company Act of 1940,
as amended (the "1940 Act"), and to exercise and enjoy all of the general
powers, rights and privileges granted to, or conferred upon, corporations
by the Maryland General Corporation Law now or hereafter in force.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the
resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, a corporation of the State of Maryland, and
the post office address of the resident agent is 32 South Street,
Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock of all
classes which the Corporation shall have authority to issue is Two Hundred
Million (200,000,000) shares, all of which shall have a par value of one
cent ($.01) per share and of the aggregate par value of Two Million Dollars
($2,000,000).
(2) (a) The Board of Directors of the Corporation is
authorized to classify or to reclassify, from time to time, any unissued
shares of stock of the Corporation, whether now or hereafter authorized, by
setting, changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms and conditions of or rights to require redemption
of the stock.
(b) Without limiting the generality of
the foregoing, the dividends and distributions or other payments with
respect to the stock of the Corporation, and with respect to each class
that hereafter may be created, shall be in such amount as may be declared
from time to time by the Board of Directors, and such dividends and
distributions may vary from class to class to such extent and for such
purposes as the Board of Directors may deem appropriate, including, but not
limited to, the purpose of complying with requirements of regulatory or
legislative authorities.
(c) Until such time as the Board of
Directors shall provide otherwise pursuant to the authority granted in this
section, (2) all the authorized shares of the Corporation are designated as
Common Stock. Shares of the Common Stock and the holders thereof, and
shares of any class and the holders thereof, shall be subject to the
following provisions, provided, however, that if no shares of any class
other than Common Stock are outstanding, the shares of the Common Stock and
the holders thereof shall nevertheless be subject to the following
provisions except to the extent that such provisions are by their terms
applicable only when shares of two or more classes are outstanding.
(i) The net asset value of each
share of the Corporation's capital stock issued, sold or purchased at net
asset value shall be the current net asset value per share as determined in
accordance with procedures adopted from time to time by the Board of
Directors which comply with the 1940 Act.
(ii) Shares of each class of stock
shall be entitled to such dividends or distributions, in stock or in cash
or both, as may be declared from time to time by the Board of Directors,
acting in its sole discretion, with respect to such class.
(iii) In the event of the
liquidation or dissolution of the Corporation, the holders of the Common
Stock of the Corporation's stock shall be entitled to receive all the
assets of the Corporation not attributable to other classes of stock
through any preference. The assets so distributable to the stockholders
shall be distributed among such stockholders in proportion to the number of
shares of that class held by them and recorded on the books of the
Corporation.
(iv) Unless otherwise expressly
provided in these Articles of Incorporation, including any Articles
Supplementary creating any class of capital stock, on each matter submitted
to a vote of stockholders, each holder of a share of capital stock of the
Corporation shall be entitled to one vote for each share standing in such
holder's name on the books of the Corporation, irrespective of the class
thereof, and all shares of all classes of capital stock shall vote together
as a single class; provided, however, that as to any matter with respect to
which a separate vote of any class is required by the 1940 Act or any
rules, regulations or orders issued thereunder, or the Maryland General
Corporation Law, such requirement as to a separate vote by that class shall
apply in lieu of a vote of all classes voting together as a single class as
described above.
(v) The Corporation shall be
entitled to purchase shares of its capital stock, to the extent that the
Corporation may lawfully effect such purpose under the laws of the State of
Maryland, upon such terms and conditions and for such consideration as the
Board of Directors shall deem advisable.
(vi) All shares purchased by the
corporation shall constitute authorized but unissued shares and the number
of the authorized shares of stock of the Corporation shall not be reduced
by the number of any shares purchased by it. Unless and until their
classification is changed in accordance with section (2) of this Article V,
all shares of capital stock so purchased shall continue to belong to the
same class to which they belonged at the time of their purchase.
(vii) The Corporation may issue
shares of stock in fractional denominations to the same extent as its whole
shares, and shares in fractional denominations shall be shares of capital
stock having proportionately to the respective fractions represented
thereby all the rights of whole shares, including without limitation, the
right to vote, the right to receive dividends and distributions, and the
right to participate upon liquidation of the Corporation, but excluding the
right to receive a stock certificate representing fractional shares.
(viii) Any purchase or transfer or
purported purchase or transfer of capital stock to (i) the United States,
any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing; (ii) any organization (other than a farmer's cooperative
described in ss.521 of the Internal Revenue Code of 1986, as amended (the
"Code" that is exempt from the tax imposed by 26 U.S.C. ss.1-1399 and not
subject to the tax imposed by 26 U.S.C. ss.511 or (iii) any rural electric
or telephone cooperative described in ss.1381(1)(2)(C) of the Code shall be
void. Any capital stock purportedly transferred to or retained by such an
entity may, at the option of the Corporation, be repurchased by the
Corporation at the lesser of market value or net asset value at the time of
repurchase.
(ix) All persons who shall acquire
capital stock or other securities of the Corporation shall acquire the same
subject to the provisions of these Articles of Incorporation and the
By-Laws of the Corporation, as each may be amended from time to time.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
(1) The number of directors of the Corporation shall
initially be nine, which number may be increased or decreased by or
pursuant to the By-Laws of the Corporation but shall never be less than two
(2), unless the Corporation has three (3) or more stockholders during which
time the number of directors shall never be less than three (3). In
addition, and notwithstanding the preceding sentence, the number of the
Corporation's directors shall be increased by or pursuant to the
Corporation's By-Laws to a number greater than or equal to three prior to
or at the Corporation's first annual meeting of stockholders (the "initial
annual meeting"). The names of the persons who shall act as directors until
the initial annual meeting and until their successors are duly elected and
qualify are:
Dr. Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
Laurence D. Fink
James Clayburn LaForce, Jr.
Walter F. Mondale
Ralph L. Schlosstein
Beginning with the initial annual meeting, the directors
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 directors constituting the entire Board of
Directors. At the initial annual meeting of stockholders, Class I directors
shall be elected for a one-year term, Class II directors for a two-year
term and Class III directors for a three-year term. At each annual meeting
of stockholders beginning with the annual meeting of stockholders next
succeeding the initial annual meeting, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. A director elected at an annual meeting shall hold office until the
annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes, as of the annual meeting of stockholders
next succeeding any such change, so as to maintain a number of directors in
each class as nearly equal as possible. In no case shall a decrease in the
number of directors shorten the term of any incumbent director. Any vacancy
on the Board of Directors that results from an increase in the number of
directors may be filled by a majority of the entire Board of Directors,
provided that a quorum is present, and any other vacancy occurring in the
Board of Directors may be filled by a majority of the directors then in
office, whether or not sufficient to constitute a quorum, or by a sole
remaining director; provided, however, that if the stockholders of any
class of the Corporation's capital stock are entitled separately to elect
one or more directors, a majority of the remaining directors elected by
that class or the sole remaining director elected by that class may fill
any vacancy among the number of directors elected by that class. A director
elected by the Board of Directors to fill any vacancy in the Board of
Directors shall serve until the next annual meeting of stockholders and
until his successor shall be elected and shall qualify, subject, however,
to prior death, resignation, retirement, disqualification or removal from
office. At any annual meeting of stockholders, any director elected to fill
any vacancy in the Board of Directors that has arisen since the preceding
annual meeting of stockholders (whether or not any such vacancy has been
filled by election of a new director by the Board of Directors) shall hold
office for a term which coincides with the remaining term of the class to
which such directorship was previously assigned, if such vacancy arose
other than by an increase in the number of directors, and until his
successor shall be elected and shall qualify. In the event such vacancy
arose due to an increase in the number of directors, any director so
elected to fill such vacancy at an annual meeting shall hold office for a
term which coincides with that of the class to which such directorship has
been apportioned as heretofore provided, and until his successor shall be
elected and shall qualify. A director may be removed for cause only, and
not without cause, and only by action taken by the holders of at least
seventy-five percent (75%) of the shares of capital stock then entitled to
vote in an election of such director.
(2) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of capital
stock, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, subject to such limitations as may
be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the Maryland General Corporation Law or the 1940 Act.
(3) Each person who at any time is or was a director or
officer of the Corporation shall be indemnified by the Corporation to the
fullest extent permitted by the Maryland General Corporation Law as it may
be amended or interpreted from time to time, including the advancing of
expenses, subject to any limitations imposed by the 1940 Act and the Rules
and Regulations promulgated thereunder. Furthermore, to the fullest extent
permitted by Maryland law, as it may be amended or interpreted from time to
time, subject to the limitations imposed by the 1940 Act and the Rules and
Regulations promulgated thereunder, no director or officer of the
Corporation shall be personally liable to the Corporation or its
stockholders. No amendment of the Charter of the Corporation or repeal of
any of its provisions shall limit or eliminate any of the benefits provided
to any person who at any time is or was a director or officer of the
Corporation under this Section in respect of any act or omission that
occurred prior to such amendment or repeal.
