As filed with the Securities and Exchange Commission on March 3, 2000
Securities Act Registration No. 333-94927
Investment Company Registration No. 811-6512
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. | |
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 7 |X|
----------------------
The BlackRock Insured Municipal Term Trust Inc.
(Exact Name of Registrant as Specified In Charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of Principal Executive Offices)
(800) 688-0928
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein, President
The BlackRock Insured Municipal Term Trust Inc.
345 Park Avenue
New York, New York 10154
(Name and Address of Agent for Service)
----------------------
Copies to:
Richard T. Prins, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Thomas A. DeCapo, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108-3194
Cynthia G. Cobden, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
----------------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================================================================
Proposed Proposed
Title of Securities Amount Being Maximum Offering Maximum Aggregate Amount of
Being Registered Registered Price per Unit Offering Price Registration Fee
<S> <C> <C> <C> <C>
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Auction Rate Municipal Preferred Stock, Series M7 1,616 shares $25,000 $40,400,000 $10,666*
(Liquidation preference $25,000 per share)...........
- --------------------------------------------------------------------------------------------------------------------------------
* Previously paid.
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<TABLE>
<CAPTION>
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
CROSS REFERENCE SHEET
Part A-Prospectus
Items in Part A of Form N-2
Specified in Prospectus Location in Prospectus
----------------------- ----------------------
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Item 1. Outside Front Cover...................................................Cover page
Item 2. Inside Front and Outside Back Cover Page..............................Inapplicable
Item 3. Fee Table and Synopsis................................................Inapplicable
Item 4. Financial Highlights..................................................Financial Highlights
Item 5. Plan of Distribution..................................................Cover Page; Prospectus Summary; the Auction;
Underwriting
Item 6. Selling Shareholders..................................................Inapplicable
Item 7. Use of Proceeds.......................................................Use of Proceeds; Investment Objective and Policies
Item 8. General Description of the Registrant.................................Cover Page; Prospectus Summary The Trust;
Investment Objective and Policies
Item 9. Management............................................................Prospectus Summary; Management of the Trust
Item 10. Capital Stock, Long-Term Debt, and Other Securities...................Capitalization; Investment Objective and Policies;
Description of New Preferred Shares; the Auction;
Tax Matters
Item 11. Defaults and Arrears on Senior Securities............................ Inapplicable
Item 12. Legal Proceedings.....................................................Inapplicable
Item 13. Table of Contents of the Statement of Additional Table of Contents of the Statement of Additional
Information...........................................................Information
Part B-Statement of Additional Information
<CAPTION>
Items In Part B of Form N-2 Location in Statement of
Additional Information
----------------------
<S> <C> <C>
Item 14. Cover Page...........................................................Cover Page
Item 15. Table of Contents....................................................Back Cover Page
Item 16. General Information and History......................................Inapplicable
Item 17. Investment Objective and Policies....................................Investment Objective and Policies; Investment
Policies and Techniques
Item 18. Management...........................................................Management of the Trust
Item 19. Control Persons and Principal Holders of Securities..................Management of the Trust
Item 20. Investment Advisory and Other Services...............................Management of the Trust
Item 21. Brokerage Allocation and Other Practices.............................Portfolio Transactions
Item 22. Tax Status...........................................................Tax Matters
Item 23. Financial Statements.................................................Financial Statements (incorporated by reference)
Part C-Other Information
Items 24-33 have been answered in Part C of this Registration Statement
</TABLE>
[FLAG]
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with
the Securities and Exchange Commission is effective. This Prospectus is not
an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED _____,______ 2000
PROSPECTUS
$40,400,000
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
Auction Rate Municipal Preferred Stock ("New Preferred Shares")
1,616 Shares, Series M7
Liquidation Preference $25,000 Per Share
The BlackRock Insured Municipal Term Trust Inc. (the "Trust") is a
closed-end, diversified management investment company.
The Trust's investment objective is:
o to provide current income that is exempt from regular Federal income
tax; and
o to return $10 per common share (the initial public offering price
per common share) to holders of common shares on or about December 31,
2010.
The Trust seeks to achieve its investment objective by investing at
least 80% of its total assets in a diversified portfolio of municipal
obligations insured as to the timely payment of both principal and interest
by insurers with claims-paying abilities rated at the time of investment
Aaa by Moody's Investors Service, Inc. or AAA by Standard & Poor's Rating
Services or which are determined by the Trust's investment advisor to have
equivalent claims-paying abilities. The Trust may invest up to 20% of its
total assets in uninsured municipal obligations which are:
o rated at the time of investment Aaa by Moody's or AAA by S&P;
o guaranteed by an entity with a Aaa or AAA rating;
o backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities to ensure timely payment of
principal and interest; or
o determined by the Trust's investment advisor to be of Aaa or AAA
credit quality at the time of investment.
The Trust seeks to return $10 per common share to common shareholders on or
about December 31, 2010 (when the Trust will terminate) by actively
managing its portfolio of municipal obligations which will have an average
final maturity on or about such date and by retaining each year a small
portion of its net investment income, which portion will not exceed 10% for
any year, as determined in accordance with the Federal income tax rules
applicable to the Trust. No assurance can be given that the Trust will
achieve its investment objective. BlackRock Advisors, Inc. acts as the
investment advisor to the Trust. The address of the Trust is 800 Scudders
Mill Road, Plainsboro, New Jersey 08536 and its telephone number is (800)
688-0928.
The New Preferred Shares will not be listed on an exchange. You
may only buy or sell New Preferred Shares through an order placed at an
auction with or through a broker-dealer that has entered into an agreement
with the auction agent and the Trust, or in a secondary market maintained
by certain broker-dealers. These broker-dealers are not required to
maintain this market, and it may not provide you with liquidity
This prospectus contains important information about the Trust.
You should read the prospectus before deciding whether to invest and retain
it for future reference. A statement of additional information, dated ,
2000, containing additional information about the Trust, has been filed
with the Securities and Exchange Commission and is incorporated by
reference in its entirety into this prospectus. You can review the table of
contents of the statement of additional information on page of this
prospectus. You may request a free copy of the statement of additional
information by calling (800) 227-7236. You may also obtain the statement of
additional information and other information regarding the Trust on the
SEC's web site (http://www.sec.gov).
INVESTING IN THE NEW PREFERRED SHARES INVOLVES CERTAIN RISKS. SEE
"RISKS" BEGINNING ON PAGE ___. THE MINIMUM PURCHASE AMOUNT OF THE NEW
PREFERRED SHARES IS $25,000.
(continued on following page)
Neither the SEC nor any state securities commission has approved
or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
Per Share Total
--------- -----
Public Offering Price $25,000 $40,400,000
Sales Load $ $
Proceeds to Trust (before expenses)1 $ $
1 Offering expenses payable by the Trust are estimated to be $300,000.
----------------------
The underwriters are offering the New Preferred Shares subject to various
conditions. The underwriters expect to deliver the New Preferred Shares to
purchasers, in book-entry form, through the facilities of The Depository
Trust Company on or about ___, 2000.
March , 2000
The Trust is offering 1,616 newly issued shares of Auction Rate
Municipal Preferred Stock, Series M7. We refer to these shares as the "New
Preferred Shares" throughout this prospectus and the related statement of
additional information. Except for the initial dividend rate and initial
dividend period, the terms of the New Preferred Shares are the same as the
terms of the Trust's currently outstanding Series M7 Preferred Shares
(together with the Trust's outstanding Series M28 Preferred Shares, the
"Preferred Shares").
The dividend rate for the initial dividend period (the period
from the date of issue through ____, 2000) will be ___%, and the initial
dividend will be paid on _________, 2000. After the initial dividend
period, the dividend rate on the New Preferred Shares for each subsequent
dividend period generally will be determined pursuant to weekly auctions.
The letter/numeral indication "M7" means that the auction for the New
Preferred Shares normally will be held every Monday and that the dividend
period normally will be 7 days. Prospective purchasers should carefully
review the auction procedures described in this prospectus, including the
appendices, and should note:
o a buy order (called a "bid") or sell order is a commitment
to buy or sell New Preferred Shares based on the results of
an auction;
o auctions will be conducted by telephone; and
o purchases and sales will be settled on the next business day
after the auction.
Dividends on New Preferred Shares, to the extent payable from
tax-exempt income earned on the Trust's investments, will be exempt from
regular Federal income tax in the hands of owners of such shares. All or a
portion of the Trust's dividends may be subject to the Federal alternative
minimum tax. The Trust is required to allocate net capital gains and other
taxable income, if any, proportionately between common shares and Preferred
Shares, including the New Preferred Shares, based on the percentage of
total dividends distributed to each class for that year. The Trust will, in
the case of a dividend period of 28 days or less, and may, in the case of a
dividend period of 35 days or more, give notice of the amount of any income
subject to regular Federal income tax to be included in a dividend on a New
Preferred Share in advance of the related auction. If the Trust does not
give such advance notice, it generally will be required to pay additional
amounts to holders of New Preferred Shares in order to adjust for their
receipt of income subject to regular Federal income tax.
The New Preferred Shares are redeemable, in whole or in part, at
the option of the Trust on any date dividends are paid on the New Preferred
Shares (except during certain non-call periods), and will be subject to
mandatory redemption, in certain circumstances, at a redemption price of
$25,000 per share plus accumulated but unpaid dividends to the redemption
date (whether or not declared), plus a premium in certain circumstances.
The Trust intends to redeem all of the New Preferred Shares and all of its
other Preferred Shares no later than the last dividend payment date in
respect of each series prior to December 31, 2010 (when the Trust will
terminate).
The New Preferred Shares do not represent a deposit or
obligation of, and are not guaranteed or endorsed by, any bank or other
insured depository institution. The New Preferred Shares are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. THE TRUST HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THE TRUST IS NOT MAKING AN OFFER OF THESE SECURITIES
IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT
THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
--------------------
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...................................................4
FINANCIAL HIGHLIGHTS.................................................8
THE TRUST............................................................9
USE OF PROCEEDS.....................................................10
CAPITALIZATION......................................................10
INVESTMENT OBJECTIVE AND POLICIES...................................11
MUNICIPAL OBLIGATIONS...............................................12
INSURANCE...........................................................13
OTHER INVESTMENT PRACTICES..........................................15
RISKS...............................................................16
MANAGEMENT OF THE TRUST.............................................18
DESCRIPTION OF PREFERRED SHARES.....................................21
DESCRIPTION OF NEW PREFERRED SHARES.................................21
THE AUCTION.........................................................28
TAXES...............................................................31
DETERMINATION OF NET ASSET VALUE....................................32
REPURCHASE OF COMMON SHARES.........................................32
DESCRIPTION OF CAPITAL STOCK........................................32
CUSTODIAN...........................................................34
UNDERWRITING........................................................35
TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR......................................35
LEGAL OPINIONS......................................................36
EXPERTS.............................................................36
REPORTS TO STOCKHOLDERS.............................................36
AVAILABLE INFORMATION...............................................36
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION.......37
APPENDIX A.........................................................A-1
PROSPECTUS SUMMARY
The following information is a summary of, and is qualified in its
entirety by reference to, more detailed information included in this
prospectus and the Trust's statement of additional information.
<TABLE>
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THE TRUST.......................................... The BlackRock Insured Municipal Term Trust Inc. is a
diversified, closed-end management investment company. As of
December 31, 1999, the Trust had 25,885,639 shares of common
stock outstanding and 5,200 preferred shares outstanding in two
series: 2,600 preferred shares designated Series M7 and 2,600
preferred shares designated Series M28. The Trust's common
shares are traded on the New York Stock Exchange under the
symbol "BMT." The Trust will distribute substantially all of its
net assets on or about December 31, 2010, when the Trust will
terminate.
THE OFFERING....................................... The Trust is offering 1,616 New Preferred Shares. The purchase
price for each New Preferred Share is $25,000 plus accumulated
dividends, if any, from the date the share is first issued. Except
for the initial dividend rate and the length of the initial dividend
period for the New Preferred Shares, the rights and preferences
of the New Preferred Shares are the same as the Trust's
outstanding Series M7 preferred shares. The Trust intends to
redeem all of its Preferred Shares (including the New Preferred
Shares) no later than the last dividend payment date prior to
December 31, 2010 (when the Trust will terminate).
The New Preferred Shares are being offered by a group
of underwriters listed under "Underwriting."
INVESTMENT OBJECTIVE AND POLICIES.................. The Trust's investment objective is to provide current income
exempt from regular Federal income tax and to return $10 per
common share (the initial offering price per common share) to
holders of common shares on or about December 31, 2010. No
assurance can be given that the Trust will achieve its investment
objective.
The Trust seeks to achieve its investment objective by
investing at least 80% of its total assets in a
diversified portfolio of municipal obligations insured
as to the timely payment of both principal and interest
by insurers with claims-paying abilities rated at the
time of investment Aaa by Moody's or AAA by S&P or
which are determined by the Trust's investment advisor
to have equivalent claims-paying abilities. The Trust
may invest up to 20% of its total assets in uninsured
municipal obligations which are:
o rated at the time of investment Aaa by Moody's or AAA by S&P;
o guaranteed by an entity with an Aaa or AAA rating;
o backed by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest; or
o determined by the Trust's investment advisor to be of
Aaa or AAA credit quality at the time of investment.
The Trust seeks to return $10 per common share to
holders of common shares on or about December 31, 2010
(when the Trust will terminate) by actively managing
its portfolio of tax-exempt municipal obligations which
will have an average final maturity on or about such
date and by retaining each year a small portion of its
net investment income, which portion will not exceed
10% for any year as determined in accordance with the
Federal income tax rules applicable to the Trust.
INVESTMENT ADVISOR................................. BlackRock Advisors Inc. (the "Advisor") acts as the Trust's
investment advisor. The investment advisor is responsible for
the investment strategy of the Trust. The investment advisor and
its affiliates comprise a global asset management firm with assets
of approximately $165 billion under management as of
December 31, 1999.
RISK FACTORS....................................... Before investing in New Preferred Shares, you should consider
carefully the following risks of such an investment:
o if an auction fails you may not be able to sell some or all
of your shares;
o because of the nature of the market for New Preferred
Shares, you may receive less than the price you paid for
your shares if you sell them outside of the auction,
especially when market interest rates are rising;
o a rating agency could downgrade the rating assigned to the
New Preferred Shares, which could affect liquidity;
o the Trust may be forced to redeem your shares to meet
regulatory or rating agency requirements or may voluntarily
redeem your shares in certain circumstances;
o in extraordinary circumstances the Trust may not earn
sufficient income from its investments to pay dividends;
o if interest rates rise, the value of the Trust's investment
portfolio will decline, reducing the asset coverage for the
New Preferred Shares; and
o if an issuer of a municipal bond in which the Trust invests
experiences financial difficulty or defaults, there may be a
negative impact on the income and net asset value of the
Trust's portfolio.
SECONDARY MARKET TRADING........................... The New Preferred Shares will not be listed on a stock exchange.
Instead, you may buy or sell New Preferred Shares at a periodic
auction by submitting orders to a broker-dealer (a "Broker-
Dealer") that has entered into a separate agreement with the
auction agent and the Trust or to a broker-dealer that has entered
into an agreement with a Broker-Dealer. In addition to the
auctions, Broker-Dealers and other broker-dealers may maintain
a separate secondary trading market in New Preferred Shares, but
may discontinue this activity at any time. You may transfer
shares outside of auctions only to or through a Broker-Dealer, a
broker-dealer that has entered into a separate agreement with a
Broker-Dealer, or other persons as the Trust may agree. There
can be no assurance that a secondary trading market for the New
Preferred Shares will develop, or if it does develop, that it will
provide holders with liquidity of investment.
DIVIDENDS AND DIVIDEND PERIODS..................... After their initial dividend period, the New Preferred Shares
normally will have a dividend period consisting of seven days.
The board of directors of the Trust may, from time to time,
declare a special dividend period upon giving notice to the
holders of the New Preferred Shares.
Dividends on the New Preferred Shares offered hereby
are cumulative from the date they are first issued and
are payable when, as and if declared by the board of
directors of the Trust, out of funds legally available
therefor. The Trust will pay the initial dividend for
the New Preferred Shares on [____________] and
thereafter generally on each succeeding Tuesday,
subject to certain exceptions.
After the initial dividend period, the dividend rate
for the New Preferred Shares will be determined by
auction. The dividend rate for the initial dividend
period is ___% and the first auction will be held on
___.
TAXES.............................................. Because in normal circumstances the Trust will invest
substantially all of its assets in municipal obligations that pay
interest that is exempt from regular Federal income tax, the
income you receive will ordinarily be exempt from Federal
income tax. Your income may be subject to state and local taxes.
All or a portion of the income from these bonds may be subject
to the Federal alternative minimum tax, so New Preferred Shares
may not be a suitable investment if you are subject to this tax or
would become subject to such tax by investing in New Preferred
Shares. Taxable income or gain earned by the Trust will be
allocated proportionately to holders of the Trust's preferred
shares and common shares, based on the percentage of total
dividends paid to each class for that year. Accordingly, certain
specified New Preferred Share dividends may be subject to
income tax on income or gains attributed to the Trust. The Trust
will, in the case of a dividend period of 28 days or less, and may,
in the case of a dividend period of 35 days or more, give notice
before any applicable auction of the amount of any taxable
income and gain to be distributed for the period relating to that
auction. If the Trust does not provide such notice, the Trust
generally will make holders of New Preferred Shares whole for
taxes owing on dividends paid to shareholders that include
taxable income or gain.
ALTERNATIVE MINIMUM TAX............................ All or a portion of the Trust's dividends may be subject to the
Federal alternative minimum tax.
LIQUIDATION PREFERENCE............................. The liquidation preference of each New Preferred Share will be
$25,000, plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) plus the premium,
if any, resulting from the designation of a premium call period.
RATINGS............................................ It is a condition to their issuance that the New Preferred Shares
be issued with a rating of "aaa" from Moody's and "AAA" from
S&P and that the Trust receive written assurance from each of
Moody's and S&P that the issuance of the New Preferred Shares
will not cause a downgrading of the rating assigned to the Trust's
currently outstanding Preferred Shares.
REDEMPTION......................................... Holders of New Preferred Shares will not have the right to cause
the Trust to redeem their shares. The Trust may, however, be
required by applicable law or by rating agency guidelines to
redeem New Preferred Shares if, for example, the Trust
does not meet an asset coverage ratio required by law
or correct a failure to meet a rating agency guideline
in a timely manner. The Trust may also voluntarily
redeem New Preferred Shares.
VOTING RIGHTS...................................... The Investment Company Act of 1940 requires that the holders
of New Preferred Shares and of currently outstanding Preferred
Shares, voting together as a single class separate from the holders
of common shares, have the right to elect at least two directors of
the Trust at all times and to elect a majority of the directors at
any time when two years' dividends on the Preferred Shares are
unpaid. The holders of New Preferred Shares and any other
outstanding preferred shares will vote as a separate class on
certain other matters as required under the Trust's charter, the
Investment Company Act of 1940 and Maryland law.
</TABLE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a
share of common stock of the Trust outstanding throughout each period
presented. The financial highlights for each period presented have been
audited by Deloitte & Touche LLP, the Trust's independent auditors, whose
report covering each of the five years in the period ended December 31,
1999, is included in the Trust's most recent Annual Report and is
incorporated by reference in the statement of additional information. The
financial highlights should be read in conjunction with the financial
statements and notes thereto included in the Trust's most recent Annual
Report, which is available without charge from the Trust.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
September
28, 1992
through
PER COMMON SHARE OPERATING December
PERFORMANCE: 1999 1998 1997 1996 1995 1994 1993 31, 1992**
-------- -------- -------- -------- -------- -------- -------- ---------
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Net asset value, beginning of
the period..........................$ 11.22 $ 11.20 $ 10.87 $ 11.02 $ 9.73 $ 11.18 $ 9.93 $ 9.40
-------- -------- -------- -------- -------- -------- -------- ---------
Net investment income............... 0.85 0.85 0.84 0.83 0.84 0.82 0.83 0.61
Net realized and unrealized
gain (loss) on investments........ (0.68) (0.03) 0.29 (0.18) 1.27 (1.48) 1.18 0.56
-------- -------- -------- -------- -------- -------- -------- ---------
Net increase (decrease) from
investment operations................. 0.17 0.82 1.13 0.65 2.11 (0.66) 2.01 1.17
-------- -------- -------- -------- -------- -------- -------- ---------
Dividends and distributions:
Dividends from net investment
income to:
Preferred shareholders............. (0.17) (0.18) (0.18) (0.18) (0.20) (0.14) (0.12) (0.09)
Common shareholders................ (0.62) (0.62) (0.62) (0.62) (0.62) (0.62) (0.63) (0.42)
Distributions from net realized
gain on investments to:
Preferred shareholders............ -- -- -- -- -- (0.01) (0.00) ***
Common shareholders............... -- -- -- -- -- (0.02) (0.01) --
Total dividends and distributions...... (0.79) (0.80) (0.80) (0.80) (0.82) (0.79) (0.76) (0.51)
-------- -------- -------- -------- -------- -------- -------- ---------
Capital charge with respect to
issuance of shares................... -- -- -- -- -- -- -- $ (0.13)
Net asset value, end of period*........$ 10.60 $ 11.22 $ 11.20 $ 10.87 $ 11.02 $ 9.73 $ 11.18 $ 9.93##
======== ======== ======== ======== ======== ======== ======== =========
Market value, end of period*...........$ 9.44 $ 11.50 $ 11.00 $ 10.13 $ 10.00 $ 8.50 $ 10.50 $ 9.88
======== ======== ======== ======== ======== ======== ======== =========
TOTAL INVESTMENT RETURN+............... (12.92)% 10.53% 15.22% 7.59% 25.31% (13.38)% 12.92% 9.51%
======== ======== ======== ======== ======== ======== ======== =========
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS:@
Expenses++............................. 0.94% 0.93% 0.94% 0.97% 0.96% 1.04% 0.96% 0.98%+++
Net investment income before
preferred stock dividends++.......... 7.74% 7.56% 7.66% 7.66% 7.97% 7.99% 7.75% 7.60%+++
Preferred stock dividends.............. 1.51% 1.53% 1.62% 1.61% 1.87% 1.44% 1.14% 1.21%+++
Net Investment income available
to common shareholders............... 6.23% 6.03% 6.04% 6.05% 6.10% 6.55% 6.61% 6.39%+++
SUPPLEMENTAL DATA:
Average net assets of common
shareholders (in thousands)..........$284,075 $290,004 $283,531 $281,521 $272,868 $265,851 $275,162 $247,807
Portfolio turnover..................... 0% 0% 1% 1% 1% 31% 1% 37%
Net assets of common shareholders,
end of period (in thousands).........$274,320 $290,469 $289,962 $281,470 $285,226 $251,856 $289,449 $256,956
Preferred stock outstanding
(in thousands).......................$130,000 $130,000 $130,000 $130,000 $130,000 $130,000 $130,000 $130,000
Asset coverage per share of
preferred stock, end of period#......$ 77,768 $ 80,859 $ 80,762 $ 79,129 $ 79,851 $146,868 $161,327 $148,829
- ------------
* Net asset value and market value are published in Barron's each Saturday and The Wall Street Journal each Monday.
** Commencement of investment operations.
*** Actual amount paid to preferred shareholders was $0.0013 per common share.
# A stock split occurred on July 24, 1995.
## Net asset value immediately after the closing of the initial public offering was $9.38.
+ Total investment return is calculated assuming a purchase of common stock at the current market price on the first
day and a sale at the current market price on the last day of the period reported. Dividends and distributions, if
any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment returns for periods
of less than one year are not annualized.
++ Ratios are calculated on the basis of income and expenses applicable to both the common and preferred shares,
relative to the average net assets of common shareholders.
+++ Annualized.
@ Certain changes have been made to the ratios to average net assets of common shareholders for the period ended
December 31, 1992 to conform to current year presentation.
</TABLE>
THE TRUST
The BlackRock Insured Municipal Term Trust Inc. (the "Trust") is a
diversified, closed-end management investment company. The Trust was
incorporated under the laws of the State of Maryland on December 23, 1991,
and has registered under the Investment Company Act of 1940 (the "1940
Act"). The Trust will distribute substantially all of its net assets on or
about December 31, 2010, when the Trust will terminate. The Trust's
principal office is located at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536 and its telephone number is (800) 688-0928.
The Trust commenced investment operations on February 28, 1992,
upon the closing of the initial public offering of 22,500,000 of its common
shares. The net proceeds of such offering were approximately $211.5
million. In March 1992, the Trust, pursuant to an over-allotment option
granted to the underwriters in the initial public offering, sold an
additional 3.4 million of its common shares for net proceeds of
approximately $31.7 million. On April 27, 1992, the Trust issued shares of
preferred stock in the following amounts and with the following
designations: Preferred Shares Series M7 - 1,300 shares and Preferred
Shares Series M28 - 1,300 shares. Each series of preferred shares was
issued with a liquidation preference per share of $50,000, plus accumulated
and unpaid dividends. On May 16, 1995, shareholders approved a proposal to
split each preferred share into two shares and simultaneously reduce each
share's liquidation preference from $50,000 to $25,000, plus in each case
accumulated and unpaid dividends, which occurred on July 24, 1995.
As of December 31, 1999, 25,885,639 common shares of the Trust
were outstanding and 5,200 preferred shares were outstanding in two series:
2,600 Preferred Shares Series M7 and 2,600 Preferred Shares Series M28. The
Trust's common shares are traded on the New York Stock Exchange under the
symbol "BMT".
The following table provides information about the Preferred Shares since
their issuance:
<TABLE>
<CAPTION>
Amount Outstanding
Exclusive of Treasury Asset Coverage Involuntary Liquidating
As of Securities Per Share* Preference Per Share
<S> <C> <C> <C>
12/31/1992 2,600 $ 148,829 $ 50,000
12/31/1993 2,600 $ 161,327 $ 50,000
12/31/1994 2,600 $ 146,868 $ 50,000
12/31/1995** 5,200 $ 79,851 $ 25,000
12/31/1996 5,200 $ 79,129 $ 25,000
12/31/1997 5,200 $ 80,762 $ 25,000
12/31/1998 5,200 $ 80,859 $ 25,000
12/31/1999 5,200 $ 77,768 $ 25,000
* Calculated by dividing net assets by the number of Preferred Shares
outstanding. ** A 2-for-1 stock split with respect to the Preferred Shares
occurred on July 24, 1995.
......................
</TABLE>
The following table provides information about the Trust's outstanding
shares as of December 31, 1999:
<TABLE>
<CAPTION>
Amount Held by
the Trust or for
Title of Class Amount Authorized its Account Amount Outstanding
-------------- ----------------- ----------- ------------------
<S> <C> <C> <C>
Common Shares 200,000,000 0 25,885,639
Series M7 Preferred Shares 2,600 0 2,600
Series M28 Preferred Shares 2,600 0 2,600
</TABLE><
USE OF PROCEEDS
The net proceeds of the offerings will be $39,696,000, after
payment of offering expenses (estimated to be $300,000) and the
underwriting discount.
The net proceeds of the offering will be invested in accordance
with the Trust's investment objective and policies as stated below. It is
presently anticipated that the Trust will be able to invest substantially
all of the net proceeds in municipal obligations that meet its objective
and policies at or shortly (within six to eight weeks) after the completion
of the offering. To the extent that all of the proceeds cannot be so
invested, pending such investment, they will be invested in short-term,
high quality tax-exempt securities. If necessary in order to fully invest
the net proceeds of the offerings immediately, the Trust may also purchase,
as temporary investments, short-term, taxable investments, the income on
which is subject to regular Federal income tax.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the
Trust as of December 31, 1999, and as adjusted to give effect to the
issuance of the New Preferred Shares pursuant to the offering.
<TABLE>
<CAPTION>
Actual As Adjusted
----------------- ---------------
<S> <C> <C>
Shareholders' equity:
Preferred Stock, par value $.01 per share (5,200 shares issued; 6,816
preferred shares issued and outstanding, as adjusted, at $25,000 per
share $
liquidation preference).................................................. 130,000,000 $ 170,400,000
Common Shares, par value $.01 per share (25,885,639 shares issued and
outstanding)............................................................. 258,856 258,856
Paid in capital in excess at par .......................................... 239,833,688 239,129,688
Undistributed net investment income........................................ 10,984,368 10,984,368
Accumulated net realized loss.............................................. (324,604) (324,604)
Net Unrealized appreciation of investments................................. 23,567,241 23,567,241
-------------- -------------
Net assets................................................................. $ 404,319,549 $ 444,015,549
============== =============
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to provide current income
exempt from regular Federal income tax and to return $10 per common share
to holders of common shares on or about December 31, 2010. No assurance can
be given that the Trust will achieve its investment objective.
The Trust seeks to achieve its investment objective by investing
at least 80% of its total assets in a diversified portfolio of municipal
obligations insured as to the timely payment of both principal and interest
by insurers with claims- paying abilities rated at the time of investment
Aaa by Moody's or AAA by S&P or which are determined by BlackRock Advisors,
Inc. (the "Advisor"), to have equivalent claims-paying abilities. The Trust
may invest up to 20% of its total assets in uninsured municipal obligations
which are:
o rated at the time of investment Aaa by Moody's or AAA by
S&P;
o guaranteed by an entity with a Aaa or AAA rating;
o backed by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest; or
o determined by the Advisor to be of Aaa or AAA credit quality
at the time of investment.
Generally, municipal obligations which are covered by insurance or a
guarantee would not be rated Aaa or AAA, and might not be considered to be
of investment grade credit quality in the absence of such insurance or
guarantee. In determining whether to purchase a particular municipal
obligation which is covered by insurance or a guarantee, the Advisor
considers the credit quality of the underlying issuer (among other factors
such as price, yield and maturity), although such credit quality will not
necessarily be the determinative factor in making the investment decision.
Municipal obligations which are backed by an escrow or trust
account which contains U.S. Government or U.S. Government agency securities
("collateralized obligations") generally are not insured and may not be
rated Aaa by Moody's or AAA by S&P, and may not be of equivalent credit
quality in the view of the Advisor. Collateralized obligations include, but
are not limited to, municipal obligations that have been (i) advance
refunded where the proceeds of the funding have been used to purchase U.S.