(4) The Board of Directors of the Corporation shall have the
exclusive authority to make, alter or repeal from time to time any of the
By-Laws of the Corporation except any particular By-Law which is specified
as not subject to alteration or repeal by the Board of Directors, subject
to the requirements of the 1940 Act and the Rules and Regulations
promulgated thereunder.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No stockholder of the Corporation shall by reason of his
holding shares of capital stock have any preemptive or preferential right
to purchase or subscribe to any shares of capital stock of the Corporation,
now or hereafter authorized, or any notes, debentures, bonds or other
securities convertible into shares of capital stock, now or hereafter to be
authorized, whether or not the issuance of any such shares of capital
stock, or notes, debentures, bonds or other securities would adversely
affect the dividend or voting rights of such stockholder; and the Board of
Directors may issue shares of any class of capital stock of the
Corporation, or any notes debentures, bonds, or other securities
convertible into shares of any class of capital stock of the Corporation,
either, whole or in part, to the existing stockholders.
ARTICLE VIII
CERTAIN VOTES OF STOCKHOLDERS
(1) Except as otherwise provided in these Articles of
Incorporation and notwithstanding any provision of the Maryland General
Corporation Law (other than Sections 3-601 through 3-603 of the Maryland
General Corporation Law or any successors thereto) requiring approval by
the stockholders (or any class of stockholders) of any action by the
affirmative vote of a greater proportion than a majority of the votes
entitled to be cast on the matter, any such action may be taken or
authorized upon the concurrence of a majority of the number of votes
entitled to be cast thereon (or a majority of the votes entitled to be cast
thereon as a separate class).
(2) Notwithstanding the terms of Section 3-603(e)(1)(iv) of
the Maryland General Corporation Law (or any successor thereto) and the
provisions of Section (1) of this Article VIII, the Corporation hereby
expressly elects to be subject to the requirements of Section 3-602; of the
Maryland General Corporation Law. The amendment, alteration, modification,
or repeal of this Section (2) of Article VIII of these Articles of
Incorporation shall require the vote specified in Section 3-602 of the
Maryland General Corporation Law.
ARTICLE IX
DETERMINATION BINDING
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting practice by or
pursuant to the authority of the direction of the Board of Directors, as to
the amount of assets, obligations or liabilities of the Corporation, as to
the amount of net income of the Corporation from dividends and interest for
any period or amounts at any time legally available for the payment of
dividends, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purpose for creating reserves or as
to the use, alteration or cancellation of any reserves or charges (whether
or not any obligation or liability for which such reserves or charges shall
have been created, shall have been paid or discharged or shall be then or
thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to
the issuance, sale, redemption or other acquisition or disposition of
securities or shares of capital stock of the Corporation, and any
reasonable determination made in good faith by the Board of Directors shall
be final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of these Articles of
Incorporation shall be effective to (a) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the 1940 Act,
or of any valid rule, regulation or order of the Securities and Exchange
Commission thereunder or (b) protect or purport to protect any director or
officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
ARTICLE X
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
ARTICLE XI
LIMITED TERM OF EXISTENCE
The Corporation shall have a limited period of existence and
shall cease to exist at the close of business on December 31, 2009, except
that the Corporation shall continue to exist for the purpose of paying,
satisfying, and discharging any existing debts or obligations, collecting
and distributing its assets, and doing all other acts required to liquidate
and wind up its business and affairs. After the close of business on
December 31, 2009, if the Corporation has not liquidated and wound up its
business and affairs, the directors shall become trustees of the
Corporation's assets for purposes of liquidation with the full powers
granted to directors of a corporation which has voluntarily dissolved under
Subtitle 4 of Title 3 of the Maryland General Corporation Law or any
successor statute as are necessary to liquidate the Corporation and wind up
its affairs, but in no event with lesser powers than the powers granted by
such subtitle granted under the Maryland General Corporation Law as of the
date of incorporation of the Corporation.
The Board of Directors may, to the extent it deems it
appropriate, adopt a plan of termination at any time during the twelve
months immediately preceding December 31, 2009, which plan of termination
may set forth the terms and conditions for implementing the termination of
the Corporation's existence under this Article XI. Stockholders of the
Corporation shall not be entitled to vote on the adoption of any such plan
or the termination of the Corporation's existence under this Article XI.
ARTICLE XII
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of a
majority of the total number of directors fixed in accordance with the
By-Laws of the Corporation and the favorable vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation entitled to be voted on the matter shall be required to
approve, adopt or authorize an amendment to these Articles of Incorporation
that makes the Common Stock or any other class of capital stock a
"redeemable security" as that term is defined in the 1940 Act.
The Corporation shall notify the holders of all shares of
capital stock of the approval, in accordance with the preceding paragraph
of this Article XII, of any amendment to these Articles of Incorporation
that makes the Common Stock a "redeemable security", as that term is
defined in the 1940 Act, no later than thirty (30) days prior to the date
of filing of such amendment with the State Department of Assessments and
Taxation of the State of Maryland (or any successor agency); such amendment
may not be so filed, however, until the later of (a) ninety (90) days
following the date of approval of such amendment by the holders of shares
of capital stock in accordance with the preceding paragraph of this Article
XII and (b) the next January l or July l, whichever is sooner, following
the date of such approval by holders of shares of capital stock.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of these Articles of Incorporation or
the By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law), the amendment or repeal of Section
(1), Section (3), or Section (4) of Article VI, Section (l) of Article
VIII, Article X, Article XI, Article XII or this Article XIII of these
Articles of Incorporation shall require the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares then entitled to be
voted on the matter.
IN WITNESS WHEREOF, the undersigned incorporator of BCT Subsidiary
Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be his act and further acknowledges that, to the
best of his knowledge, the matters and facts set forth therein are true in
all material respects under the penalties of perjury.
Dated the 12th day of November, 1999.
/s/ Asher Martin Rubin
---------------------------
Asher Martin Rubin
BY-LAWS
OF
BCT SUBSIDIARY INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive offices of the Corporation shall be at 345 Park Avenue, New York,
New York 10019.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from time to
time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. An annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly be brought before the
meeting shall be held in May of each year.
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law or by the Articles of
Incorporation, may be called for any purpose or purposes by a majority of
the Board of Directors, the President, or on the written request of the
holders of at least 25% of the outstanding capital stock of the Corporation
entitled to vote at such meeting.
Section 3. Place of Meetings. Annual and special meetings of
the stockholders shall be held at such place within the United States as
the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of
the place, date and time of the holding of each annual and special meeting
of the stockholders and the purpose or purposes of each special meeting
shall be given personally or by mail, not less than ten nor more than
ninety days before the date of such meeting, to each stockholder entitled
to vote at such meeting and to each other stockholder entitled to notice of
the meeting. Notice by mail shall be deemed to be duly given when deposited
in the United States mail addressed to the stockholder at his address as it
appears on the records of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by proxy, or
who shall, either before or after the meeting, submit a signed waiver of
notice which is filed with the records of the meeting. When a meeting is
adjourned to another time and place, unless the Board of Directors, after
the adjournment, shall fix a new record date for an adjourned meeting, or
the adjournment is for more than one hundred and twenty days after the
original record date, notice of such adjourned meeting need not be given if
the time and place to which the meeting shall be adjourned were announced
at the meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders, the
holders of a majority of the shares of stock of the Corporation entitled to
vote at the meeting, present in person or by proxy, shall constitute a
quorum for the transaction of any business, except as otherwise provided by
statute or by the Articles of Incorporation. In the absence of a quorum no
business may be transacted, except that the holders of a majority of the
shares of stock present in person or by proxy and entitled to vote may
adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until
the holders of the requisite amount of shares of stock shall be so present.
At any such adjourned meeting at which a quorum may be present any business
may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the laws of the State of
Maryland, the Investment Company Act of 1940, as amended, or other
applicable statute, the Articles of Incorporation, or these By-Laws, for
action upon any given matter shall not prevent action at such meeting upon
any other matter or matters which may properly come before the meeting, if
there shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action in respect
of such other matter or matters.
Section 6. Organization. At each meeting of the
stockholders, the Chairman of the Board (if one has been designated by the
Board), or in the Chairman of the Board's absence or inability to act, the
President, or in the absence or inability of the Chairman of the Board and
the President, a Vice President, shall act as chairman of the meeting. The
Secretary, or in the Secretary's absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
Section 8. Voting. Except as otherwise provided by statute
or the Articles of Incorporation, each holder of record of shares of stock
of the Corporation having voting power shall be entitled at each meeting of
the stockholders to one vote for every share of such stock standing in such
stockholder's name on the record of stockholders of the Corporation as of
the record date determined pursuant to Section 9 of this Article or if such
record date shall not have been so fixed, then at the later of (i) the
close of business on the day on which notice of the meeting is mailed or
(ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a
proxy signed by such stockholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except in those cases where such
proxy states that it is irrevocable and where an irrevocable proxy is
permitted by law. Except as otherwise provided by statute, the Articles of
Incorporation or these ByLaws, any corporate action to be taken by vote of
the stockholders shall be authorized by a majority of the total votes cast
at a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may
set a record date for the purpose of determining stockholders entitled to
vote at any meeting of the stockholders. The record date, which may not be
prior to the close of business on the day the record date is fixed, shall
be not more than ninety nor less than ten days before the date of the
meeting of the stockholders. All persons who were holders of record of
shares at such time, and not others, shall be entitled to vote at such
meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If the inspector shall not be so
appointed or if any of them shall fail to appear or act, the chairman of
the meeting may, and on the request of any stockholder entitled to vote
thereat shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully
the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting powers of each, the number of
shares represented at the meeting, the existence of a quorum, the validity
and effect of proxies, and shall receive votes, ballots or consents, hear
and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine
the result, and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or
matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Except as otherwise provided by statute or the Articles of Incorporation,
any action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the records of
stockholders meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and
(ii) a written waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in
the Articles of Incorporation, the business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. All powers
of the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law or
by the Articles of Incorporation or these By-Laws.
Section 2. Number of Directors. The number of directors
shall be fixed from time to time by resolution of the Board of Directors
adopted by a majority of the Directors then in office; provided, however,
that the number of directors shall in no event be less than two nor more
than fifteen. Any vacancy created by an increase in Directors may be filled
in accordance with Section 6 of this Article III. No reduction in the
number of directors shall have the effect of removing any director from
office prior to the expiration of his term. Directors need not be
stockholders.
Section 3. Election and Term of Directors. Each class of
Directors as to which vacancies exist shall be elected by written ballot at
the annual meeting of stockholders, or a special meeting held for that
purpose unless otherwise provided by statute or the Articles of
Incorporation. The term of office of each director shall be from the time
of his election and qualification until the expiration of the term of his
class or until the annual election of directors next succeeding his
election and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have
been removed as hereinafter provided in these By-Laws, or as otherwise
provided by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to the Board
or the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the
Corporation may be removed for cause (but not without cause) by the
stockholders by a vote of seventy- five percent (75%) of the votes entitled
to be cast for the election of directors.
Section 6. Vacancies. Subject to the provisions of the
Investment Company Act of 1940, as amended, any vacancies in the Board,
whether arising from death, resignation, removal, an increase in the number
of directors or any other cause, shall be filled by a vote of the Board of
Directors in accordance with the Articles of Incorporation.
Section 7. Place of Meetings. Meetings of the Board may be
held at such place as the Board may from time to time determine or as shall
be specified in the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board
may be held without notice at such time and place as may be determined by
the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board
may be called by two or more directors of the Corporation or by the
Chairman of the Board or the President.
Section 10. Annual Meeting. The annual meeting of each newly
elected Board of Directors (including a Board of Directors to which only
one class of Directors has been newly elected) shall be held as soon as
practicable after the meeting of stockholders at which directors were
elected. No notice of such annual meeting shall be necessary if held
immediately after the adjournment, and at the site, of the meeting of
stockholders. If not so held, notice shall be given as hereinafter provided
for special meetings of the Board of Directors.
Section 11. Notice of Special Meetings. Notice of each
special meeting of the Board shall be given by the Secretary as hereinafter
provided, in which notice shall be stated the time and place of the
meeting. Notice of each such meeting shall be delivered to each director,
either personally or by telephone or any standard form of
telecommunication, at least twenty-four hours before the time at which such
meeting is to be held, or mailed by first-class mail, postage prepaid,
addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with
the records of the meeting or who shall attend such meeting. Except as
otherwise specifically required by these ByLaws, a notice or waiver of
notice of any meeting need not state the purpose of such meeting.
Section 13. Quorum and Voting. One-third, but not less than
two, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by
statute, the Articles of Incorporation, these By-Laws, the Investment
Company Act of 1940, as amended, or other applicable statute, the act of a
majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board; provided, however, that the approval
of any contract with an investment adviser or principal underwriter, as
such terms are defined in the Investment Company Act of 1940, as amended,
which the Corporation enters into or any renewal or amendment thereof, the
approval of the fidelity bond required by the Investment Company Act of
1940, as amended, and the selection of the Corporation's independent public
accountants shall each require the affirmative vote of a majority of the
directors who are not interested persons, as defined in the Investment
Company Act of 1940, as amended, of the Corporation. In the absence of a
quorum at any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until a quorum
shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place were announced
at the meeting at which the adjournment was taken, to the other directors.
At any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 14. Organization. The Board may, by resolution
adopted by a majority of the entire Board, designate a Chairman of the
Board, who shall preside at each meeting of the Board. In the absence or
inability of the Chairman of the Board to preside at a meeting, the
President or, in his absence or inability to act, another director chosen
by a majority of the directors present, shall act as chairman of the
meeting and preside thereat. The Secretary (or, in his absence or inability
to act, any person appointed by the Chairman) shall act as secretary of the
meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a
Meeting. Subject to the provisions of the Investment Company Act of 1940,
as amended, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writings or writing are filed with the
minutes of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation
for services to the Corporation in their capacities as directors or
otherwise in such manner and in such amounts as may be fixed from time to
time by the Board.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and
disposal of portfolio securities and the other investment practices of the
Corporation are at all times consistent with the investment policies and
restrictions with respect to securities investments and otherwise of the
Corporation, as recited in the then-current registration statement of the
Corporation covering the offering and sale of shares of its capital stock,
as filed with the Securities and Exchange Commission (or as such investment
policies and restrictions may be modified by the Board of Directors or, if
required, by majority vote of the stockholders of the Corporation in
accordance with the Investment Company Act of 1940, as amended) and as
required by the Investment Company Act of 1940, as amended. The Board,
however, may delegate the duty of management of the assets and the
administration of its day to day operations to one or more individuals or
corporate management companies and/or investment advisers pursuant to a
written contract or contracts which have obtained the requisite approvals,
including the requisite approvals of renewals thereof, of the Board of
Directors and/or the stockholders of the Corporation in accordance with the
provisions of the Investment Company Act of 1940, as amended.
Section 18. Asset Value. The Board of Directors shall
determine the times and method of calculation of the net asset value per
share of the Fund subject to conditions with the requirements of the 1940
Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board of Directors
may from time to time, by resolution adopted by a majority of the whole
Board, designate one or more committees of the Board, each such committee
to consist of two or more directors and to have such powers and duties as
the Board of Directors may, by resolution, prescribe.
Section 2. General. One-third, but not less than two, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such
chairman or any two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member of any committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. The Board shall have the power at any time
to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member,
or to dissolve any such committee. Nothing herein shall be deemed to
prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation;
provided, however, that no such committee shall have or may exercise any
authority or power of the Board in the management of the business or
affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the
Corporation shall be a President, who shall be a director of the
Corporation, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may
be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any
instrument as an officer in more than one capacity. Such officers shall be
elected by the Board of Directors each year at its first meeting held after
the annual meeting of stockholders, each to hold office until the meeting
of the stockholders and until his successor shall have been duly elected
and shall have qualified, or until his death, or until he shall have
resigned, or have been removed, as hereinafter provided in these By-Laws.
The Board may from time to time elect, or delegate to the President the
power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of resignation to the Board,
the Chairman of the Board, President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it
shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any
officer, agent or employee of the Corporation may be removed by the Board
of Directors with or without cause at any time, and the Board may delegate
such power of removal as to agents and employees not elected or appointed
by the Board of Directors. Such removal shall be without prejudice to such
person's contract rights, if any, but the appointment of any person as an
officer, agent or employee of the Corporation shall not of itself create
contract rights.
Section 4. Vacancies. A vacancy in any office, either
arising from death, resignation, removal or any other cause, may be filled
for the unexpired portion of the term of the office which shall be vacant,
in the manner prescribed in these By-Laws for the regular election or
appointment to such office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power
may be delegated to any officer in respect of other officers under his
control.
Section 6. Bonds or Other Security. If required by the
Board, any officer, agent or employee of the Corporation shall give a bond
or other security for the faithful performance of his duties, in such
amount and with such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
stockholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and
affairs of the Corporation. He may employ and discharge employees and
agents of the Corporation, except such as shall be appointed by the Board,
and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have
such powers and perform such duties as the Board of Directors or the
President may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be
responsible for, all the funds and securities of the Corporation, except
those which the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that term is
defined in the Securities Exchange Act of 1934, as amended) pursuant to a
written agreement designating such bank or trust company or member of a
national securities exchange as a custodian or sub-custodian of the
property of the Corporation;
(b) keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables
to be deposited to the credit of the Corporation;
(d) receive, and give receipts for,
moneys due and payable, to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation
and supervise the investment of its funds as ordered or authorized by the
Board, taking proper vouchers therefor; and
(f) in general, perform all the duties
incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or
more books provided for the purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of
the Corporation and affix and attest the seal to all stock certificates of
the Corporation (unless the seal of the Corporation on such certificates
shall be a facsimile, as hereinafter provided) and affix and attest the
seal to all other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may
deem sufficient, the Board may confer for the time being the powers or
duties, or any of them, of such officer upon any other officer or upon any
director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under the
General Laws of the State of Maryland, including the advancing of expenses,
except that such indemnity shall not protect any such person against any
liability to the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or
director seeking indemnification was not liable on the merits or guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office, the decision by the
Corporation to indemnify such person must be based upon the reasonable
determination of independent counsel or nonparty independent directors,
after review of the facts, that such officer or director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
The Corporation may purchase insurance on behalf of an
officer or director protecting such person to the full extent permitted
under the General Laws of the State of Maryland, from liability arising
from his activities as officer or director of the Corporation. The
Corporation, however, may not purchase insurance on behalf of any officer
or director of the Corporation that protects or purports to protect such
person from liability to the Corporation or to its stockholders to which
such officer or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the
extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing
the number of shares of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case.