Government or U.S. Government agency securities that are placed in escrow
and whose interest or maturity principal payments, or both, are sufficient
to cover the remaining scheduled debt service on the municipal obligations,
or (ii) issued under state and local housing finance programs which use the
issuance proceeds to fund mortgages that are then exchanged for U.S.
Government or U.S. Government agency securities and deposited with a
trustee as security for the municipal obligations. These collateralized
obligations are normally regarded as having the credit characteristics of
the underlying U.S. Government or U.S. Government agency securities.
The Trust seeks to return $10 per common share to holders of
common shares on or about December 31, 2010 (when the Trust will terminate)
by actively managing its portfolio of tax-exempt municipal obligations,
which will have an average final maturity on or about such date and by
retaining each year a small portion of its net investment income, which
portion will not exceed 10% for any year as determined in accordance with
the Federal income tax rules applicable to the Trust. The purpose of
retaining a small portion of net investment income is to enhance the
Trust's ability to return to investors $10 per common share outstanding
upon the Trust's termination. Such retained income will serve to increase
the net asset value of the Trust and a portion of such retained income will
be available to offset capital losses, if any. However, if the Trust
realizes any capital losses on dispositions of securities that are not
offset by capital gains on the disposition of other securities or the
retention of net investment income, the Trust may return less than $10 for
each common share outstanding at the end of the Trust's term. In addition,
the leverage caused by the Trust's issuance of preferred stock may increase
the possibility of incurring capital losses and the difficulty of
subsequently incurring capital gains to offset such losses. However, the
Advisor believes that it will be able to manage the Trust's assets so that
the Trust will not realize capital losses which are not offset by capital
gains over the life of the Trust on the disposition of its other assets and
retained net investment income. Although neither the Advisor nor the Trust
can guarantee these results, their achievement should enable the Trust, on
or about December 31, 2010, to have available for distribution to holders
of its common shares $10 for each common share then outstanding.
Moody's highest rating category is Aaa. S&P's highest rating
category is AAA. The process of determining ratings for municipal
obligations by Moody's and S&P includes consideration of the likelihood of
the receipt by securityholders of all distributions, the nature of the
underlying securities, the credit quality of the guarantor, if any, and the
structural, legal and tax aspects associated with such securities.
Publications of Moody's indicate that it assigns a Aaa rating to securities
that "are judged to be of the best quality" and "carry the smallest degree
of investment risk." Publications of S&P indicate that it assigns a AAA
rating to securities for which the obligor's "capacity to meet its
financial commitment on the obligation is extremely strong."
In normal circumstances, the Trust disposes of insured municipal
obligations in its portfolio if the claims-paying ability of their insurer
declines below Aaa in the case of Moody's or AAA in the case of S&P, unless
the Trust obtains appropriate alternate insurance covering such municipal
obligations. The Trust may deviate from the foregoing policy relating to
the disposal of municipal obligations when, in the Advisor's judgment,
appropriate alternative insurance is not available or is unduly costly or
if the Advisor believes that an insurer whose claims-paying ability rating
has been lowered is taking steps which will cause its rating to be restored
promptly to the Aaa or AAA level. Similarly, the Trust intends to dispose
of uninsured municipal obligations rated Aaa or AAA or guaranteed by an
entity with such a rating if their credit quality (or that of their
guarantor) declines below Aaa or AAA, or, if they are not rated, the
Advisor no longer believes them to be of triple-A credit quality.
The Trust currently does not, and does not expect to, invest more
than 25% of its total assets (taken at market value) in municipal
obligations whose issuers are located in the same state. All or a portion
of the Trust's dividends paid in respect of its common shares, its
outstanding preferred shares and the New Preferred Shares may be subject to
Federal alternative minimum tax. See "Municipal Obligations."
The Trust may utilize certain options, futures, interest rate
swaps and related transactions for hedging purposes. To the extent the
Trust utilizes hedging strategies or invests in taxable securities, the
Trust's ability to achieve its investment objective of providing high
current income exempt from regular Federal income tax may be limited.
Accordingly, in normal circumstances, the Trust's use of such practices is
not significant.
On a temporary defensive basis, the Trust may invest without limit
in securities issued by the U.S. Government or its agencies or
instrumentalities, repurchase agreements collateralized by such securities,
or certificates of deposit, time deposits or bankers' acceptances for
purposes of enhancing liquidity and/or preserving capital. The Trust may
also invest in municipal obligations with maturities of less than one year,
other debt obligations of corporate issuers, such as interest-paying
corporate bonds, commercial paper and certificates of deposit, bankers'
acceptances and interest-bearing savings accounts of banks having assets
greater than $1 billion and which are members of the Federal Deposit
Insurance Corporation. During temporary defensive periods, the current
dividend rate on any Preferred Shares, including the New Preferred Shares,
will be more likely to approximate or exceed the net rate of return on the
Trust's investment portfolio, with the consequence that the leverage
resulting from the New Preferred Shares may become less beneficial or
adverse to the holders of common shares.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by states,
cities and local authorities, and possessions and certain territories of
the United States to obtain funds for various public purposes. These
purposes include the construction of public facilities such as airports,
bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which
municipal obligations may be issued include the refinancing of outstanding
obligations and the obtaining of funds for general operating expenses and
for loans to other public institutions and facilities. Subject to the
credit standard policies described under "Investment Objective and
Policies," there are two categories of municipal obligations in which the
Trust may invest in normal circumstances: (i) "public purpose" obligations
that generate interest that is tax-exempt under regular Federal income tax
rules and is not treated as a preference item for the Federal alternative
minimum tax; and (ii) qualified "private activity" obligations (typically
industrial revenue bonds) that generate income that is tax-exempt under
regular Federal income tax rules but must, if issued after August 7, 1986,
be included in computing the Federal alternative minimum tax. The Trust
will not invest in municipal obligations that generate interest that by its
terms is subject to Federal income tax other than the Federal alternative
minimum tax.
The types of municipal obligations in which the Trust may invest
include general obligation bonds, revenue bonds, municipal lease
obligations, installment purchase contract obligations, variable and
floating rate obligations, zero coupon securities, tax-exempt notes and
municipal commercial paper.
The yields on municipal obligations are dependent on a variety of
factors, including interest and income tax rates, the condition of the
general money market and the municipal obligations market, the size of the
particular issue, the maturity of the obligation and the rating of the
issue. The ratings of Moody's and S&P represent their opinions as to the
quality of those municipal obligations that they rate.
It should be emphasized that ratings are general and are not
absolute standards of quality. Consequently, municipal obligations with the
same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield. The market value of outstanding municipal obligations 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.
The terms of municipal obligations often give their issuers the
right periodically to "call" or prepay their municipal obligations. Issuers
will exercise call rights when interest rates decline and they can
refinance their municipal obligations at lower interest rates. At the time
the Trust was formed, most of the municipal obligations available in the
market were subject to call provisions. When municipal obligations are
called by their issuers, the Advisor reinvests the proceeds from the called
securities in other municipal obligations. Because the Trust has a limited
term, the Advisor reinvests the proceeds in municipal obligations maturing
prior to the expiration of the term. As the Trust approaches its
termination date on December 31, 2010, the Advisor will be required to
reinvest in shorter term municipal obligations with relatively lower
interest rates.
Obligations of issuers of municipal obligations may be subject to
the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the United States Bankruptcy Code
and other applicable laws. In addition, the obligations of such issuers may
become subject to the laws enacted in the future by Congress or state
legislatures or referenda extending the time for payment of principal
and/or interest, or imposing other constraints upon enforcement of such
obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of legislation or other conditions, the power
or ability of any issuer to pay, when due, the principal of and interest on
its municipal obligations may be materially affected.
INSURANCE
The Trust generally invests at least 80% of its total assets in a
diversified portfolio of municipal obligations insured as to the timely
payment of both principal and interest by insurers with claims-paying
abilities rated Aaa by Moody's or AAA by S&P at the time of investment or,
if not rated, which are determined by the Advisor to have equivalent
claims-paying abilities. See Appendix B to the statement of additional
information for a brief description of Moody's and S&P's insurance
claims-paying ability ratings.
Certain insurance companies will issue policies guaranteeing the
timely payment of principal of, and interest on, particular municipal
obligations or on a portfolio of municipal obligations. Insurance may be
purchased by the issuer of a municipal obligation or by a third party at
the time of issuance of the municipal obligation ("Original Issue
Insurance") or by the Trust or a third party subsequent to the original
issuance of a municipal obligation ("Secondary Insurance"). In each case, a
single premium is paid to the insurer by the party purchasing the insurance
when the insurance is obtained. Original Issue Insurance and Secondary
Insurance policies are non-cancellable and remain in effect for so long as
the insured municipal obligation is outstanding and the insurer is in
business. Accordingly, whether a particular municipal obligation is covered
by Original Issue Insurance as opposed to Secondary Insurance will not, in
and of itself, be determinative to the Trust in making an investment
decision to purchase such municipal obligation.
The Trust may also purchase insurance covering certain municipal
obligations which it intends to purchase for its portfolio or which it
already owns ("Portfolio Insurance"). Portfolio Insurance policies
guarantee the timely payment of principal of, and interest on, covered
municipal obligations only while they are owned by the Trust. Such policies
are non-cancellable and remain in effect until the Trust terminates
provided the Trust pays the applicable insurance premiums and the insurer
remains in business. Municipal obligations in the Trust's portfolio covered
by a Portfolio Insurance policy will not be covered by such policy after
they are sold by the Trust unless the Trust elects to obtain some form of
Secondary Insurance for them at the time of sale. The Trust would obtain
such Secondary Insurance only if, in the Advisor's view, it would be
economically advantageous for the Trust to do so.
The Trust may purchase municipal obligations covered by Original
Issue Insurance provided by AMBAC Indemnity Corporation ("AMBAC"), Bond
Investors Guaranty Insurance Company ("BIGI"), Capital Markets Assurance
Company ("CAPMAC"), Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Security Assurance Inc. ("FSA") and Financial Guaranty
Insurance Company ("FGIC"); each has received insurance claims-paying
ability ratings of Aaa from Moody's and AAA from S&P. See Appendix B to the
statement of additional information for a description of Moody's and S&P's
insurance claims-paying ability ratings and financial data regarding each
of these insurers. The Trust may also purchase Secondary Insurance and
Portfolio Insurance policies from any of such insurers. In the future, the
Trust may purchase municipal obligations covered by Original Issue
Insurance provided by, and may purchase Secondary and Portfolio Insurance
from, other insurers (not listed above) whose claims-paying abilities are
rated Aaa by Moody's or AAA by S&P or, if unrated, are of comparable credit
quality in the view of the Advisor. Any payments received from an insurer,
whether the insurance is obtained by the Trust or by other parties, is
treated for Federal income tax purposes in the same manner as if the
payments were received directly from the issuer of the municipal
obligations. See "Taxes".
The Advisor anticipates that a majority of insured tax-exempt
municipal obligations purchased by the Trust will be insured under policies
obtained by parties other than the Trust. The Trust does not pay the
premiums for such policies; rather the cost of such policies may be
reflected in a higher purchase price for such insured municipal
obligations. Accordingly, the yield on such municipal obligations may be
lower than that on equivalent uninsured municipal obligations. The cost of
insurance purchased by the Trust will increase its expenses, and the yield
on the Trust's portfolio will be reduced accordingly.
In the event the claims-paying ability rating of an insurer of
municipal obligations in the Trust's portfolio were to be lowered from Aaa
or AAA (in the case of Moody's or S&P, respectively), or if the Advisor
anticipates such a lowering or otherwise does not believe an insurer's
claims-paying ability merits its existing triple-A rating, the Trust may
seek to obtain additional insurance from an insurer whose claims-paying
ability is rated Aaa by Moody's or AAA by S&P or, if the Advisor determines
that the costs of obtaining such additional insurance outweigh the
benefits, the Trust may elect not to obtain additional insurance. In making
such determination, the Advisor will consider the costs of the additional
insurance, the new claims-paying ability rating and financial condition of
the existing insurer and the creditworthiness of the issuer and/or
guarantor of the underlying municipal obligations. The Advisor may also
determine not to purchase additional insurance in such circumstances if it
believes that the insurer is taking steps which will cause its triple-A
claims-paying ability rating to be restored promptly. The foregoing
policies also will be applied in the case of insurers whose claims-paying
abilities are not rated but which are determined by the Advisor to be
comparable to Aaa or AAA. See "Investment Objective and Policies".
Although the Advisor periodically reviews the financial condition
of each insurer, there can be no assurance that the insurers will be able
to honor their obligations in all circumstances. The Trust cannot predict
the consequences of a state takeover of an insurer's obligations and, in
particular, whether such an insurer (or its state regulatory agency or a
subsequent purchaser) could or would honor all of the insurer's contractual
obligations including any outstanding insurance contracts insuring the
timely payment of principal and interest on municipal obligations. The
Trust cannot predict the impact which such events might have on the market
values of such municipal obligations. In the event of a default by an
insurer on its obligations in respect of any municipal obligations in the
Trust's portfolio, the Trust would look to the issuer and/or guarantor of
the relevant municipal obligation for payments of principal and interest
and such issuer and/or guarantor may not be rated Aaa by Moody's or AAA by
S&P or, in the view of the Advisor, be of equivalent credit quality.
Accordingly, the Trust could be exposed to greater risk of non-payment in
such circumstances, which could adversely affect the Trust's net asset
value and the market price per common share. Alternatively, the Trust could
elect to dispose of such municipal obligations; however, the market prices
for such municipal obligations may be lower than the Trust's purchase price
for them and the Trust could sustain a capital loss as a result. Capital
losses incurred by the Trust which are not offset by capital gains may
adversely affect the Trust's net asset value and the Trust's ability to
return $10 per common share outstanding to investors on or about December
31, 2010.
Although the insurance on municipal obligations reduces financial
or credit risk in respect of the insured obligations (i.e., the possibility
that owners of the insured tax-exempt municipal obligations will not
receive timely scheduled payments of principal or interest), insured
tax-exempt municipal obligations remain subject to market risk (i.e.,
fluctuations in market value as a result of changes in prevailing interest
rates). Accordingly, insurance on municipal obligations does not insure the
market value of the Trust's assets or the net asset value or the market
price for the common shares. Furthermore, insurance, while guaranteeing
scheduled payments of principal and interest on a timely basis, will not
make accelerated payments of principal and interest on municipal
obligations where the terms of the instrument governing such municipal
obligations require acceleration in the event of a default. In general, the
Trust does not intend to hold municipal obligations in its portfolio which
are covered only by Portfolio Insurance unless the Trust has an irrevocable
option to obtain permanent insurance covering such municipal obligations
from the insurer providing the Portfolio Insurance or such municipal
obligations mature by their terms on or before December 31, 2010.
As of February 4, 2000, approximately 100% of the market value of
the Trust's portfolio was invested in long- term municipal obligations. All
of such long-term municipal obligations are rated Aaa by Moody's or AAA by
S&P or are insured by an insurer with a claims-paying ability rating of Aaa
by Moody's or AAA by S&P or guaranteed by an entity with such a rating. As
described under "Description of New Preferred Shares - Rating Agency
Guidelines and Asset Coverage," in calculating the discounted value of
insured municipal obligations held in the Trust's portfolio for the purpose
of determining compliance with certain rating agency guidelines applicable
to the Trust's preferred shares, the Trust may, in certain circumstances,
utilize the insurance claims-paying ability rating of an insurer of a
municipal obligation or the rating of a guarantor thereof in lieu of the
Moody's or S&P's rating on the underlying municipal obligation.