The certificates representing shares of stock shall be signed by or in the
name of the Corporation by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Books of Accounts and Record of Stockholders.
There shall be kept at the principal executive office of the Corporation
correct and complete books and records of account of all the business and
transactions of the Corporation. There shall be made available upon request
of any stockholder, in accordance with Maryland law, a record containing
the number of shares of stock issued during a specified period not to
exceed twelve months and the consideration received by the Corporation for
each such share.
Section 3. Transfers of Shares. Transfers of shares of stock
of the Corporation shall be made on the stock records of the Corporation
only by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary
or with a transfer agent or transfer clerk, and on surrender of the
certificate or certificates, if issued, for such shares properly endorsed
or accompanied by a duly executed stock transfer power and the payment of
all taxes thereon. Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive rights of a person in whose
name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation,
the rights to receive dividends or other distributions, and to vote as such
owner, and the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the part of any
other person.
Section 4. Regulations. The Board may make such additional
rules any regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation. It may appoint, or authorize any
officer or officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all certificates
for shares of stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificates representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, destruction or
mutilation of such certificate, and the Corporation may issue a new
certificate of stock in the place of any certificate theretofore issued by
it which the owner thereof shall allege to have been lost or destroyed or
which shall have been mutilated, and the Board may, in its discretion,
require such owner or his legal representatives to give to the Corporation
a bond in such sum, limited or unlimited, and in such form and with such
surety or sureties, as the Board in its absolute discretion shall
determine, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such
certificate, or issuance of a new certificate. Anything herein to the
contrary notwithstanding, the Board, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings
under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and
Distributions. The Board may fix, in advance, a date not more than ninety
days preceding the date fixed for the payment of any dividend or the making
of any distribution. Once the Board of Directors fixes a record date as the
record date for the determination of the stockholders entitled to receive
any such dividend or distribution, in such case only the stockholders of
record at the time so fixed shall be entitled to receive such dividend or
distribution.
Section 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy during
usual business hours the Corporation's By-Laws, minutes of the proceedings
of its stockholders, annual statements of its affairs, and voting trust
agreements on file at its principal office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and
shall bear, in addition to any other emblem or device approved by the Board
of Directors, the name of the Corporation, the year of its incorporation
and the words "Corporate Seal" and "Maryland". Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the 31st day of October.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall
be deposited with such banks or other depositories as the Board of
Directors of the Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safe keeping of such banks or other companies as
the Board of Directors of the Corporation may from time to time determine.
Every arrangement entered into with any bank or other company for the safe
keeping of the securities and investments of the Corporation shall contain
provisions complying with the Investment Company Act of 1940, as amended,
and the general rules and regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders or obligations for
the payment of money shall be signed by such officer or officers or person
or persons as the Board of Directors by resolution shall from time to time
designate.
Section 2. Sale or Transfer of Securities. Stock
certificates, bonds or other securities at any time owned by the
Corporation may be held on behalf of the Corporation or sold, transferred
or otherwise disposed of subject to any limits imposed by these By-Laws and
pursuant to authorization by the Board and, when so authorized to be held
on behalf of the Corporation or sold, transferred or otherwise disposed of,
may be transferred from the name of the Corporation by the signature of the
President or a Vice President or the Treasurer or pursuant to any procedure
approved by the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign
or certify the financial statements of the Corporation which are filed with
the Securities and Exchange Commission shall be selected annually by the
Board of Directors and ratified by the stockholders in accordance with the
provisions of the Investment Company Act of 1940, as amended.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual
period of the Corporation and at such other times as may be directed by the
Board. A report to the stockholders based upon each such examination shall
be mailed to each stockholder of the Corporation of record on such date
with respect to each report as may be determined by the Board, at his
address as the same appears on the books of the Corporation. Such annual
statement shall also be available at the annual meeting of stockholders and
be placed on file at the Corporation's principal office in the State of
Maryland. Each such report shall show the assets and liabilities of the
Corporation as of the close of the annual or quarterly period covered by
the report and the Securities in which the funds of the Corporation were
then invested. Such report shall also show the Corporation's income and
expenses for the period from the end of the Corporation's preceding fiscal
year to the close of the annual or quarterly period covered by the report
and any other information required by the Investment Company Act of 1940,
as amended, and shall set forth such other matters as the Board or such
firm of independent public accountants shall determine.
ARTICLE XIV
Amendments
The Board of Directors, by affirmative vote of a majority
thereof, shall have the exclusive right to amend, alter or repeal these
By-Laws at any regular or special meeting of the Board of Directors, except
any particular By-Law which is specified as not subject to alteration or
repeal by the Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.
BCT SUBSIDIARY INC.
The Corporation will furnish without charge to each stockholder who
so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof of the Corporation, and the qualifications, limitations, or
restrictions of such preferences and/or rights. The Corporation will also
furnish without charge to each stockholder who so requests a description of
the authority of the Corporation's board of directors to set the relative
rights and preferences of unissued series of the Corporation's capital
stock. Such requests may be made to the Corporation or the transfer agent.
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were written
out in full according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT -as tenants by the entireness (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants
in common ___________________________
(State)
</TABLE>
Additional abbreviations may also be used through not in the above list.
For value received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
_______________________________________________________________________ Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ------------------------------------------------------------------------------
Attorney to transfer the said Stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated: ________________________
--------------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATEVER.
COMMON STOCK
PAR VALUE $.01 Shares
INCORPORATED UNDER THE LAWS
OF THE STATE OF MARYLAND THIS CERTIFICATE
IS TRANSFERABLE IN
BOSTON, MA OR IN
NEW YORK, NY
CUSIP ____________
SEE REVERSE FOR CERTAIN
DEFINITIONS
BCT SUBSIDIARY INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULL PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
BCT Subsidiary Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be subject to all of the provisions
of the Articles of Incorporation and By-Laws of the Corporation, such as
from time to time amended, to all of which the holder by acceptance hereof
assents. This Certificate is not valid until countersigned and registered
by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
STATE STREET BANK and
TRUST COMPANY
BOSTON
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated _______, 1999, between BCT
Subsidiary Inc. (the "Fund"), a Maryland corporation, and
BlackRock Financial Management, Inc. (the "Adviser"), a
Delaware corporation.
In consideration of the mutual promises and agreements herein
contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General
----------
The Adviser agrees, all as more fully set forth herein, to
act as investment adviser to the Fund with respect to the investment of the
Fund's assets and to supervise and arrange the purchase of securities for
and the sale of securities held in the investment portfolio of the Fund.
2. Duties and obligations of the Adviser with
respect to investments of assets of the Fund
--------------------------------------------
(a) Subject to the succeeding provisions
of this section and subject to the direction and control of the Fund's
Board of Directors, the Adviser shall (i) act as investment adviser for and
supervise and manage the investment and reinvestment of the Fund's assets
and in connection therewith have complete discretion in purchasing and
selling securities and other assets for the Fund and in voting, exercising
consents and exercising all other rights appertaining to such securities
and other assets on behalf of the Fund; (ii) supervise continuously the
investment program of the Fund and the composition of its investment
portfolio; and (iii) arrange, subject to the provisions of paragraph 3
hereof, for the purchase and sale of securities and other assets held in
the investment portfolio of the Fund.
(b) In the performance of its duties under this
Agreement, the Adviser shall at all times conform to, and act in accordance
with, any requirements imposed by (i) the provisions of the Investment
Company Act of 1940 (the "Act"), and of any rules or regulations in force
thereunder; (ii) any other applicable provision of law; (iii) the
provisions of the Articles of Incorporation and By-Laws of the Fund, as
such documents are amended from time to time; (iv) the investment objective
and policies of the Fund as set forth in its Registration Statement on Form
N-2; and (v) any policies and determinations of the Board of Directors of
the Fund.
(c) The Adviser will bear all costs and
expenses of its partners and employees and any overhead incurred in
connection with its duties hereunder and shall bear the costs of any
salaries or directors fees of any officers or directors of the Fund who are
affiliated persons (as defined in the Act) of the Adviser except that the
Board of Directors of the Fund may approve reimbursement to the Adviser of
the pro rata portion of the salaries, bonuses, health insurance, retirement
benefits and all similar employment costs for the time spent on Fund
operations (other than the provision of investment advice) of all personnel
employed by the Adviser who devote substantial time to Fund operations or
the operations of other investment companies advised by the Adviser.
(d) The Adviser shall give the Fund the
benefit of its best judgment and effort in rendering services hereunder,
but the Adviser shall not be liable for any act or omission or for any loss
sustained by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement.
(e) Nothing in this Agreement shall
prevent the Adviser or any partner, officer, employee or other affiliate
thereof from acting as investment adviser for any other person, firm or
corporation, or from engaging in any other lawful activity, and shall not
in any way limit or restrict the Adviser or any of its partners, officers,
employees or agents from buying, selling or trading any securities for its
or their own accounts or for the accounts of others for whom it or they may
be acting, provided, however that the Adviser will undertake no activities
which, in its judgment, will adversely affect the performance of its
obligations under this Agreement.