OTHER INVESTMENT PRACTICES
Certain of the other investment practices in which the Trust may
engage that are described herein or in the statement of additional
information may give rise to income that is subject to regular Federal
income tax. For additional investment practices, see "Investment Policies
and Techniques" in the statement of additional information. Accordingly, in
normal circumstances, the Trust does not intend to engage in such practices
to a significant extent. Moreover, the Trust intends that, so long as New
Preferred Shares are outstanding, its portfolio will reflect guidelines
established by Moody's and S&P in connection with the Trust's receipt of a
rating for such shares on the date they are first issued of at least "aaa"
from Moody's and "AAA" from S&P. Such guidelines may preclude or limit the
Trust from engaging in many of the investment practices described under
this caption or in the statement of additional information. In particular,
for so long as New Preferred Shares are rated by Moody's, unless the
Moody's ratings guidelines change from those presently applicable as
described under "Description of New Preferred Shares -- Rating Agency
Guidelines and Asset Coverage," the Trust will not buy or sell futures
contracts or options thereon or write put or call options (except covered
call options) on portfolio securities unless it receives written
confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the New Preferred Shares by Moody's
except that the Trust may sell exchange traded futures contracts based on
the Municipal Index (the Bond Buyer Municipal Bond Index or such other
index as may be specified in the Articles Supplementary) or Treasury Bonds
and purchase exchange traded put options on such futures contracts and
write exchange traded call options on such futures contracts (collectively
"Moody's Hedging Transactions") subject to the limitations described below.
For so long as New Preferred Shares are rated by S&P, unless S&P's ratings
guidelines change from those presently applicable as described under
"Description of New Preferred Shares -- Rating Agency Guidelines and Asset
Coverage," the Trust will not buy or sell futures contracts or options
thereon or write put options (except covered put options) or call options
(except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not
impair the ratings then assigned to the New Preferred Shares by S&P except
that the Trust may buy and sell futures contracts based on the Municipal
Index or Treasury Bonds and purchase put and call options on such contracts
(collectively "S&P Hedging Transactions") subject to the limitations
described below.
Hedging
Although in normal circumstances the Trust does not intend to
invest more than 5% of its assets in instruments other than municipal
obligations, the Trust may also enter into certain hedging transactions. In
particular, the Trust may purchase and sell futures contracts,
exchange-listed and over-the-counter put and call options on securities,
financial indices and futures contracts and may enter into various interest
rate transactions (collectively, "Hedging Transactions"). Hedging
Transactions may be used to attempt to protect against possible changes in
the market value of the Trust's portfolio resulting from fluctuations in
the debt securities markets and changes in interest rates, to protect the
Trust's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities, for investment purposes or to
establish a position in the securities markets as a temporary substitute
for purchasing particular securities. Any or all of these techniques may be
used at any time. There is no particular strategy that requires use of one
technique rather than another. Use of any Hedging Transaction is a function
of market conditions. The Hedging Transactions that the Trust may use are
described in the statement of additional information. The ability of the
Trust to hedge successfully will depend on the Advisor's ability to predict
pertinent market movements, which cannot be assured.
Other Investment Techniques
The Trust may engage in other types of transactions, including
investment in restricted and illiquid securities, repurchase and reverse
repurchase agreements, when-issued and forward commitment transactions,
borrowing, securities lending and other transactions. For a description of
such types of transactions, see "Investment Policies and Techniques - Other
Investment Policies and Techniques" in the statement of additional
information.
RISKS
Risk is inherent in all investing. Investing in any investment
company security involves risk, including the risk that you may receive
little or no return on your investment or that you may lose part or all of
your investment. Therefore, before investing you should consider carefully
the following risks that you assume when you invest in New Preferred
Shares.
Interest Rate Risk
The Trust issues preferred shares (including the New Preferred
Shares), which pay dividends based on short-term interest rates. The Trust
then uses the proceeds from the sale of preferred shares to buy municipal
obligations, which pay interest based on long-term rates. Both long-term
and short-term interest rates may fluctuate. If short-term interest rates
rise, the preferred shares dividend rates may rise so that the amount of
dividends paid to holders of preferred shares exceeds the income from the
portfolio securities purchased with the proceeds from the sale of preferred
shares. Because income from the Trust's entire investment portfolio (not
just the portion of the portfolio purchased with the proceeds of the
preferred shares offering) is available to pay preferred share dividends,
however, preferred share dividend rates would need to greatly exceed the
yield on the Trust's portfolio before the Trust's ability to pay preferred
share dividends would be impaired. Generally, municipal obligations will
decrease in value when interest rates rise and increase in value when
interest rates decline. If long-term rates rise, the value of the Trust's
investment portfolio will decline, reducing the amount of assets serving as
asset coverage for the preferred shares.
Auction Risk
The dividend rate for the New Preferred Shares normally is set
through an auction process. In the auction, holders of New Preferred Shares
may indicate the dividend rate at which they would be willing to hold or
sell their New Preferred Shares or purchase additional New Preferred
Shares. The auction also provides liquidity for the sale of New Preferred
Shares. An auction fails if there are more New Preferred Shares offered for
sale than there are buyers. You may not be able to sell your New Preferred
Shares at an auction if the auction fails. Also, if you place hold orders
(orders to retain New Preferred Shares) at an auction only at a specified
dividend rate, and that rate exceeds the rate set at the auction, you will
not retain your New Preferred Shares. Finally, if you buy shares or elect
to retain shares without specifying a dividend rate below which you would
not wish to buy or continue to hold those shares, you could receive a lower
rate of return on your shares than the market rate. See "The Auction".
Secondary Market Risk
If you try to sell your New Preferred Shares between auctions, you
may not be able to sell any or all of your shares, or you may not be able
to sell them for $25,000 per share or $25,000 per share plus accumulated
dividends. If the Trust has designated a special dividend period (a rate
period of more than seven days), changes in interest rates could affect the
price you would receive if you sold your shares in the secondary market.
Broker-dealers that maintain a secondary trading market for New Preferred
Shares are not required to maintain this market, and the Trust is not
required to redeem shares either if an auction or an attempted secondary
market sale fails because of a lack of buyers. New Preferred Shares are not
listed on a stock exchange or the NASDAQ stock market. If you sell your New
Preferred Shares to a broker-dealer between auctions, you may receive less
than the price you paid for them, especially if market interest rates have
risen since the last auction.
Ratings and Asset Coverage Risk
While it is a condition to the issuance of the New Preferred
Shares that Moody's assign a rating of aaa and S&P a rating of AAA to the
New Preferred Shares, such ratings do not eliminate or necessarily mitigate
the risks of investing in New Preferred Shares. Moody's or S&P could
downgrade New Preferred Shares, which may make your shares less liquid at
an auction or in the secondary market. If Moody's or S&P downgrades the New
Preferred Shares, the Trust may alter its portfolio or redeem New Preferred
Shares in an effort to improve the rating, although there is no assurance
that it will be able to do so to the extent necessary to restore the prior
rating. The Trust may voluntarily redeem New Preferred Shares. See
"Description of New Preferred Shares-Rating Agency Guidelines and Asset
Coverage" for a description of the asset maintenance tests the Trust must
meet.
Credit Risk
Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Trust because
it invests primarily in insured municipal obligations.
Municipal Obligations Market Risk
Investing in the market for municipal obligations involves certain
risks. The amount of public information available about the municipal
obligations in the Trust's portfolio is generally less than that for
corporate equities or bonds, and the investment performance of the Trust
may therefore be more dependent on the analytical abilities of the
Advisor than a stock fund or taxable bond fund. The secondary market for
municipal obligations also tends to be less well-developed or liquid than
many other securities markets, which may adversely affect the Trust's
ability to sell its portfolio securities at attractive prices.
The ability of municipal issuers to make timely payments of
interest and principal may be diminished during general economic downturns
and as governmental cost burdens are reallocated among Federal, state and
local governments. In addition, laws enacted in the future by Congress or
state legislatures or referenda could extend the time for payment of
principal and/or interest, or impose other constraints on enforcement of
such obligations, or on the ability of municipalities to levy taxes.
Insurance on municipal obligations held by the Trust may reduce, but will
not necessarily eliminate, such risks. Issuers of municipal securities
might seek protection under the bankruptcy laws. In the event of bankruptcy
of such an issuer, the Trust could experience delays in collecting
principal and interest and the Trust may not, in all circumstances, be able
to collect all principal and interest to which it is entitled. To enforce
its rights in the event of a default in the payment of interest or
repayment of principal, or both, the Trust may take possession of and
manage the assets securing the issuer's obligations on such securities,
which may increase the Trust's operating expenses. Any income derived from
the Trust's ownership or operation of such assets may not be tax-exempt.
Reinvestment Risk
Reinvestment risk is the risk that income from the Trust's
portfolio will decline if and when the Trust invests the proceeds from
matured, traded, prepaid or called bonds at lower interest rates. This risk
will increase as the Trust approaches its termination date, because the
Trust will reinvest such proceeds in municipal obligations with maturities
on or about its termination date, and shorter term municipal obligations
generally pay lower rates of interest than longer term municipal
obligations. A decline in income could affect the Trust's ability to pay
dividends on the New Preferred Shares.
Inflation Risk
Inflation is the reduction in the purchasing power of money
resulting from the increase in the price of goods and services. Inflation
risk is the risk that the inflation adjusted (or "real") value of an
investment in New Preferred Shares or the income from that investment will
be worth less in the future. As inflation occurs, the real value of the New
Preferred Shares and distributions declines. In an inflationary period,
however, it is expected that, through the auction process, dividend rates
on the New Preferred Shares would increase, tending to offset this risk.
MANAGEMENT OF THE TRUST
Directors and Officers
The board of directors is responsible for the overall management
of the Trust, including supervision of the duties performed by the Advisor.
There are eight directors of the Trust. Two of the directors are
"interested persons" (as defined in the 1940 Act). The names and business
addresses of the directors and officers of the Trust and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Trust" in the statement of additional information.
Investment Advisor
BlackRock Advisors, Inc. acts as the Trust's investment advisor.
BlackRock Advisors, Inc. together with its investment advisory subsidiaries
is a global asset management firm with assets of approximately $165 billion
under management as of December 31, 1999. The Advisor has its principal
office at 400 Bellevue Parkway, Wilmington, Delaware 19809. BlackRock
Advisors and its subsidiaries constitute the asset management arm of PNC
Bank, N.A., and together have over 684 employees. The Advisor and its
affiliates provide fixed income, liquidity, equity, alternative investment,
and risk management products for clients worldwide. As of December 31,
1999, the Advisor managed approximately $86 billion in various fixed income
sectors, including $8 billion in municipal securities. The Advisor and its
affiliates also manage 13 closed-end, six open-end and six money market
municipal funds. In addition, the Advisor manages portfolios of municipal
securities for large insurance companies and high net worth individuals.
As a result of an internal reorganization effective January 1,
2000, BlackRock Advisors, Inc. has replaced BlackRock Financial Management,
Inc. as investment advisor of the Trust. The investment management and
other personnel responsible for providing services to the Trust did not
change as the result of the reorganization. BlackRock Financial Management,
Inc. is a wholly-owned subsidiary of BlackRock Advisors, Inc.
Investment Philosophy
The Advisor's investment decision-making process for the municipal
bond sector is subject to the same discipline, oversight and investment
philosophy that the firm applies to other sectors of the fixed income
market.
The Advisor uses a relative value strategy that evaluates the
trade-off between risk and return to seek to achieve the Trust's investment
objective. This strategy is combined with disciplined risk control
techniques and applied in sector, sub-sector and individual security
selection decisions. The Advisor's extensive personnel and technology
resources are the key drivers of the investment philosophy.
The Advisor's Municipal Bond Team. The Advisor uses a team
approach to managing municipal portfolios. The Advisor believes that this
approach offers substantial benefits over one that is dependent on the
market wisdom or investment expertise of only a few individuals.
The Advisor's municipal bond team includes three portfolio
managers and six credit research analysts. The team is led by Kevin M.
Klingert, a managing director and portfolio manager at the Advisor. Mr.
Klingert is a senior portfolio manager and head of municipal bonds at the
Advisor, a position he has held since joining the Advisor in 1991. Mr.
Klingert has over 15 years of experience in the municipal market. Prior to
joining the Advisor, Mr. Klingert was an Assistant Vice President in the
Unit Investment Trust Department at Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, which he joined in 1985. Mr. Klingert has primary
responsibility for managing client portfolios with a special emphasis on
municipal securities. The portfolio management team also includes Craig
Kasap. Mr. Kasap has been a portfolio manager at the Advisor for over two
years and is a member of the Advisor's Investment Strategy Group. Prior to
joining the Advisor in 1997, Mr. Kasap spent three years as a municipal
bond trader with Keystone Investments in Boston where he was involved in
formulating the firm's municipal bond investment strategies. James McGinley
is also a member of the Advisor's municipal bond portfolio management team
and Investment Strategy Group. Prior to joining the Advisor in 1999 as a
Vice President, Mr. McGinley worked at Prudential Securities as an
Associate Vice President in Municipal Research since 1993.
The Advisor's municipal bond portfolio managers are responsible
for 27 municipal bond portfolios, valued as of December 31, 1999 at
approximately $5 billion, plus approximately an additional $3 billion in
municipal bonds held across portfolios with broader investment mandates.
The team is responsible for portfolios with a variety of investment
objectives and constraints, including national funds and state-specific
funds. As of December 31, 1999, the team managed 13 closed-end municipal
funds with over $3 billion in assets.
The Advisor's Investment Process. The Advisor has in-depth
expertise in the fixed income market. The Advisor applies the same
risk-controlled, active sector rotation style (discussed below) to the
management process for all of its fixed income portfolios. The Advisor
believes that it is unique in its integration of taxable and municipal bond
specialists. Both taxable and municipal bond portfolio managers share the
same trading floor and interact frequently for determining the firm's
overall investment strategy. This interaction allows each portfolio manager
to access the combined experience and expertise of the entire portfolio
management group at the Advisor.
The Advisor's portfolio management process emphasizes research and
analysis of specific sectors and securities, not interest rate speculation.
The Advisor believes that market-timing strategies can be highly volatile
and potentially produce inconsistent results. Instead, the Advisor thinks
that value over the long-term is best achieved through a risk- controlled
approach, focusing on sector allocation, security selection and yield curve
management (discussed below).
In the municipal market, the Advisor believes one of the most
important determinants of value is supply and demand. The Advisor's ability
to monitor investor flows and frequency and seasonality of issuance is
helpful in anticipating the impact of supply and demand on sectors. The
Advisor believes that the breadth and expertise of its municipal bond team
allows it to anticipate issuance flows, forecast which sectors are likely
to have the most supply and plan its investment strategy accordingly.
The Advisor also believes that over the long-term, intense credit
analysis will add value and avoid significant relative performance
impairments. The municipal credit team is led by Susan C. Heide, Ph.D who,
since December 15, 1998, has been managing director responsible for
municipal credit research at the Advisor. Ms. Heide supervises a team of
five municipal research analysts who have an average of 10 years of
experience in municipal credit research. Between 1993 and December 15,
1998, Ms. Heide served as a director at the Advisor, specializing in the
credit analysis of municipal securities.