3. Portfolio Transactions and Brokerage
------------------------------------
The Adviser is authorized, for the purchase and sale of the
Fund's portfolio securities, to employ such securities dealers as may, in
the judgment of the Adviser, implement the policy of the Fund to obtain the
best net results taking into account such factors as price, including
dealer spread, the size, type and difficulty of the transaction involved,
the firm's general execution and operational facilities and the firm's risk
in positioning the securities involved. Consistent with this policy, the
Adviser is authorized to direct the execution of the Fund's portfolio
transactions to dealers and brokers furnishing statistical information or
research deemed by the Adviser to be useful or valuable to the performance
of its investment advisory functions for the Fund.
4. Compensation of The Adviser
---------------------------
The Parties to this Agreement agree that the Adviser will
receive compensation for the services it renders under this Agreement from
The BlackRock Broad Investment Grade 2009 Term Trust Inc.
5. Indemnity
---------
(a) The Fund hereby agrees to indemnify the Adviser
and each of the Adviser's partners, officers, employees, agents, associates
and controlling persons and the partners, officers, employees and agents
thereof (including any individual who serves at the Adviser's request as
director, officer, partner, trustee or the like of another corporation)
(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 counsel fees (all as provided in
accordance with applicable corporate law) 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
or thereafter by reason of his having acted in any such capacity, except
with respect to any matter as to which he shall have been adjudicated not
to have acted in good faith in the reasonable belief that his action was in
the best interest of the Fund and furthermore, in the case of any criminal
proceeding, so long as he had no reasonable cause to believe that the
conduct was unlawful, provided, however, that (1) no indemnitee shall be
indemnified hereunder against any liability to the Fund or its shareholders
or any expense of such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence 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"), (2) as to any matter disposed
of by settlement or a compromise payment by such indemnitee, pursuant to a
consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless there has been a
determination that such settlement or compromise is in the best interests
of the Fund and that such indemnitee appears to have acted in good faith in
the reasonable belief that his action as in the best interest of the Fund
and did not involve disabling conduct by such indemnitee and (3) 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 full Board of the Fund.
(b) The Fund shall make advance payments in
connection with the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Fund receives a written
affirmation of the indemnitee's good faith belief that the standard of
conduct necessary for indemnification has been met and a written
undertaking to reimburse the Fund unless it is subsequently determined that
he is entitled to such indemnification and if the directors of the Fund
determine that the facts then known to them would not preclude
indemnification. In addition, at least one of the following conditions must
be met: (A) the indemnitee shall provide a security for his undertaking,
(B) the Fund shall be insured against losses arising by reason of any
lawful advances, or (C) a majority of a quorum consisting of directors of
the Fund who are neither "interested persons" of the Fund (as defined in
Section 2(a)(19) of the Act) nor parties to the proceeding ("Disinterested
Non-Party Directors") or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(c) All determinations with respect to
indemnification hereunder shall be made (1) by a final decision on the
merits by a court or other body before whom the proceeding was brought that
such indemnitee is not liable by reason of disabling conduct or, (2) in the
absence of such a decision, by (i) a majority vote of a quorum of the
Disinterested Non-Party Directors of the Fund, or (ii) if such a quorum is
not obtainable or event, if obtainable, if a majority vote of such quorum
so directs, independent legal counsel in a written opinion. All
determinations that advance payments in connection with the expense of
defending any proceeding shall be authorized shall be made in accordance
with the immediately preceding clause (2) above.
The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully entitled.
6. Duration and Termination
------------------------
This Agreement shall become effective on the date it is
approved by the stockholder of the Fund and shall continue in effect for a
period of two years and thereafter from year to year, but only so long as
such continuation is specifically approved at least annually in accordance
with the requirements of the Act.
This Agreement may be terminated by the Adviser at any time
without penalty upon giving the Fund sixty days written notice (which
notice may be waived by the Fund) and may be terminated by the Fund at any
time without penalty upon giving the Adviser sixty days notice (which
notice may be waived by the Adviser), provided that such termination by the
Fund shall be directed or approved by the vote of a majority of the
Directors of the Fund in office at the time or by the vote of the holders
of a "majority" (as defined in the Act) of the voting securities of the
Fund at the time outstanding and entitled to vote. This Agreement shall
terminate automatically in the event of its assignment (as "assignment" is
defined in the Act).
7. Notices
-------
Any notice under this Agreement shall be in writing to the
other party at such address as the other party may designate from time to
time for the receipt of such notice and shall be deemed to be received on
the earlier of the date actually received or on the fourth day after the
postmark if such notice is mailed first class postage prepaid.
8. Governing Law
-------------
This Agreement shall be construed in accordance with the
laws of the State of New York for contracts to be performed entirely
therein without reference to choice of law principles thereof and in
accordance with the applicable provisions of the Act.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized officers, all
as of the day and the year first above written.
BCT SUBSIDIARY INC.
[SEAL] By: _________________________________
Name:
Title:
BLACKROCK FINANCIAL MANAGEMENT, INC.
By: _________________________________
Name:
Title:
PLACEMENT AGENT AGREEMENT
PLACEMENT AGENT AGREEMENT dated as of November __,
1999 between BCT Subsidiary Inc., a Maryland corporation (the "Fund") and BFM
Advisory, Inc., a Delaware corporation (the "Placement Agent").
W I T N E S S E T H:
-------------------
WHEREAS, the Fund has requested the Placement Agent to act as
the exclusive placement agent of the Fund for the private placement to The
BlackRock Broad Investment Grade 2009 Term Trust Inc. (the "Purchaser") of
up to 2,957,093 shares of Common Stock of the Fund (the "Shares").
WHEREAS, the Placement Agent has indicated its willingness to
act as the exclusive placement agent of the Fund in the private placement
of the Shares.
NOW, THEREFORE, in consideration of the premises, the parties
agree as follows:
1. Certain Definitions. For all purposes of this Agreement,
except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall
have the meanings assigned to such terms in the Fund's Registration
Statement on Form N-2, dated November, 1999, as amended (the "Registration
Statement"). All other capitalized terms used herein shall have the
meanings specified herein.
2. Appointment as the Placement Agent. (a) The Fund appoints
the Placement Agent its exclusive placement agent for the private placement
of its Shares and acknowledges that the Placement Agent shall have the
exclusive right to assist the Fund in the placement of the Shares during
the term of this Agreement.
(b) In soliciting the Subscription Agreement for the
purchase of the Shares in accordance with clause (a) of this Section 2, the
Placement Agent shall act as agent for the Fund. The Placement Agent shall
make reasonable efforts to assist the Fund in obtaining performance by the
Purchaser. The Placement Agent shall have no liability to the Fund in the
event any such purchase is not consummated for any reason. The Placement
Agent shall not have any obligation to purchase, as principal, Shares under
any circumstances.
(c) The Fund and the Placement Agent agree that any
Shares the placement of which the Placement Agent arranges shall be placed
by the Placement Agent in reliance on the representations, warranties,
covenants and agreements of the Fund contained herein and on the terms and
conditions and in the manner provided herein.
(d) The Placement Agent shall be entitled to no
compensation from, or reimbursement of expenses by, the Fund in connection
with the performance by the Placement Agent of its duties hereunder.
3. Offers and Sales of the Shares. The offer and sale of the
Shares by the Fund is to be effected pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), provided by Section 4(2) thereof, which exempts transactions by an
issuer not involving any public offering. Offers and sales of the Shares by
the Fund will be made in accordance with the general provisions of
Regulation D under the Act. The Placement Agent and the Fund hereby
establish the following procedures in connection with the offer and sale of
the Shares:
(a) The offer and sale of the Shares will be made only to
a purchaser which qualifies as an accredited investor (as defined in Rule
501 of Regulation D under the Act).
(b) The Shares will be offered only by approaching the
Purchaser on an individual basis. The Shares will not be offered or sold by
any means of general solicitation or general advertising.
(c) Each Share shall be subject to the restrictions on
transfer thereof described in the Subscription Agreement (defined below)
and shall be subject to restrictive legends as described therein.
(d) The Fund's Subscription Agreement, dated November __,
1999 (the "Subscription Agreement") will be made available to the Purchaser
of Shares from the Fund, together with any supplements to such Subscription
Agreement which may have been prepared which describes, among other things
the Fund and the Shares, material agreements of the Fund and risks and
special considerations. The Subscription Agreement will contain a statement
expressly offering an opportunity for the Purchaser to ask questions of,
and receive answers from, the Fund concerning the offering of the Shares
and to obtain additional relevant information which the Fund possesses or
can acquire without unreasonable effort or expense.
(e) The Fund agrees to cooperate with the Placement Agent
in the preparation of the Subscription Agreement and in amending it as from
time to time may be necessary in connection with the initial issuance and
sale of the Shares.
The Placement Agent shall not be liable or responsible to the
Fund for any losses, damages or liabilities suffered or incurred by the
Fund arising from or relating to any resale or transfer of any Shares.