The Advisor's approach to credit risk incorporates a combination
of sector-based top-down macro-analysis of industry sectors to determine
relative weightings with an issuer-specific, bottom-up detailed credit
analysis of issuers and structures. The sector-based approach focuses on
rotating into sectors that are undervalued and exiting sectors when
fundamentals or technicals become unattractive. The issuer-specific
approach focuses on identifying special opportunities where the market
undervalues a credit, and devoting concentrated resources to research the
credit and monitor the position. The Advisor's analytic process focuses on
anticipating changes in credit trends before market recognition. Credit
research is a critical element of the Advisor's municipal process. The
Advisor's yield curve management process involves, among other things, an
evaluation of the risk/return trade off for bonds having different
durations, and selecting bonds believed to present an attractive yield
relative to the degree of interest rate risk involved.
The Investment Advisory Agreement
Pursuant to an investment advisory agreement, the Advisor manages
the investment of the Trust's assets and provides such investment research,
advice and supervision, in conformity with the Trust's investment objective
and policies, as necessary for the operations of the Trust.
The advisory agreement provides, among other things, that the
Advisor will bear all expenses of its employees and overhead incurred in
connection with its duties under the advisory agreement, and will pay all
directors' fees and salaries of the Trust's directors and officers who are
affiliated persons (as such term is defined in the 1940 Act) of the
Advisor, except that the board of directors may approve reimbursement for
the time spent on Trust operations of personnel who spend substantial time
on the operations (other than the provision of investment advice) of the
Trust or other investment companies advised by the Advisor. The advisory
agreement provides that the Trust shall pay to the Advisor for its services
a monthly fee at the annual rate of 0.35% of the Trust's average weekly net
asset value. The liquidation value of any outstanding preferred shares
(including the New Preferred Shares) of the Trust is included in
determining the Trust's average weekly net asset value.
Although the Advisor intends to devote such time and effort to the
business of the Trust as is reasonably necessary to perform its duties to
the Trust, the services of the Advisor are not exclusive and the Advisor
provides similar services to other investment companies and other clients
and may engage in other activities.
The advisory agreement also provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Advisor is not liable to the Trust or any
of the Trust's stockholders for any act or omission by the Advisor in the
supervision or management of its respective investment activities or for
any loss sustained by the Trust or the Trust's stockholders and provides
for indemnification by the Trust of the Advisor, its partners, officers,
employees, agents and control persons for liabilities incurred by them in
connection with their services to the Trust, subject to certain limitations
and conditions.
The advisory agreement will continue in effect, provided that each
continuance is specifically approved at least annually by both (i) the vote
of a majority of the Trust's board of directors or the vote of a majority
of the outstanding voting securities of the Trust (as such term is defined
in the 1940 Act) and (ii) by the vote of a majority of the directors who
are not parties to such Agreement or interested persons (as such term is
defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The advisory agreement
may be terminated as a whole at any time by the Trust, without the payment
of any penalty, upon the vote of a majority of the Trust's board of
directors or a majority of the outstanding voting securities of the Trust
or by the Advisor, on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the SEC or any rule or provision
of the 1940 Act, the Agreement will terminate automatically in the event of
its assignment (as such term is defined in the 1940 Act and the rules
thereunder).
The Administration Agreement
Mitchell Hutchins Asset Management (the "Administrator"), 1285
Avenue of the Americas, New York 10019, acts as administrator for the
Trust. [The Administrator is an affiliate of Merrill Lynch, Pierce, Fenner
& Smith Incorporated one of the underwriters of this offering.] Under the
Administration Agreement with the Trust (the "Administration Agreement"),
the Administrator administers the Trust's corporate affairs subject to the
supervision of the Trust's board of directors and in connection therewith
furnishes the Trust with office facilities together with such ordinary
clerical and bookkeeping services (e.g., preparation of annual and other
reports to stockholders and the SEC and filing of Federal, state and local
income tax returns) as are not being furnished by the custodian. In
connection with its administration of the corporate affairs of the Trust,
the Administrator will bear the following expenses:
o the salaries and expenses of all personnel of the
Administrator; and
o all expenses incurred by the Administrator in connection
with administering the ordinary course of the Trust's
business, other than those assumed by the Trust, as
described below.
The Administration Agreement provides that the Trust shall pay to
the Administrator a monthly fee for its services and the facilities
furnished by the Administrator at the annual rate of 0.10% of the Trust's
average weekly net asset value. The liquidation value of any outstanding
preferred shares (including the New Preferred Shares) of the Trust is
included in determining the Trust's average weekly net asset value.
The Administration Agreement is terminable on 60 days' prior
written notice by either party to the other.
Expenses of The Trust
Except as indicated above, the Trust will pay all of its expenses,
including fees of the directors not affiliated with the Advisor and board
meeting expenses: fees of the Advisor and the Administrator; interest
charges; taxes; organization expenses; charges and expenses of the Trust's
legal counsel and independent accountants, and of the transfer agent,
registrar and dividend disbursing agent of the Trust; expenses of
repurchasing shares; expenses of issuing any preferred shares (including
the New Preferred Shares) or indebtedness; expenses of printing and mailing
share certificates, stockholder reports, notices, proxy statements and
reports to governmental offices; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security
transactions; expenses connected with negotiating, effecting purchase or
sale, or registering privately issued portfolio securities; custodial fees
and expenses for all services to the Trust, including safekeeping of funds
and securities and maintaining required books and accounts; expenses of
calculating and publishing the net asset value of the Trust's shares;
expenses of membership in investment company associations; expenses of
fidelity bonding and other insurance expenses including insurance premiums;
expenses of stockholders meetings; SEC and state registration fees; New
York Stock Exchange listing fees; and fees payable to the National
Association of Securities Dealers, Inc. in connection with this offering
and fees of any rating agencies retained to rate any preferred shares
(including the New Preferred Shares) issued by the Trust.
DESCRIPTION OF PREFERRED SHARES
Certain of the capitalized terms used herein are defined in the
Articles Supplementary and Articles of Amendment of the Trust attached as
Appendices C-1, C-2 and C-3 to the statement of additional information.
The Preferred Shares of each series are shares of preferred stock
of the Trust. Preferred Shares entitle their holders to receive dividends
when, as and if declared by the board of directors, out of funds legally
available therefor. The rate per annum on which dividends are paid may vary
from dividend period to dividend period for each series of Preferred
Shares. In general, the applicable rate for a particular dividend period
for a series of Preferred Shares will be determined by an auction conducted
on the day before the start of the dividend period. Existing holders and
potential holders of Preferred Shares may participate in the auctions.
Existing holders desiring to continue to hold all of their Preferred Shares
regardless of the applicable rate resulting from the auction need not
participate. For an explanation of auctions and the method of determining
the applicable rate, see "The Auction". The Trust intends to redeem all of
the Preferred Shares of each series no later than the last dividend payment
date for the series prior to December 31, 2010 (when the Trust will
terminate).
A dividend payment date and an auction date for the Trust's
outstanding Series M28 Preferred Shares may coincide with a dividend
payment date and an auction date for the Series M7 Preferred Shares
(including the New Preferred Shares). The Series M28 Preferred Shares will
have a dividend period of 28 days in length. The Series M7 Preferred Shares
(including the New Preferred Shares) generally will have a dividend period
of seven days in length. The New Series M7 Preferred Shares may have a
different dividend period for the initial dividend period. Either series of
Preferred Shares may have a dividend period different from its normal
dividend period if the board of directors declares a special dividend
period for that series.
The Preferred Shares have a liquidation preference of $25,000 per
share plus an amount equal to accumulated but unpaid dividends plus the
premium, if any, resulting from the designation of a Premium Call Period. A
Premium Call Period is a period during a special dividend period during
which the Trust must pay a premium in order to redeem Preferred Shares. The
Preferred Shares are fully paid and non-assessable. The Preferred Shares
are not convertible into common shares or other capital stock of the Trust.
Holders of Preferred Shares have no preemptive rights. The Preferred Shares
are not subject to any sinking fund. The Preferred Shares are generally
subject to redemption at the option of the Trust on any dividend payment
date for the respective series (provided that no Preferred Shares shall be
subject to optional redemption during a Non-Call Period) and, in certain
circumstances, are subject to mandatory redemption by the Trust. Except
with regard to their respective initial dividend periods and initial
dividend rates and except for the timing of their respective auction dates
and dividend payment dates, the rights and preferences of each series of
Preferred Shares are the same.
In connection with the auction procedures described below,
Deutsche Bank Group is the auction agent, the transfer agent, registrar,
dividend disbursing agent and redemption agent for the Preferred Shares.
DESCRIPTION OF NEW PREFERRED SHARES
The following is a brief description of the terms of the New
Preferred Shares. For the complete terms of the New Preferred Shares,
including definitions of terms used but not defined, please refer to the
detailed description of the New Preferred Shares in the Articles
Supplementary and Articles of Amendment attached as Appendices C-1, C-2 and
C-3 to the statement of additional information. We refer to the Articles
Supplementary and Articles of Amendment in this prospectus collectively as
the "Articles Supplementary."
GENERAL
The Trust is authorized to issue 200 million shares of capital
stock, $.01 par value. The board of directors of the Trust is authorized to
classify and reclassify any unissued shares of capital stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock. In connection
with the offerings of New Preferred Shares described herein, the board of
directors has reclassified 1,616 shares of unissued capital stock as New
Preferred Shares.
The New Preferred Shares will rank the same as the currently
outstanding Preferred Shares as to the payment of dividends and the
distribution of assets upon liquidation. Each New Preferred Share carries
one vote on matters that Preferred Shares can be voted. New Preferred
Shares, when issued, will be fully paid and non-assessable and have no
preemptive, conversion or cumulative voting rights.
DIVIDENDS AND DIVIDEND PERIODS
General. The following is a general description of dividends and
dividend periods for the New Preferred Shares. The initial dividend period
for the New Preferred Shares will be ___ days and the dividend rate for
this period will be __%. Subsequent dividend periods generally will be
seven days and the dividend rates for those periods will be determined by
auction. The Trust, subject to certain conditions, may change the length of
subsequent dividend periods by designating them as special dividend
periods. See "--Designation of Special Dividend Periods" below.
Dividend Payment Dates. Dividends on New Preferred Shares will be
payable, when, as and if declared by the board of directors, out of legally
available funds in accordance with the Trust's charter and applicable law.
The initial dividend will be paid on _____________, 2000. Subsequent
dividends generally will be paid on each Tuesday. If dividends are payable
on a Tuesday that is not a business day, then dividends will generally be
payable on the next day, if such day is a business day, or as otherwise
specified in the Trust's Articles Supplementary. In the case of a special
dividend period of 35 days or fewer, dividends are generally payable on the
day following the last day of such dividend period. In the case of a
special dividend period of more than 35 but less than 92 days, dividends
generally are payable on the day following the last day of each 30 day
period to occur during the dividend period and on the day following the
last day of the dividend period. In the case of a special dividend period
of 92 days or more, dividends generally are payable as the Trust may
specify in the notice of special dividend period issued for such special
dividend period.
Dividends will be paid through The Depository Trust Company on
each dividend payment date. DTC, in accordance with its current procedures,
is expected to distribute dividends received from the auction agent in
same-day funds on each dividend payment date to Agent Members (members of
DTC that will act on behalf of existing or potential holders of Preferred
Shares). These Agent Members are in turn expected to distribute such
dividends to the persons for whom they are acting as agents. However, each
of the current Broker-Dealers has indicated to the Trust that dividend
payments will be available in same-day funds on each dividend payment date
to customers that use a Broker-Dealer or a Broker-Dealer's designee as
Agent Member.
Calculation of Dividend Payment. The Trust computes the dividend
per New Preferred Share by multiplying the applicable rate in effect by a
fraction. The numerator of this fraction will normally be seven (i.e., the
number of days in the dividend period) and the denominator will normally be
365. If the Trust has designated a special dividend period of 365 days or
more, then the numerator will be the number of days in the dividend period,
and the denominator will be 360. In either case, this rate is then
multiplied by $25,000 to arrive at dividends per share.
Dividends on New Preferred Shares will accumulate from the date of
their original issue. For each dividend payment period after the initial
dividend period, the dividend rate will be the dividend rate determined at
auction, except as provided below. The dividend rate that results from an
auction will not be greater than the maximum applicable rate described
below. In the case of a special dividend period for which Bid Requirements
are specified, the dividend rate will not be less than the minimum
applicable rate specified in the notice declaring the special dividend
period. During dividend periods for which no Bid Requirements are
specified, there will be no minimum applicable rate. "Bid Requirements" may
include, with respect to any special dividend period of longer than 91
days, the requirement that bids be expressed as a spread over a specified
reference index or reference security, any minimum applicable rate and the
frequency of dividend payments during such special dividend period.
The maximum applicable rate for any regular dividend payment
period will be the applicable percentage (set forth in the table below) of
the higher of (i) the 30-day "AA" Composite Commercial Paper Rate and (ii)
the Taxable Equivalent of the Short-Term Municipal Bond Rate. In the case
of a special dividend period, the maximum applicable rate will be the
applicable percentage of the Special Dividend Period Reference Rate (which
will ordinarily be specified by the Trust in the notice of the special
dividend period) for such dividend payment period. The applicable
percentage is determined on the day that a notice of a special dividend
period is delivered if the notice specifies a maximum applicable rate for a
special dividend period. The applicable percentage will be determined based
on the lower of the credit rating or ratings assigned to the Preferred
Shares by Moody's and S&P. If Moody's or S&P or both shall not make such
rating available, the rate shall be determined by reference to equivalent
ratings issued by a substitute rating agency. If the Trust has provided
notification to the auction agent prior to an auction establishing the
applicable rate for a dividend period that net capital gains or other
taxable income will be included in the dividend determined at such auction,
the applicable percentage will be derived from the column captioned
"Applicable Percentage: Notification" in the table below:
<TABLE>
<CAPTION>
Credit Ratings Applicable Applicable
-------------- Percentage: Percentage:
Moody's S&P No Notification Notification
------- --- --------------- ------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "al" A- to A+ 125% 160%
"baa3" to "baal" BBB- to BBB+ 150% 250%
"ba3" to "bal" BB- to BB+ 200% 275%
Below "ba3" Below BB- 250% 300%
</TABLE>
Prior to each dividend payment date, the Trust is required to
deposit with the auction agent sufficient funds for the payment of declared
dividends. The failure to make such deposit will not result in the
cancellation of any auction. The Trust does not intend to establish any
reserves for the payment of dividends.
Additional Dividends. Under Federal income tax rules applicable to
the Trust, the Trust may, in certain circumstances, allocate net capital
gains or other taxable income to a dividend paid on New Preferred Shares
after the dividend has been paid (a "Retroactive Taxable Allocation"). If a
Retroactive Taxable Allocation is made on the New Preferred Shares, the
Trust will, in the circumstances below, pay to the holders of New Preferred
Shares, out funds legally available therefor, an additional dividend. The
additional dividend will be in an amount equal to the amount of taxes paid
by a holder of New Preferred Shares on the Retroactive Taxable Allocation,
provided that the additional dividend will be calculated:
o without consideration being given to the time value
of money;
o assuming that no holder of New Preferred Shares is
subject to the Federal alternative minimum tax
with respect to dividends received from the Trust;
and
o assuming that each Retroactive Taxable Allocation
would be taxable in the hands of each holder of
New Preferred Shares at the maximum marginal
regular Federal income tax rate applicable to
individuals or corporations, whichever is greater,
in effect during the fiscal year in question.
Although the Trust generally intends to designate any additional dividend
as an exempt-interest dividend to the extent permitted by applicable law,
it is possible that all or a portion of any additional dividend will be
taxable to the recipient thereof. See "Taxes." The Trust will not pay a
further additional dividend with respect to any taxable portion of an
additional dividend.
An additional dividend will be paid following a Retroactive
Taxable Allocation in the following circumstances:
o if a Retroactive Taxable Allocation is made in
connection with a dividend period of 28 days or
fewer and the Trust did not give advanced notice
of the Retroactive Taxable Allocation to the
Auction Agent solely because of the redemption of
all or a portion of the New Preferred Shares or
the liquidation of the Trust; or
o if a Retroactive Taxable Allocation is made in
connection with a dividend period of 35 days
or more.
In no other instance will the Trust be required to make payments to holders
of New Preferred Shares to offset the tax effect of a Retroactive Taxable
Allocation.
The Trust will, within 90 days (and generally within 60 days)
after the end of its fiscal year for which a Retroactive Taxable Allocation
is made, provide notice thereof to the auction agent. The Trust will pay,
out of legally available funds, any additional dividend due on all
Retroactive Taxable Allocations made during the fiscal year in question,
within 30 days after such notice is given to the auction agent.
Restrictions on Dividends and Other Distributions. While the New
Preferred Shares are outstanding, the Trust generally may not declare, pay
or set apart for payment, any dividend or other distribution in respect of
its common shares. In addition, the Trust may not call for redemption or
redeem any of its common shares. However, the Trust is not confined by the
above restrictions if:
o immediately after such transaction, the Discounted
Value of the Trust's portfolio would be equal to
or greater than the Preferred Shares Basic
Maintenance Amount and the 1940 Act Preferred
Shares Asset Coverage (see "-- Rating Agency
Guidelines and Asset Coverage" below);
o full cumulative dividends on the New Preferred
Shares due on or prior to the date of the
transaction have been declared and paid or shall
have been declared and sufficient funds for the
payment thereof deposited with the auction agent;
o any additional dividend required to be paid on or
before the date of such declaration has been
paid; and
o the Trust has redeemed the full number of New
Preferred Shares required to be redeemed by any
provision for mandatory redemption contained in
the Articles Supplementary.
The Trust generally will not declare, pay or set apart for payment
any dividend on any shares of the Trust ranking, as to the payment of
dividends, on a parity with New Preferred Shares unless the Trust has
declared and paid or contemporaneously declares and pays full cumulative
dividends on the New Preferred Shares through its most recent dividend
payment date. However, when the Trust has not paid dividends in full on the
New Preferred Shares through the most recent dividend payment date or upon
any shares of the Trust ranking, as to the payment of dividends, on a
parity with New Preferred Shares through their most recent respective
dividend payment dates, the amount of dividends declared per share on New
Preferred Shares and such other class or series of shares will in all cases
bear to each other the same ratio that accumulated dividends per share on
the New Preferred Shares and such other class or series of shares bear to
each other.
Designation of Special Dividend Periods. The Trust may, at its
sole option, declare a special dividend period. To declare a special
dividend period, the Trust will give notice (a "request for special
dividend period") to the auction agent and to each Broker-Dealer. The
notice will request that the next succeeding dividend period for such
series of New Preferred Shares be a number of days (other than seven)
evenly divisible by seven as specified in such notice. The Trust may not
request a special dividend period unless sufficient clearing bids were made
in the most recent auction. In addition, full cumulative dividends, any
amounts due with respect to mandatory redemptions and any additional
dividends payable prior to such date must be paid in full. The Trust also
must have received confirmation from Moody's and S&P or any substitute
rating agency that the proposed special dividend period will not adversely
affect such agency's then-current rating on the New Preferred Shares. A
request for special dividend period also will specify any proposed Bid
Requirements. Upon receiving a request for special dividend period, the
Broker-Dealer(s) will jointly determine whether, given the factors set
forth in the Articles Supplementary, it is advisable that the Trust issue a
notice of special dividend period for the New Preferred Shares as
contemplated by the request. If advisable, the Broker-Dealer(s) will
determine the specific redemption provisions (such as the designation of a
Premium Call Period or a Non-Call Period) and will give the Trust and the
auction agent notice of its determination. If no Broker-Dealer objects to
the notice of special dividend period, the Trust may issue such notice
specifying the duration of the special dividend period, the Bid
Requirements, if any, and the specific redemption provisions, if any.
Redemption
Mandatory Redemption. The Trust is required to maintain (a) a
Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount and (b) the 1940 Act Preferred Shares Asset Coverage. If
the Trust fails to maintain such asset coverage amounts and does not timely
cure such failure in accordance with the requirements of the rating
agencies that rate the New Preferred Shares, the Trust must redeem all or a
portion of the New Preferred Shares. This mandatory redemption will take
place on a date that the board of directors specifies out of legally
available funds in accordance with the Trust's charter and applicable law,
at the redemption price of $25,000 per share plus accumulated but unpaid
dividends (whether or not earned or declared) to the date fixed for
redemption. The number of Preferred Shares that must be redeemed in order
to cure such failure will be allocated pro rata among the New Preferred
Shares and the other outstanding Preferred Shares of the Trust. The
mandatory redemption will be limited to the number of New Preferred Shares
necessary to restore the required Discounted Value or the 1940 Act
Preferred Shares Asset Coverage, as the case may be.
Optional Redemption. The Trust, at its option, may redeem the New
Preferred Shares, in whole or in part, out of funds legally available
therefor. Any optional redemption will occur on a dividend payment date at
the optional redemption price per share of $25,000 per share plus an amount
equal to accumulated but unpaid dividends to the date fixed for redemption,
plus the premium, if any, resulting from the designation of a Premium Call
Period. No New Preferred Shares may be redeemed during a Non-Call Period or
if the redemption would cause the Trust to violate the 1940 Act or Maryland
law. In addition, holders of New Preferred Shares may be entitled to
receive additional dividends if the redemption causes the Trust to make a
Retroactive Taxable Allocation. The Trust has the authority to redeem the
New Preferred Shares for any reason. The Trust intends to redeem all of its
outstanding preferred shares (including the New Preferred Shares) prior to
the last dividend payment date in respect of each series prior to December
31, 2010 (when the Trust will terminate).
Liquidation
If the Trust is liquidated, the holders of outstanding New
Preferred Shares will receive the liquidation preference on the New
Preferred Shares, plus all accumulated but unpaid dividends, plus (i) the
premium, if any, resulting from the designation of a Premium Call Period
and (ii) any applicable additional dividends payable before any payment is
made to the common shares. The holders of New Preferred Shares will be
entitled to receive these amounts from the assets of the Trust available
for distribution to its shareholders. In addition, the rights of holders of
New Preferred Shares to receive these amounts are subject to the rights of
holders of any series or class of shares, including other series of
Preferred Shares, ranking on a parity with the New Preferred Shares with
respect to the distribution of assets upon liquidation of the Trust. After
the payment to the holders of New Preferred Shares of the full preferential
amounts as described, the holders of New Preferred Shares will have no
right or claim to any of the remaining assets of the Trust.
For purposes of the foregoing paragraph, a voluntary or
involuntary liquidation of the Trust does not include:
o the sale of all or substantially all the property or
business of the Trust;
o the merger or consolidation of the Trust into or with
any other corporation; or
o the merger or consolidation of any other corporation
into or with the Trust.
Rating Agency Guidelines and Asset Coverage
The Trust is required under guidelines of Moody's and S&P to
maintain assets having in the aggregate a Discounted Value at least equal
to the Preferred Shares Basic Maintenance Amount. Moody's and S&P have each
established separate guidelines for calculating Discounted Value. To the
extent any particular portfolio holding does not satisfy a rating agency's
guidelines, all or a portion of the holding's value will not be included in
the rating agency's calculation of Discounted Value. The Moody's and S&P
guidelines do not impose any limitations on the percentage of the Trust's
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Trust's portfolio. The amount of
ineligible assets included in the Trust's portfolio at any time may vary
depending upon the rating, diversification and other characteristics of the
eligible assets included in the portfolio. The Preferred Shares Basic
Maintenance Amount includes the sum of (a) the aggregate liquidation
preference of the Preferred Shares then outstanding and (b) certain accrued
and projected payment obligations of the Trust.
The Trust is also required under the 1940 Act to maintain asset
coverage of at least 200% with respect to senior securities which are
equity shares, including the New Preferred Shares ("1940 Act Preferred
Shares Asset Coverage"). The Trust's 1940 Act Preferred Shares Asset
Coverage is tested as of the last business day of each month in which any
senior equity securities are outstanding. The minimum required 1940 Act
Preferred Shares Asset Coverage amount of 200% may be increased or
decreased if the 1940 Act is amended. Based on the composition of the
portfolio of the Trust and market conditions as of February 4, 2000, the
1940 Act Preferred Shares Asset Coverage with respect to all of the Trust's
preferred shares, assuming the issuance on that date of all New Preferred
Shares offered hereby and giving effect to the deduction of related sales
load and related offering costs estimated at $704,000, would have been
computed as follows:
Value of Trust assets less liabilities
not constituting senior securities = $ 443,480,001 = 260%
---------------------------------------------------------
Senior securities representing indebtedness $ 170,400,000
plus
liquidation value of the preferred shares
In the event the Trust does not timely cure a failure to maintain
(a) a Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the 1940 Act Preferred Shares Asset Coverage, in
each case in accordance with the requirements of the rating agency or
agencies then rating the New Preferred Shares, the Trust will be required
to redeem New Preferred Shares as described under "--Redemption--Mandatory
Redemption" above.
Pursuant to S&P guidelines, the Trust is required under its
Articles Supplementary to have Deposit Securities with maturity or tender
payment dates not later than the next dividend payment date for the New
Preferred Shares (collectively, "Dividend Coverage Assets") and having in
the aggregate a value not less than the Dividend Coverage Amount (the
"Minimum Liquidity Level"). The "Dividend Coverage Amount," as of any
Valuation Date, means (A) the aggregate amount of cash dividends that will
accumulate on outstanding New Preferred Shares to (but not including) the
next dividend payment date that follows the Valuation Date, less (B) the
combined fair market value of Deposit Securities irrevocably deposited for
the payment of cash dividends on New Preferred Shares. "Deposit Securities"
means cash, the book value of municipal obligations sold for which payment
is due within five business days and before the next Valuation Date and
municipal obligations rated at least A-1 + or SP- I + by S&P, VMIG-1 or
MIG-1 by Moody's. The definitions of "Deposit Securities," "Dividend
Coverage Assets" and "Dividend Coverage Amount" may be changed from time to
time by the Trust without shareholder approval, but only in the event the
Trust receives confirmation from S&P that any such change would not impair
the ratings then assigned by S&P to New Preferred Shares. The Trust needs
to comply with the S&P Minimum Liquidity Level only for so long as S&P
rates the New Preferred Shares. The Minimum Liquidity Level is tested as of
each Valuation Date (ordinarily every Friday).
The Trust may, but is not required to, adopt any modifications to
the guidelines that may be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In addition, any
rating agency providing a rating for the New Preferred Shares may, at any
time, change or withdraw any such rating. The Board may, without
shareholder approval, amend, alter or repeal any or all of the definitions
and related provisions which have been adopted by the Trust pursuant to the
rating agency guidelines in the event the Trust receives written
confirmation from Moody's or S&P, as the case may be, that any such
amendment, alteration or repeal would not impair the rating then assigned
to the New Preferred Shares.
As recently described by Moody's and S&P, a preferred stock rating
is an assessment of the capacity and willingness of an issuer to pay
preferred stock obligations. The rating on the New Preferred Shares is not
a recommendation to purchase, hold or sell those shares, inasmuch as the
rating does not comment as to market price or suitability for a particular
investor. The rating agency guidelines described above also do not address
the likelihood that an owner of New Preferred Shares will be able to sell
such shares in an auction or otherwise. The ratings are based on current
information furnished to Moody's and S&P by the Trust and the Advisor and
information obtained from other sources. The ratings may be changed,
suspended or withdrawn as a result of changes in, or the unavailability of,
such information. The common shares have not been rated by a nationally
recognized statistical rating organization.
A rating agency's guidelines will apply to New Preferred Shares
only so long as the rating agency is rating the shares. The Trust will pay
certain fees to Moody's and S&P for rating the New Preferred Shares.
Voting Rights
Except as otherwise provided in this prospectus and in the
statement of additional information or as otherwise required by law,
holders of New Preferred Shares will have equal voting rights with holders
of common shares and any other preferred shares of the Trust (one vote per
share) and will vote together with holders of common shares and any other
preferred shares as a single class.
Holders of outstanding preferred shares of the Trust, including
New Preferred Shares, voting as a separate class, are entitled to elect two
of the Trust's directors. The remaining directors are elected by holders of
common shares and preferred shares, including New Preferred Shares, voting
together as a single class. In addition, if at any time dividends (whether
or not earned or declared) on outstanding preferred shares of the Trust,
including New Preferred Shares, are due and unpaid in an amount equal to
two full years of dividends, and sufficient cash or specified securities
have not been deposited with the auction agent for the payment of such
dividends, the sole remedy of holders of outstanding preferred shares of
the Trust is that the number of directors constituting the board of
directors will be automatically increased by the smallest number that, when
added to the two directors elected exclusively by the holders of preferred
shares as described above, would constitute a majority of the board of
directors. The holders of preferred shares of the Trust will be entitled to
elect that smallest number of additional directors at a special meeting of
shareholders held as soon as possible and at all subsequent meetings at
which directors are to be elected. The terms of office of the persons who
are directors at the time of that election will continue. If the Trust
thereafter pays in full all dividends payable on all outstanding preferred
shares of the Trust, the special voting rights stated above will cease and
the terms of office of the additional directors elected by the holders of
the preferred shares will automatically terminate.
As long as any preferred shares of the Trust are outstanding, the
Trust will not, without the affirmative vote or consent of the holders of
at least a majority of the Preferred Shares (including New Preferred
Shares) outstanding at the time (voting as a separate class):
(a) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to or on a
parity with the Preferred Shares (including the New Preferred
Shares) with respect to payment of dividends or the distribution
of assets on liquidation, or increase the authorized amount of
the Preferred Shares (including the New Preferred Shares) or any
other preferred stock, unless, in the case of shares of preferred
stock on parity with the Preferred Shares, the Trust obtains
written confirmation from Moody's (if Moody's is then rating
preferred shares), S&P (if S&P is then rating preferred shares)
or any substitute rating agency (if any such substitute rating
agency is then rating preferred shares) that the issuance of a
class or series would not impair the rating then assigned by such
rating agency to the Preferred Shares) and the Trust continues to
comply with Section 13 of the 1940 Act, the 1940 Act Preferred
Shares Asset Coverage requirements and the Preferred Shares Basic
Maintenance Amount requirements, in which case the vote or
consent of the holders of the Preferred Shares (including the New
Preferred Shares) is not required;
(b) amend, alter or repeal the provisions of the Trust's charter
whether by merger, consolidation or otherwise, so as to adversely
affect any of the contract rights expressly set forth in the
Trust's charter of holders of Preferred Shares (including the New
Preferred Shares) or any other preferred stock;
(c) authorize the Trust's conversion from a closed-end to an open-end
investment company; or
(d) amend the provisions of the Trust's charter which provide for the
classification of the board of directors of the Trust into three
classes, each with a term of office of three years with only one
class of directors standing for election in any year (presently
Article VI of the Trust's charter).