4. Representations and Warranties. The Fund represents and
warrants to the Placement Agent that:
(a) The Fund (i) has been duly organized and is validly
existing as a Corporation in good standing under the laws of the State of
Maryland and (ii) has the requisite corporate power and authority to sell,
issue and deliver the Shares and to execute and deliver the various
agreements referenced in the Registration Statement and perform its
obligations under such agreements. When the Shares are issued, delivered
and paid for as described in the Registration Statement, the same will be
duly authorized, validly issued, fully paid and nonassessable.
(b) The Fund is not in violation of its charter or
by-laws or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement or lease to which the Fund is a party or by which
it may be bound, and the execution and delivery of this Agreement and those
agreements specifically referred to in the Registration Statement and the
consummation of the transactions herein and therein contemplated will not
conflict with, or constitute a breach of or default under, the charter or
by-laws of the Fund or any material contract, indenture, mortgage, loan
agreement or lease, to which the Fund is a party or by which it may be
bound, or any law, administrative regulation or court decree.
(c) This Agreement has been duly authorized, executed and
delivered by the Fund and constitutes the legal, valid and binding
obligation of the Fund enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws relating to or affecting generally the enforcement of
creditors' rights or by general equitable principles.
(d) Assuming compliance with Section 5(b) hereof, no
consent, approval, authorization, order, registration or qualification of
or with any court or any regulatory authority or other governmental agency
or body (including the SEC) is required for the issuance, offer or sale of
the Shares in accordance with the terms of this Agreement or for the
consummation of the transaction contemplated by this Agreement.
(e) There are no legal or governmental proceedings
pending to which the Fund is a party or of which any property of the Fund
is the subject, other than legal or governmental proceedings which in each
case will not have a material adverse effect on the business, financial
condition, shareholders' equity or results of operations of the Fund; and
to the best of its knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(f) The offer, issuance, sale and delivery of the Shares
in accordance with the terms of this Agreement will constitute exempted
transactions under the Act pursuant to Section 4(2) thereof, and
registration of the Shares under the Act will not be required in connection
with any such offer, issuance, sale or delivery of the Shares.
(g) The Fund is registered with the SEC pursuant to
Section 8 of the Investment Company Act of 1940 as a closed-end,
non-diversified management investment company.
5. Covenants. (a) The Fund agrees that no future offer and sale
of Shares will be made if, as a result of the doctrine of "integration"
referred to in Rule 502 of Regulation D under the Act, Securities Act
Release No. 6389 (March 8, 1982), Securities Act Release Nos. 4434
(December 6, 1961), 4552 (November 6, 1962) and 4708 (July 9, 1964), and
various releases and "no action" letters issued or made available by the
SEC, such offer and sale would call into question the entitlement of the
Shares to the exemption from the registration requirements of the Act
provided by Section 4(2) thereof.
(b) The Placement Agent will at all times during the term
of this Agreement maintain its registration as a broker-dealer under the
Securities Exchange Act of 1934.
(c) The Placement Agent will endeavor, in cooperation
with the Fund, to qualify the Shares for offer and sale under the
applicable securities laws of such states and other jurisdictions of the
United States and other countries as the Fund and the Placement Agent shall
determine, and will maintain such qualifications in effect for as long as
may be required for the distribution of the Shares. The Fund and the
Placement Agent will file such statements and reports as may be required by
the laws of each jurisdiction in which the Shares have been qualified as
above provided.
6. Indemnification. (a) The Fund agrees to assume liability for
and to indemnify, protect, save and hold harmless the Placement Agent, each
individual, corporation, partnership, trust, association or other entity
("Person") controlling the Placement Agent, any affiliate of any such
Person or the Placement Agent and their respective directors, officers,
incorporators, shareholders, partners, servants, trustees, employees and
agents from and against any and all losses, liabilities, claims, damages,
penalties, causes of action, suits, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) or judgments of
whatever kind and nature, imposed upon, incurred by or asserted against
such indemnities, as incurred, which are based upon any untrue statement or
alleged untrue statement of a material fact in the Registration Statement,
or the omission or alleged omission therefrom of a material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The Placement Agent agrees to assume liability for
and to indemnify, protect, save and hold harmless the Fund, each Person
controlling the Fund, any affiliate of any such Person or the Fund and
their respective directors, officers, incorporators, shareholders,
partners, servants, trustees, employees and agents to the same extent as
the foregoing indemnity from the Fund to the Placement Agent.
(c) If any action, suit or proceeding is brought
involving any person in respect of which indemnity may be sought pursuant
to Section 6(a) or 6(b) hereof, the indemnifying party will, if requested
in writing within a reasonable time to do so, and at its own expense,
resist and defend such action, suit or proceeding or cause the same to be
resisted and defended by counsel designated by the indemnifying party
(which counsel shall be satisfactory to such indemnified parties) and
regardless of whether the indemnifying party is a party to the same, pay
all reasonable costs and expenses of such defense as incurred (including,
without limitation, reasonable attorneys' fees and expenses). In lieu of
requesting the indemnifying party to so resist and defend such action, suit
or proceeding and upon notice to the indemnifying party, any indemnified
party may choose to defend, or participate in the defense of, any such
action, suit or proceeding, at the expense of the indemnifying party;
provided, that in no event shall the indemnifying party be liable for the
fees and expenses of more than one counsel (in addition to any local
counsel) (and, in the case of a conflict of interest, separate from its own
counsel) for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances.
(d) The indemnity provided for in Section 6(a) hereof
will also extend to any supplemental material subsequently furnished to the
Placement Agent by the Fund and distributed to purchasers or prospective
purchasers during the term of this Agreement, unless the Fund instructs the
Placement Agent in writing not to distribute such material.
(e) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
this Section 6 is for any reason held unavailable (otherwise than in
accordance with the terms of this Section 6), the indemnifying party, on
the one hand, and any indemnified parties, on the other hand, sought to be
charged with any liability shall contribute to the aggregate costs of
satisfying such liability (i) in the proportion as is appropriate to
reflect the relative benefits received by the Fund and its shareholders on
the one hand and the Placement Agent on the other hand from the offering of
the Shares and the transactions and arrangements contemplated thereby or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Fund on the one hand and of the Placement Agent on the other
hand in connection with the statements or omissions that resulted in such
liability, as well as other relevant equitable considerations. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The obligations of the Fund under this Section 6 shall survive
any termination of this Agreement, in whole or in part.
7. Notices. Unless otherwise indicated, all notices required
under the terms and provisions hereof shall be in writing, either delivered
by hand, by mail (postage prepaid), or by telex, telecopier or telegram,
and any such notice shall be effective when received at the address
specified below.
If to the Fund:
BCT Subsidiary Inc.
345 Park Avenue
New York, New York 10154
Attention: Ralph L. Schlosstein, President
Telephone No.: (212) 754-5560
Facsimile No.: (212) 754-8760
If to the Placement Agent:
BFM Advisory, Inc.
345 Park Avenue
New York, New York 10154
Attention: Ralph L. Schlosstein, President
Telephone No.: (212) 754-5560
Facsimile No.: (212) 754-8760
or at such other address as such party may designate from time to time by
notice duly given in accordance with the terms of this Section 7 to the
other party hereto.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
9. Amendment and Termination; Successors; Counterparts. (a)
This Agreement shall become effective on the date first set forth above and
shall remain in effect for up to two years from such date and thereafter
from year to year provided such continuance is specifically approved at
least annually prior to each anniversary of such date by (a) Director
approval or by vote at a meeting of shareholders of the Fund of the lesser
of (i) 67 per cent of the Shares present or represented by proxy and (ii)
50 per cent of the outstanding Shares and (b) by the approval of the
Director who are not "interested persons" in the Fund (as defined in
Section 2(a) of the Investment Company Act of 1940).
(b) This Agreement may be terminated (a) by the Placement
Agent at any time without penalty by giving sixty (60) days' written notice
to the Fund which notice may be waived by the Fund; or (b) by the Fund at
any time without penalty upon sixty (60) days' written notice to the
Placement Agent (which notice may be waived by the Placement Agent).
(c) This Agreement shall be binding upon and inure
exclusively to the benefit of the parties hereto and their respective
successors and assigns and the indemnified parties referred to in Section 6
hereof. This Agreement may not be assigned by any party hereto absent the
prior written consent of the other party.
10. Captions. The captions in this Agreement are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
11. Effective Date. This Agreement shall terminate on December
31, 1999 unless extended by the Fund's Board of Directors.
12. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first above written.
BCT SUBSIDIARY INC.
By:__________________________
Name: Ralph L. Schlosstein
Title: President
BFM ADVISORY, INC.
By:__________________________
Name:
Title:
DRAFT
CUSTODIAN CONTRACT
Between
BCT SUBSIDIARY, INC.