To the extent permitted under the 1940 Act, the Trust will not
approve any of the actions set forth in (a) or (b) above which adversely
affects the rights expressly set forth in the Trust's charter of a holder
of shares of a series of preferred shares differently than those of a
holder of shares of any other series of preferred shares without the
affirmative vote or consent of the holders of at least a majority of the
shares of each series adversely affected. Unless a higher percentage is
provided for under the Trust's charter, the affirmative vote of the holders
of a majority of the outstanding preferred shares, including New Preferred
Shares, voting together as a single class, will be required to approve any
plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders
under Section 13(a) of the 1940 Act. However, to the extent permitted by
the Maryland General Corporation Law, no vote of holders of common stock,
either separately or together with holders of preferred shares as a single
class, is necessary to take the actions contemplated by (a) and (b) above.
The holders of common shares will not be entitled to vote in respect of
such matters, unless, in the case of the actions contemplated by (b) above,
the action would adversely affect the contract rights of the holders of
common shares expressly set forth in the Trust's charter.
The foregoing voting provisions will not apply with respect to New
Preferred Shares if, at or prior to the time when a vote is required, such
shares have been (i) redeemed or (ii) called for redemption and sufficient
funds have been deposited in trust to effect such redemption.
THE AUCTION
GENERAL
The Trust's charter provides that, except as otherwise described
in this prospectus, the applicable rate for the New Preferred Shares for
each dividend period after the initial dividend period will be the rate
that results from an auction conducted as set forth in the Trust's charter
and summarized below. In such an auction, persons determine to hold or
offer to sell or, based on dividend rates bid by them, offer to purchase or
sell New Preferred Shares. See the Articles Supplementary included in the
statement of additional information for a more complete description of the
auction process.
Auction Agency Agreement. The Trust will enter into an auction
agency agreement with the auction agent (currently, Deutsche Bank Group)
which provides, among other things, that the auction agent will follow the
auction procedures to determine the applicable rate for New Preferred
Shares so long as the applicable rate for New Preferred Shares is to be
based on the results of an auction.
The auction agent may terminate the auction agency agreement upon
notice to the Trust no earlier than 60 days after such notice. If the
auction agent should resign, the Trust will use its best efforts to enter
into an agreement with a successor auction agent containing substantially
the same terms and conditions as the auction agency agreement. The Trust
may remove the auction agent provided that prior to such removal the Trust
has entered into such an agreement with a successor auction agent.
Broker-Dealer Agreements. Each auction requires the participation
of one or more Broker-Dealers. The auction agent will enter into agreements
with several Broker-Dealers selected by the Trust, which provide for the
participation of those Broker-Dealers in auctions for New Preferred Shares.
The auction agent will pay to each Broker-Dealer after each
auction, from funds provided by the Trust, a service charge at the annual
rate of 1/4 of 1%, in the case of any auction before a dividend period of
28 days or less, or a percentage agreed to by the Trust and the
Broker-Dealers, in the case of any auction before a dividend period of 35
days or longer, of the purchase price of New Preferred Shares placed by a
Broker-Dealer at the auction.
The Trust may request the auction agent to terminate one or more
Broker-Dealer Agreements at any time upon five days' notice, provided that
at least one Broker-Dealer Agreement is in effect after such termination.
Auction Procedures
Prior to the submission deadline on each auction date for the New
Preferred Shares, each customer of a Broker- Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the auction agent) as a
beneficial owner of New Preferred Shares may submit the following types of
orders with respect to New Preferred Shares to that Broker- Dealer:
1. Hold order--indicating its desire to hold New Preferred
Shares without regard to the applicable rate for the next
dividend period.
2. Bid--indicating its desire to sell New Preferred Shares at
$25,000 per share if the applicable rate for shares of such
series for the next dividend period is less than the rate or
spread specified in the bid.
3. Sell order--indicating its desire to sell New Preferred
Shares at $25,000 per share without regard to the applicable
rate for shares of such series for the next dividend period.
A beneficial owner of New Preferred Shares may submit different
types of orders to its Broker-Dealer with respect to New Preferred Shares
then held by the beneficial owner. A beneficial owner that submits a bid to
its Broker- Dealer having a rate higher than the maximum applicable rate on
the auction date will be treated as having submitted a sell order to its
Broker-Dealer. A beneficial owner that fails to submit an order to its
Broker-Dealer will ordinarily be deemed to have submitted a hold order to
its Broker-Dealer. However, if a beneficial owner fails to submit an order
to its Broker-Dealer for an auction relating to a dividend period of more
than 91 days, such beneficial owner will be deemed to have submitted a sell
order to its Broker-Dealer. A sell order constitutes an irrevocable offer
to sell the New Preferred Shares subject to the sell order. A beneficial
owner that offers to become the beneficial owner of additional New
Preferred Shares is, for purposes of such offer, a potential holder as
discussed below.
A potential holder is either a customer of a Broker-Dealer that is
not a beneficial owner of New Preferred Shares but that wishes to purchase
New Preferred Shares or a beneficial owner that wishes to purchase
additional New Preferred Shares. A potential holder may submit bids to its
Broker-Dealer in which it offers to purchase New Preferred Shares at
$25,000 per share if the applicable rate for the next dividend period is
not less than the rate specified in such bid. A bid placed by a potential
holder specifying a rate higher than the maximum applicable rate on the
auction date will not be accepted.
Any bid by an existing holder that specifies a spread with respect
to an auction in which a spread is not included in any Bid Requirements or
in which there are no Bid Requirements and an order that does not specify a
spread with respect to an auction in which a spread is included in any Bid
Requirements shall be treated as a sell order.
The Broker-Dealers in turn will submit the orders of their
respective customers who are beneficial owners and potential holders to the
auction agent. They will designate themselves (unless otherwise permitted
by the Trust) as existing holders of shares subject to orders submitted or
deemed submitted to them by beneficial owners. They will designate
themselves as potential holders of shares subject to orders submitted to
them by potential holders. However, neither the Trust nor the auction agent
will be responsible for a Broker-Dealer's failure to comply with these
procedures. Any order placed with the auction agent by a Broker-Dealer as
or on behalf of an existing holder or a potential holder will be treated
the same way as an order placed with a Broker-Dealer by a beneficial owner
or potential holder. Similarly, any failure by a Broker-Dealer to submit to
the auction agent an order for any New Preferred Shares held by it or
customers who are beneficial owners will be treated as a beneficial owner's
failure to submit to its Broker-Dealer an order in respect of New Preferred
Shares held by it. A Broker-Dealer may also submit orders to the auction
agent for its own account as an existing holder or potential holder,
provided it is not an affiliate of the Trust.
There are sufficient clearing bids in an auction if the number of
shares subject to bids submitted or deemed submitted to the auction agent
by Broker-Dealers for potential holders with rates or spreads equal to or
lower than the maximum applicable rate is at least equal to the number of
New Preferred Shares subject to sell orders submitted or deemed submitted
to the auction agent by Broker-Dealers for existing holders. If there are
sufficient clearing bids, the applicable rate for New Preferred Shares for
the next succeeding dividend period thereof will be the lowest rate
specified in the submitted bids which, taking into account such rate and
all lower rates bid by Broker-Dealers as or on behalf of
existing holders and potential holders, would result in existing holders
and potential holders owning the New Preferred Shares available for
purchase in the auction.
If there are not sufficient clearing bids, the applicable rate for
the next dividend period will be the maximum applicable rate on the auction
date. If this happens, beneficial owners of New Preferred Shares that have
submitted or are deemed to have submitted sell orders may not be able to
sell in the auction all shares subject to such sell orders. If all of the
outstanding New Preferred Shares are the subject of submitted hold orders,
then the dividend period following the auction will automatically be the
same length as the preceding dividend period. The applicable rate for the
next dividend period will then be:
o the higher of the 30-day "AA" Composite Commercial Paper Rate and
the Taxable Equivalent of the Short-Term Municipal Bond Rate, multiplied by
o 1 minus the maximum marginal regular Federal individual or corporate
income tax rate (whichever is higher) then applicable to ordinary income
(or 90% of such rate if the Trust has provided notification to the auction
agent prior to the auction establishing the applicable rate that net
capital gains or other taxable income will be included in such dividend on
New Preferred Shares) on the date of the auction.
The "30-day 'AA' Composite Commercial Paper Rate" is the 30-day
rate on commercial paper issued by corporations whose bonds are rated AA by
S&P as made available by the Federal Reserve Bank of New York or, if such
rate is not made available by the Federal Reserve Bank of New York, the
arithmetical average of such rates as quoted to the auction agent by
Merrill Lynch, Pierce, Fenner & Smith Incorporated or such other commercial
paper dealer as may be appointed by the Trust.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" means
90% of an amount equal to the per annum rate payable on taxable bonds in
order for such rate, on an after-tax basis, to equal the per annum rate
payable on tax- exempt bonds issued by "high grade" issuers as determined
in accordance with the procedures set forth in the Articles Supplementary.
The auction procedures include a pro rata allocation of shares for
purchase and sale, which may result in an existing holder continuing to
hold or selling, or a potential holder purchasing, a number of New
Preferred Shares that is different than the number of shares specified in
its order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as existing holders or
potential holders in respect of customer orders will be required to make
appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next
business day (which is also a dividend payment date) after the auction date
through DTC. Purchasers will make payment through their Agent Members in
same-day funds to DTC against delivery to their respective Agent Members.
DTC will make payment to the sellers' Agent Members in accordance with
DTC's normal procedures, which now provide for payment against delivery by
their Agent Members in same-day funds.
The auctions for New Preferred Shares will normally be held every
Monday, and each subsequent dividend period will normally begin on the
following Tuesday.
Whenever the Trust intends to include any net capital gains or
other income taxable for Federal income tax purposes in any dividend on New
Preferred Shares, the Trust will, in the case of a dividend period of 28
days or less, and may, in the case of a dividend period of 35 days or more,
notify the auction agent of the amount to be so included not later than the
dividend payment date before the auction date. Whenever the auction agent
receives such notice from the Trust, it will be required in turn to notify
each Broker-Dealer, who, on or prior to such auction date, will be required
to notify its customers who are beneficial owners and potential holders
believed by it to be interested in submitting an order in the auction to be
held on such auction date. In the event of such notice, the Trust will not
be required to pay an Additional Dividend with respect to such dividend.
Secondary Market Trading and Transfer of New Preferred Shares
The Broker-Dealers are expected to maintain a secondary trading
market in New Preferred Shares outside of auctions, but are not obligated
to do so, and may discontinue such activity at any time. There can be no
assurance that any secondary trading market in New Preferred Shares will
provide owners with liquidity of investment. The New Preferred Shares are
not registered on any stock exchange or on the Nasdaq Stock Market.
Investors who purchase shares in an auction for a special dividend period
in which the Bid Requirements, if any, do not require a bid to specify a
spread, should note that because the dividend rate on such shares will be
fixed for the length of such dividend period, the value of the shares may
fluctuate in response to changes in interest rates and may be more or less
than their original cost if sold on the open market in advance of the next
auction. Investors who purchase shares in an auction for a special dividend
period in which the Bid Requirements require a bid to specify a spread
should be aware that the value of their shares may also fluctuate and may
be more or less than their original cost if sold on the open market in
advance of the next auction, particularly if market spreads narrow or widen
in a manner unfavorable to such purchaser's position.
A beneficial owner or an existing holder may sell, transfer or
otherwise dispose of New Preferred Shares only in whole shares and only:
o pursuant to a bid or sell order placed with the auction
agent in accordance with the auction procedures;
o to a Broker-Dealer; or
o to such other persons as may be permitted by the Trust;
provided, however, that
o a sale, transfer or other disposition of New Preferred
Shares from a customer of a Broker- Dealer who is
listed on the records of that Broker-Dealer as the
holder of such shares to that Broker-Dealer or another
customer of that Broker-Dealer shall not be deemed to
be a sale, transfer or other disposition if such
Broker-Dealer remains the existing holder of the
shares; and
o in the case of all transfers other than pursuant to
auctions, the Broker-Dealer (or other person, if
permitted by the Trust) to whom such transfer is made
will advise the auction agent of such transfer.
TAXES
Federal Income Tax Matters
The Trust has qualified and elected, and intends to continue to
qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to
distribute at least 90% of its net investment income (including taxable
income, tax-exempt interest income 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) and substantially all of its net capital gain
to its shareholders. The Trust will not be subject to Federal income tax on
any net investment income and net capital gain that it distributes to its
shareholders, but will be subject to Federal income tax at the regular
corporate income tax rate on any net investment income (other than net
tax-exempt interest income) that it retains.
The Trust expects that substantially all of the Trust's dividends
to the common shareholders and preferred shareholders will qualify as
"exempt-interest dividends." A shareholder treats an exempt-interest
dividend as interest on state and local bonds which is exempt from regular
Federal income tax. Some or all of an exempt-interest dividend, however,
may be subject to Federal alternative minimum tax imposed on the
shareholder. Different Federal alternative minimum tax rules apply to
individuals and to corporations. In addition to exempt-interest dividends,
the Trust also may distribute to its shareholders amounts that are treated
as long-term capital gain or ordinary income. The Trust will allocate
distributions to shareholders that are treated as tax-exempt interest and
as long-term capital gain and ordinary income, if any, proportionately
among the common shares and Preferred Shares, including the New Preferred
Shares. The Trust will, in the case of a dividend period of 28 days or
less, and may, in the case of a dividend period of 35 days or more, notify
holders of Preferred Shares, including New Preferred Shares in advance if
it will allocate income to them that is not exempt from regular Federal
income tax. In certain circumstances the Trust will make payments to such
shareholders to offset the tax effects of the taxable distribution. See
"Description of New Preferred Shares--Dividends and Dividend
Periods-Additional Dividends."
The sale or other disposition of common shares or Preferred Shares
of the Trust will normally result in capital gain or loss to shareholders.
Present law taxes both long-term and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, under current law short-term capital gains and ordinary
income will be taxed at a maximum rate of 39.6%, while long-term capital
gains will generally be taxed at a maximum rate of 20%. Because of certain
limitations on itemized deductions and the deduction for personal
exemptions applicable to higher income taxpayers, the effective rate of tax
may be higher in certain circumstances. Losses realized by a shareholder on
the sale or exchange of shares of the Trust held for six months or less are
disallowed to the extent of any exempt-interest dividends received with
respect to such shares, and, if not disallowed, such losses are treated as
long-term capital losses to the extent of any distribution of net capital
gain received with respect to such shares. A shareholder's holding period
is suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or
short sales. Any loss realized on a sale or exchange of shares of the Trust
will be disallowed to the extent those shares of the Trust are replaced by
other shares within a period of 61 days beginning 30 days before and ending
30 days after the date of disposition of the original shares. In that
event, the basis of the replacement shares of the Trust will be adjusted to
reflect the disallowed loss.