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
1. Employment of Custodian and Property to be Held by It................1
2. Duties of the Custodian with Respect to Property of the
Fund Held By the Custodian...........................................1
2.1 Holding Securities............................................1
2.2 Delivery of Securities........................................2
2.3 Registration of Securities....................................4
2.4 Bank Accounts.................................................4
2.5 Availability of Federal Funds.................................5
2.6 Collection of Income..........................................5
2.7 Payment of Fund Monies........................................6
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased.....................................................7
2.9 Appointment of Agents.........................................7
2.10 Deposit of Fund Assets in Securities Systems..................7
2.11 Fund Assets Held in the Custodian's Direct Paper System.......9
2.12 Segregated Account...........................................10
2.13 Ownership Certificates for Tax Purposes......................10
2.14 Proxies......................................................11
2.15 Communications Relating to Fund Securities...................11
2.16 Reports to Fund by Independent Public Accountants............11
3. Proper Instructions.................................................11
4. Actions Permitted without Express Authority.........................12
5. Evidence of Authority...............................................12
6. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income...................13
7. Records.............................................................13
8. Opinion of Fund's Independent Accountant............................13
9. Compensation of Custodian...........................................14
10. Responsibility of Custodian.........................................14
11. Effective Period, Termination and Amendment.........................15
12. Successor Custodian.................................................15
13. Interpretive and Additional Provisions..............................16
14. Massachusetts Law to Apply..........................................17
15. Prior Contracts.....................................................17
16. Shareholder Communications Election.................................17
CUSTODIAN CONTRACT
This Contract between BCT Subsidiary, Inc., a corporation organized
and existing under the laws of XXXXXXX, having its principal place of
business at XXX, XXX,XXX, hereinafter called the "Fund", and State Street
Bank and Trust Company, a Massachusetts trust company, having its principal
place of business at 225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its
assets pursuant to the provisions of the Articles of Incorporation. The
Fund agrees to deliver to the Custodian all securities and cash owned by
it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the
Fund from time to time, and the cash consideration received by it for such
new or treasury shares of capital stock, $ XX par value, ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held or received by the Fund and
not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Section 3), the Custodian shall from time to time employ one or more
sub-custodians, but only in accordance with an applicable vote by the Board
of Directors of the Fund, and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held
By the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property,
including all securities owned by the Fund, other than (a)
securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities System"
and (b) commercial paper of an issuer for which State Street Bank
and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System
Account") only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.9 or into the name or
nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned
by the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but
only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer and certified by
the Secretary or an Assistant Secretary, specifying the
securities of the Fund to be delivered, setting forth the
purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment
companies having the same investment adviser as the Fund, or in the
name or nominee name of any agent appointed pursuant to Section 2.9
or in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the Custodian on
behalf of the Fund under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund
directs the Custodian to maintain securities in "street name", the
Custodian shall utilize its best efforts only to timely collect
income due the Fund on such securities and to notify the Fund on a
best efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the
account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3
under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of
Directors of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by
the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the
Fund and the Custodian, the Custodian shall, upon the receipt of
Proper Instructions, make federal funds available to the Fund as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
the Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to
which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely
basis all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
Without limiting the generality of the foregoing, the Custodian
shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due
the Fund on securities loaned pursuant to the provisions of Section
2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be
necessary to assist the Fund in arranging for the timely delivery
to the Custodian of the income to which the Fund is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out monies of the Fund in the
following cases only:
1) Upon the purchase of securities, options, futures contracts
or options on futures contracts for the account of the Fund
but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and
has been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name
of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.10 hereof, (c) in
the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11;
(d) in the case of repurchase agreements entered into
between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Fund or (e) for transfer to a time
deposit account of the Fund in any bank; such transfer may
be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions
as defined in Section 3;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof,
3) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments
for the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred
expenses;
4) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
5) For payment of the amount of dividends received in respect
of securities sold short;
6) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian in
advance of receipt of the securities purchased in the absence of
specific written instructions from the Fund to so pay in advance,
the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or trust company which is itself qualified under the Investment
Company Act of 1940, as amended, to act as a custodian, as its
agent to carry out such of the provisions of this Article 2 as the
Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by the Fund in a clearing
agency registered with the Securities and Exchange. Commission
under Section 17A of the Securities Exchange Act of 1934, which
acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of
the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Fund;
3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon
(i) receipt of advice from the Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account
of the Fund shall identify the Fund, be maintained for the
Fund by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the
Fund in the form of a written advice or notice and shall
furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System
for the account of the Fund;
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial certificate
required by Article 12 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securitiec
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of
the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against
the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made
whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of
the Fund which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account of
the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment
for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of
a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to
the Fund copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or
the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance
by the Fund with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of the Fund held by it
and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than
in the name of the Fund or a nominee of the Fund, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Fund such proxies, all
proxy soliciting materials and all notices relating to such
securities.
2.15 Communications Relating to Fund Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of
rights in connection therewith and notices of exercise of call and
put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Custodian
from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, the Custodian shall transmit
promptly to the Fund all written information received by the
Custodian from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect to
any tender offer, exchange offer or any other similar transaction,
the Fund shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
2.16 Reports to Fund by Independent Public Accountants. The Custodian
shall provide the Fund, at such times as the Fund may reasonably
require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of sufficient
scope and in sufficient detail, as may reasonably be required by
the Fund, to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
3. Proper Instructions
Proper Instructions as used herein means a writing signed or
initialed by one or more person or persons as the Board of Directors shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian
reasonably believes them to have been given by a person authorized to give
such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors of the Fund accompanied by a
detailed description of procedures approved by the Board of Directors,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford
adequate safeguards for the Fund's assets. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three-party agreement which requires a segregated asset
account in accordance with Section 2.12.
4. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Directors of the Fund.
5. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed
by it to be genuine and to have been properly executed by or on behalf of
the Fund. The Custodian may receive and accept a certified copy of a vote
of the Board of Directors of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors pursuant to the
Articles of Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
6. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information
to the entity or entities appointed by the Board of Directors of the Fund
to keep the books of account of the Fund and/or compute the net asset value
per share of the outstanding shares of the Fund or, if directed in writing
to do so by the Fund, shall itself keep such books of account and/or
compute such net asset value per share. If so directed, the Custodian shall
also calculate weekly the net income of the Fund as described in the Fund's
currently effective prospectus and shall advise the Fund and the Transfer
Agent weekly of the total amounts of such net income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the
weekly income of the Fund shall be made at the time or times described from
time to time in the Fund's currently effective prospectus.
7. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 3la-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation
of securities owned by the Fund and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
8. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may
from time to time request, to obtain from year to year favorable opinions
from the Fund's independent accountants with respect to its activities
hereunder in connection with the preparation of the Fund's Form N-2, and
Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
9. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between the Fund and the Custodian.
10. Responsibility of Custodian
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be
held harmless in acting upon any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be signed
by the proper party or parties, including any futures commission merchant
acting pursuant to the terms of a three-party futures or options agreement.
The Custodian shall be held to the exercise of reasonable care in carrying
out the provisions of this Contract, but shall be kept indemnified by and
shall be without liability to the Fund for any action taken or omitted by
it in good faith without negligence. It shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Fund) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
If the Fund requires the Custodian to take any action with respect
to securities, which action involves the payment of money or which action
may, in the opinion of the Custodian, result in the Custodian or its
nominee assigned to the Fund being liable for the payment of money or
incurring liability of some other form, the Fund, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to the
Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements and assumed settlement) or in the event
that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund's assets to the extent necessary to obtain
reimbursement.
11. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such delivery or
mailing; provided, however that the Custodian shall not act under Section
2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund
has approved the initial use of a particular Securities System, as required
by Rule 17f-4 under the Investment Company Act of 1940, as amended and that
the Custodian shall not act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors has approved the initial use of the
Direct Paper System; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal
or state regulations, or any provision of the Articles of Incorporation,
and further provided, that the Fund may at any time by action of its Board
of Directors (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
12. Successor Custodian
If a successor custodian shall be appointed by the Board of
Directors of the Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and
in the form for transfer, all securities then held by it hereunder and
shall transfer to an account of the successor custodian all of the Fund's
securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the
Board of Directors of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with
such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Directors shall have
been delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the Investment
Company Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other property
held by it under this Contract and to transfer to an account of such
successor custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of
the Custodian under this Contract.
In the event that securities, funds and other properties remain in
the possession of the Custodian after the date of termination hereof owing
to failure of the Fund to procure the certified copy of the vote referred
to or of the Board of Directors to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during
such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Contract relating to the
duties and obligations of the Custodian shall remain in full force and
effect.
13. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian
and the Fund, may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
14. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
15. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody
of the Fund's assets.
16. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by
issuers of securities for the names, addresses and holdings of beneficial
owners of securities of that issuer held by the bank unless the beneficial
owner has expressly objected to disclosure of this information. In order to
comply with the rule, the Custodian needs the Fund to indicate whether it
authorizes the Custodian to provide the Fund's name, address, and share
position to requesting companies whose securities the Fund owns. If the
Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes"
or does not check either "yes" or "no" below, the Custodian is required by
the rule to treat the Fund as consenting to disclosure of this information
for all securities owned by the Fund or any funds or accounts established
by the Fund. For the Fund's protection, the Rule prohibits the requesting
company from using the Fund's name and address for any purpose other than
corporate communications. Please indicate below whether the Fund consents
or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed as of the ____ _____ day of XXXXX,
1999.
ATTEST BCT SUBSIDIARY, INC.
By:___________________________
______________________________
Name:_________________________ Name:______________________
Title:_____________________
ATTEST STATE STREET BANK AND TRUST
COMPANY
By:___________________________
______________________________ Ronald E. Logue
Name:_________________________ Executive Vice President
DRAFT
DRAFT OF 11 NOVEMBER 1999
BCT SUBSIDIARY INC.
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made as of the __________ day of _________,
_____ between BCT SUBSIDIARY, INC., a Maryland corporation (the "Trust"), and
PRINCETON ADMINISTRATORS, L.P., a Delaware limited partnership (the
"Administrator").
WITNESSETH:
WHEREAS, the Trust is a diversified closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, the Trust has retained an investment adviser for the
purpose of investing its assets in securities and desires to retain the
Administrator for certain administrative services, and the Administrator is
willing to furnish such administrative services on the terms and conditions
hereinafter set forth,
NOW, THEREFORE, the parties hereto agree as follows:
1. The Trust hereby appoints the Administrator to provide the
services set forth below, subject to the overall supervision of the Board
of Directors of the Trust for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such appointment and agrees
during such period to render the services herein described and to assume
the obligations herein set forth, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors and
officers of the Trust, the Administrator shall provide facilities for
meetings of the Board of Directors and shareholders of the Trust and office
facilities and personnel to assist the officers of the Trust in the
performance of the following services:
(a) Oversee the determination and publication of the Trust's
net asset value in accordance with the Trust's policy as adopted from time
to time by the Board of Directors;
(b) Oversee the maintenance by State Street Bank and Trust
Company of certain books and records of the Trust as required under Rule
3la-1(b) (4) of the Investment Company Act;
(c) Prepare or arrange for preparation for review, approval
and execution by officers of the Trust the Trust's federal, state and local
income tax returns, and any other required tax returns, as may be mutually
agreed upon;
(d) Review the appropriateness of and arrange for payment of
the Trust's expenses;
(e) Prepare for review and approval by officers of the Trust
financial information for the Trust's semi-annual and annual reports, proxy
statements and other communications with shareholders required or otherwise
to be sent to Trust shareholders, and arrange for the printing and
dissemination of such reports and communications to shareholders;
(f) Prepare for review by an officer of the Trust the
Trust's periodic financial reports required to be filed with the Securities
and Exchange Commission (the "SEC") on Form N-SAR and Form N-2 and such
other reports, forms or filings, as may be mutually agreed upon;
(g) Prepare reports relating to the business and affairs of
the Trust as may be mutually agreed upon and not otherwise appropriately
prepared by the Trust's investment adviser, custodian, counsel or auditors;
(h) Prepare such information and reports as may be required
by any stock exchange or exchanges on which the Trust's shares are listed;
(i) Make such reports and recommendations to the Board
concerning the performance of the independent accountants as the Board may
reasonably request or deems appropriate;
(j) Make such reports and recommendations to the Board
concerning the performance and fees of the Trust's custodian, transfer and
dividend disbursing agent as the Board may reasonably request or deems
appropriate; (k) Oversee and review calculations of fees paid to the
Administrator, the investment adviser and the custodian;
(l) Consult as necessary with the Trust's officers,
independent accountants, legal counsel, custodian, accounting agent and
transfer and dividend disbursing agent in establishing the accounting
policies of the Trust;
(m) Review implementation of any stock purchase or dividend
reinvestment programs authorized by the Board of Directors;
(n) Assist the investment adviser in facilitating bank or
other borrowings by the Trust;
(o) Prepare such information and reports as may be required
by any banks from which the Trust borrows funds;
(p) Provide such assistance to the investment adviser, the
custodian and the Trust's counsel and auditors as generally may be required
to properly carry on the business and operations of the Trust;
(q) Respond to, or refer to the Trust's officers or transfer
agent, shareholder inquiries relating to the Trust;
(r) Provide to Standard & Poor's Corporation ("S&P"), upon
its request, corporate or financial information reasonably available to the
Administrator to assist S&P in the rating of the Trust's common shares; and
(s) Assist in preparation and filing of Forms 3, 4 and 5
pursuant to Section 16 of the Securities and Exchange Act of 1934 and
Section 30(f) of the Investment Company Act for the officers and directors
of the Trust, except as otherwise requested by the Trust's investment
adviser, such filings to be based on information provided by those persons
and the Trust's investment adviser.
All services are to be furnished through the medium of any
directors, officers or employees of the Administrator as the Administrator
deems appropriate in order to fulfill its obligations hereunder.
Each party shall bear all its own expenses incurred in connection
with this Agreement. Printing and dissemination expenses, such as those for
reports to shareholders and proxy statements, shall be expenses for the
Trust.
3. The parties hereto agree that the Administrator will receive
compensation for the services it renders under this Agreement from The
BlackRock Broad Investment Grade 2009 Term Trust Inc. BCT Subsidiary Inc.
shall not pay the Administrator any fee for services rendered under this
Agreement other than one dollar per year.
4. The Administrator assumes no responsibility under this Agreement
other than to render the services called for hereunder, and specifically
assumes no responsibilities for investment advice or the investment or
reinvestment of the Trust's assets.
5. (a) The Administrator shall not be liable to the Trust for any
action taken or omitted to be taken by the Administrator in connection with
the performance of any of its duties or obligations under this Agreement,
and the Trust shall indemnify the Administrator and hold it harmless from
and against all damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid in settlement)
incurred by the Administrator in or by reason of any pending, threatened or
contemplated action, suit, investigation or other proceeding (including an
action or suit by or in the right of the Trust or its security holders)
arising out of or otherwise based upon any action actually or allegedly
taken or omitted to be taken by the Administrator in connection with the
performance of any of its duties or obligations under this Agreement;
provided, however, that nothing contained herein shall protect or be deemed
to protect the Administrator against or entitle or be deemed to entitle the
Administrator to indemnification in respect of any liability to the Trust
or its security holders to which the Administrator would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of its reckless disregard of
its duties and obligations under this Agreement.
(b) Such expenses shall be paid by the Trust in advance of
the final disposition of such matter upon invoice by the Administrator and
receipt by the Trust of an undertaking from the Administrator to repay such
amounts if it shall ultimately be established that the Administrator is not
entitled to payment of such expenses hereunder.
(c) As used in this Paragraph 5, the term "Administrator"
shall include any affiliates of the Administrator performing services for
the Trust contemplated hereby, and directors, officers, agents and
employees of the Administrator and such affiliates.
(d) The Administrator may, with respect to questions of law,
apply for and obtain the advice and opinion of legal counsel to the Trust,
at the expense of the Trust, and with respect to the application of
generally accepted accounting principles, apply for and obtain the advice
and opinion of the Trust's accounting experts, at the expense of the Trust.
The Administrator shall be fully protected with respect to any action taken
or omitted by it in good faith in conformity with such advice or opinion.
6. This Agreement shall become effective as of the date on which
the Trust's Registration Statement on Form N-2 shall be declared effective
by the SEC and shall thereafter continue in effect unless terminated as
herein provided. This Agreement may be terminated by either party hereto
(without penalty) at any time upon not less than 60 days' prior written
notice to the other party hereto.
7. The services of the Administrator to the Trust hereunder are not
exclusive and nothing in this Agreement shall limit or restrict the right
of the Administrator to engage in any other business or to render services
of any kind to any other corporation, firm, individual or association. The
Administrator shall be deemed to be an independent contractor, unless
otherwise expressly provided or authorized by this Agreement.
8. During the term of this Agreement, the Trust agrees to furnish
the Administrator at the principal office of the Administrator prior to use
thereof drafts and final copies of all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Trust or the public that refer in any
way to the Administrator. If the Administrator reasonably objects to such
references within five business days (or such other time as may be mutually
agreed) after receipt thereof, the Trust will modify such references in a
manner reasonably satisfactory to the Administrator. In the event of
termination of this Agreement, the Trust will continue to furnish the
Administrator copies of any of the above-mentioned materials that refer in
any way to the Administrator. The Trust shall timely furnish or otherwise
make available to the Administrator such other information relating to the
business affairs of the Trust, its directors, officers, and service
providers, as the Administrator at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
9. This Agreement may be amended by mutual written consent.
10. Any notice or other communication required to be given in
writing pursuant to this Agreement shall be deemed duly given if delivered
or mailed by registered mail, postage prepaid, (1) to the Administrator at
P.O. Box 9011, Princeton, New Jersey 08543, Attention: Stephen M. M.
Miller, (2) to the Trust at 345 Park Avenue, New York, New York 10154,
Attention: President.
11. This Agreement sets forth the agreement and understanding of
the parties hereto solely with respect to the matters covered hereby and
the relationship between the Trust and Princeton Administrators, L.P. as
Administrator. Nothing in this Agreement shall govern, restrict or limit in
any respect any other business dealings between the parties hereto unless
otherwise expressly provided herein.
12. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without reference to choice of law
principles thereof and in accordance with the Investment Company Act. In
the case of any conflict, the Investment Company Act shall control.
13. This Agreement may be executed by the parties hereto in
counterparts, and if executed in more than one counterpart, the separate
instruments shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
BCT SUBSIDIARY INC.
By__________________________________________
Title:______________________________________
PRINCETON ADMINISTRATORS, L.P.
By PRINCETON SERVICES, INC., General Partner
By__________________________________________
Title:______________________________________