The statement of additional information contains a more detailed
summary of the Federal income tax rules that apply to the Trust and its
shareholders. Legislative, judicial or administrative action may change the
tax rules that apply to the Trust or its shareholders, and any such change
may be retroactive. You should consult with your tax advisor about Federal
income tax matters.
STATE AND LOCAL TAX MATTERS
While exempt-interest dividends are exempt from regular Federal
income tax, they may not be exempt from state or local income or other
taxes. Some states exempt from state income tax that portion of any
exempt-interest dividend that is derived from interest that a regulated
investment company receives on its holdings of securities of that state and
its political subdivisions and instrumentalities. Therefore, the Trust will
report annually to its shareholders the percentage of interest income the
Trust earned during the preceding year on tax-exempt obligations and the
Trust will indicate, on a state-by-state basis, the source of this income.
You should consult with your tax advisor about state and local tax matters.
DETERMINATION OF NET ASSET VALUE
The net asset value of common shares of the Trust will be computed
based upon the value of the Trust's portfolio securities and other assets.
Net asset value per common share of the Trust will be determined as of the
close of the regular trading session on the New York Stock Exchange no less
frequently than Friday of each week and the last business day of each
month, provided, however, that if any such day is a holiday or
determination of net asset value on such day is impracticable, the net
asset value shall be calculated on such earlier or later day as determined
by the Advisor. The Trust calculates net asset value per common share of
the Trust by subtracting the Trust's liabilities (including accrued
expenses, dividends payable and any borrowings of the Trust) and the
liquidation value of any outstanding preferred shares (including New
Preferred Shares) of the Trust from the Trust's total assets (the value of
the securities the Trust holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the total
number of common shares of the Trust outstanding.
The Trust values its fixed income securities by using market
quotations provided by pricing services, prices provided by market makers
or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established by the board of directors of the Trust. Short-term
securities having a maturity of 60 days or less are valued at amortized
cost, which approximates market value. Any securities or other assets for
which current market quotations are not readily available are valued at
their fair value as determined in good faith under procedures established
by and under the general supervision and responsibility of the Trust's
board of directors.
REPURCHASE OF COMMON SHARES
Shares of closed-end investment companies often trade at a
discount to their net asset values, and the Trust's common shares may also
trade at a discount to their net asset value. The market price of the
Trust's common shares will be determined by such factors as relative demand
for and supply of such common shares in the market, the Trust's net asset
value, general market and economic conditions and other factors beyond the
control of the Trust. Although the Trust's common shareholders will not
have the right to have the Trust redeem their common shares, the Trust may
take action to repurchase common shares in the open market or make tender
offers for its common shares at their net asset value. This may, but will
not necessarily, have the effect of reducing any market discount from net
asset value. See "Repurchase of Common Shares" in the statement of
additional information.
DESCRIPTION OF CAPITAL STOCK
The Trust is authorized to issue 200 million shares of capital
stock, $.01 par value. The board of directors of the Trust is authorized to
classify and reclassify any unissued shares of capital stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock. In connection
with the offerings of New Preferred Shares described herein, the board of
directors has reclassified 1,616 shares of unissued capital stock as New
Preferred Shares.
COMMON SHARES
The Trust's charter provides that the Trust will terminate on
December 31, 2010, without stockholder approval. In connection with such
termination, the Trust will liquidate all of its assets and distribute to
holders of outstanding common shares the net proceeds from such liquidation
after making appropriate provision for any liabilities of the Trust and the
payment of any liquidation preferences and accumulated but unpaid dividends
on any outstanding shares of Preferred Stock. Prior to such termination,
however, the board of directors of the Trust will consider whether it is in
the best interests of stockholders to terminate and liquidate the Trust on
December 31, 2010 without stockholder approval notwithstanding the
foregoing provision of the charter. In considering this matter, the board
of directors will take into account, among other factors, the adverse
effect which capital losses realized upon disposition of securities in
connection with liquidation (if any such losses are anticipated) would have
on the Trust and its stockholders. In the event that the board of directors
determines that under the circumstances, termination and liquidation of the
Trust on December 31, 2010 without a stockholder vote would not be in the
best interests of stockholders, the board of directors will call a special
meeting of stockholders to consider an appropriate amendment to the Trust's
charter. The Trust's charter would require the affirmative vote of the
holders of at least 75% of outstanding shares of capital stock to approve
such an amendment. The foregoing provisions of the Trust's charter are
governed by the laws of the State of Maryland and not the 1940 Act. All
common shares are equal as to dividends, assets and voting privileges and
have no conversion, preemptive or other subscription rights.
The Trust has no present intention of offering any additional
shares of capital stock other than New Preferred Shares as described
herein. Any additional offerings of shares of capital stock, if made, will
require approval by the Trust's board of directors. Any additional offering
of common shares will be subject to the requirements of the 1940 Act that
common shares may not be issued at a price below the then current net asset
value (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing stockholders or with the consent of
a majority of the Trust's common shareholders.
So long as any New Preferred Shares or any other preferred shares
of the Trust are outstanding, holders of common shares of the Trust will
not be entitled to receive any net income of or other distributions from
the Trust unless all accumulated dividends on outstanding preferred shares
(including the New Preferred Shares) have been paid, and unless asset
coverage (as defined in the 1940 Act) with respect to such preferred shares
would be at least 200% after giving effect to such distributions. See
"Description of New Preferred Shares-Dividends and Dividend Periods" for
other restrictions on dividends to holders of common shares which will be
applicable for so long as any preferred shares of the Trust are
outstanding.
The common shares have traded on the New York Stock Exchange since
February 21, 1992 under the symbol BMT.
At February 4, 2000, there were 25,885,639 common shares of the
Trust issued and outstanding, and the net asset value per common share was
$10.55 and the closing price per common share on the NYSE was $10.063.
PREFERRED STOCK
Under the Trust's charter, the Trust is authorized to issue 200
million shares of capital stock, $.01 par value. The board of directors of
the Trust is authorized to classify and reclassify any unissued shares of
capital stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such
shares of stock. In connection with the offerings of New Preferred Shares
described herein, the board of directors has reclassified 1,616 shares of
unissued capital stock as New Preferred Shares. Under the 1940 Act, the
Trust is permitted to have outstanding more than one series of preferred
shares so long as no single series has a priority over another series as to
the distribution of assets of the Trust or the payment of dividends.
Holders of common shares and outstanding preferred shares of the Trust have
no preemptive right to purchase any preferred shares (including the New
Preferred Shares) that might be issued. It is anticipated that the net
asset value per share of the New Preferred Stock will equal its original
purchase price per share plus accrued dividends per share. See "Description
of New Preferred Shares" for a description of the rights, preferences,
privileges and other terms of the New Preferred Shares.
Antitakeover Provisions of the Charter and By-Laws
The Trust presently has provisions in its charter and By-Laws
(commonly referred to as "antitakeover" provisions) which may have the
effect of limiting the ability of other entities or persons to acquire
control of the Trust, to cause it to engage in certain transactions or to
modify its structure.
First, a director elected by the holders of capital stock (i.e.,
the common shares, the New Preferred Shares and any other preferred shares)
or by the holders of Preferred Shares, including the New Preferred Shares,
and any other preferred shares may be removed from office only for cause by
vote of the holders of at least 75% of the shares of capital stock or
preferred shares, as the case may be, of the Trust entitled to be voted on
the matter. Second, the affirmative vote of a majority of the directors and
of the holders of at least 75% of the Trust's outstanding shares of capital
stock entitled to be voted on the matter, voting as a single class, and the
affirmative vote of a majority of outstanding preferred shares, voting as a
separate class, will be required to authorize the Trust's conversion from a
closed-end to an open-end investment company, which conversion would result
in delisting of the common shares from the NYSE. Conversion to an open-end
investment company would require redemption of all outstanding preferred
shares of the Trust. Third, the board of directors is classified into three
classes, each with a term of three years with only one class of directors
standing for election in any year. Such classification may prevent
replacement of a majority of the directors for up to a two year period. The
affirmative vote of at least 75% of the Trust's outstanding shares of
capital stock entitled to be voted on the matter, voting as a single class,
and the affirmative vote of a majority of outstanding preferred shares,
voting as a separate class will be required to amend the charter or By-Laws
to change any of the foregoing provisions.
In addition, under the Trust's charter, the Trust has elected to
be subject to provisions of the Maryland General Corporation Law that
generally provide that, unless an exemption is available, certain mergers,
consolidations, shares exchanges, asset sales, stock issuances,
liquidations or dissolutions, recapitalizations, and other transaction with
a beneficial owner of 10% or more of the voting power of a Maryland
corporation (an "interested stockholder") or any affiliate of an interested
stockholder are prohibited for a period of five years following the most
recent date on which the interested stockholder became an interested
stockholder. Thereafter, such a business combination must be recommended by
the board of directors and approved by the affirmative vote of at least (i)
80% of the votes entitled to be cast by outstanding shares of voting stock
of the corporation and (ii) 662/3% of the votes entitled to be cast by
holders of voting stock other than voting stock held by the interested
stockholder who is (or whose affiliate is) a party to the business
combination or an affiliate or associate of the interested stockholder
(with dissenting stockholders having certain appraisal rights), unless
certain value and other standards are satisfied or some other statutory
exemption is available. The vote specified in the preceding sentence will
be required to amend the charter to change the provisions subjecting the
Trust to the provisions of the Maryland General Corporation Law discussed
above.
The percentage of votes required under these provisions, which are
greater than the minimum requirements under Maryland law absent the
elections described above or in the 1940 Act, will make more difficult a
change in the Trust's business or management and may have the effect of
depriving holders of common shares of an opportunity to sell shares at a
premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Trust in a tender offer or similar
transaction. The Trust's board of directors, however, has considered these
antitakeover provisions and believes they are in the best interests of
shareholders.
CUSTODIAN
The Trust's securities and cash are held under a Custodial
Agreement with State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the Trust has agreed to sell to such underwriter, the number
of New Preferred Shares set forth opposite the name of such underwriter.
Number of
Series M7
Name Preferred Shares
- ------------------- --------------------------
Total ..................... 1,616
===============
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject
to the approval of certain legal matters by counsel and to certain other
conditions. The underwriters are obligated to purchase all the New
Preferred Shares if they purchase any of the shares. In the underwriting
agreement, the Trust and the Advisor have agreed to indemnify the
underwriters against certain liabilities, including liabilities arising
under the Securities Act of 1933, or to contribute payments the
underwriters may be required to make for any of those liabilities.
The underwriters propose to initially offer some of the New
Preferred Shares directly to the public at the public offering price set
forth on the cover page of this prospectus and some of the New Preferred
Shares to certain dealers at the public offering price less a concession
not in excess of $ per share. The sales load the Trust will pay of per
share is equal to % of the initial offering price. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial public offering,
the underwriters may change the public offering price and the concession.
Investors must pay for any New Preferred Shares purchased in the initial
public offering on or before , 2000.
The Trust anticipates that the underwriters may from time to time
act as brokers or dealers in executing the Trust's portfolio transactions
after they have ceased to be underwriters. The underwriters are active
underwriters of, and dealers in, securities and act as market makers in a
number of such securities, and therefore can be expected to engage in
portfolio transactions with the Trust.
The Trust anticipates that the underwriters or their respective
affiliates may, from time to time, act in auctions as Broker-Dealers and
receive fees as set forth under "The Auction." Each of the underwriters
engages in transactions with, and performs services for, the Trust in the
ordinary course of business.
TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for
the New Preferred Shares will be Deutsche Bank Group, 4 Albany Street, New
York, New York. The transfer agent, dividend disbursing agent and registrar
for the common shares of the Trust is State Street Bank and Trust Company.
LEGAL OPINIONS
Certain legal matters in connection with the New Preferred Shares
offered hereby will be passed upon for the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York and for the Underwriters by Simpson
Thacher & Bartlett, New York, New York. Such counsel will rely, as to
matters of Maryland law, on the opinion of Miles & Stockbridge, Baltimore,
Maryland.
EXPERTS
The data in the "Financial Highlights" section of this prospectus
are based upon financial statements that have been audited by Deloitte &
Touche LLP, Two World Center, New York, New York, independent auditors, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance on their reports given on their authority as
experts in auditing and accounting.
REPORTS TO STOCKHOLDERS
The Trust sends unaudited semiannual reports and audited annual
reports, including a list of investments held, to stockholders.
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance
therewith is required to file reports, proxy statements and other
information with the SEC. Any such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
of the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the SEC's New York Regional Office, Seven World Trade Center,
New York, New York 10048 and its Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Reports, proxy statements and other information concerning the Trust
can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Additional information regarding the Trust and the New Preferred
Shares is contained in the Registration Statement on Form N-2, including
amendments, exhibits and schedules thereto, relating to such shares filed
by the Trust with the SEC. This prospectus does not contain all of the
information set forth in the Registration Statement, including any
amendments, exhibits and schedules thereto. For further information with
respect to the Trust and the shares offered hereby, reference is made to
the Registration Statement. Statements contained in this prospectus as to
the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
A copy of the Registration Statement may be inspected without
charge at the SEC's principal office in Washington, D.C., and copies of all
or any part thereof may be obtained from the SEC upon the payment of
certain fees prescribed by the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains the Registration Statement, other
documents incorporated by reference, and other information the Trust has
filed electronically with the SEC, including proxy statements and reports
filed under the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
Page
<S> <C>
Investment Objective and Policies......................................................11
Investment Policies and Techniques....................................................S-4
Management of the Trust...............................................................S-7
Portfolio Transactions and Brokerage.................................................S-11
Additional Information Concerning the Auctions for New Preferred Shares..............S-12
Repurchase of Common Shares..........................................................S-14
Tax Matters..........................................................................S-15
Financial Statements.................................................................S-19
Additional Information...............................................................S-19
Appendix A - General Characteristics and Risks of Hedging Transactions................A-1
Appendix B - Insurance Ratings........................................................B-1
Appendix C-1 - Articles of Amendment................................................C-1-1
Appendix C-2 - Articles of Amendment................................................C-2-1
Appendix C-3 - Articles Supplementary...............................................C-3-1
</TABLE>
APPENDIX A
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a security must earn
at various income brackets to produce after-tax yields equivalent to those
of tax-exempt bonds yielding from 4% to 6% under the regular Federal income
tax law and tax rates applicable to individuals for 2000.
<TABLE>
<CAPTION>
Tax exempt yield of:
(Taxable Income*) Marginal
--------------------------- Income 4% 4.5% 5% 5.5% 6%
Tax
Single Return Joint Return Bracket is equivalent to a fully taxable yield of:
- -------------------- -------------------- ------------ --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $26,250 Up to $43,850 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
$26,251 - $63,550 $43,851 - $105,950 28.00 5.56 6.25 6.94 7.64 8.33
$63,551 - $132,600 $105,951 - $161,450 31.00 5.80 6.52 7.25 7.97 8.70
$132,601 - $288,350 $161,451 - $288,350 36.00 6.25 7.03 7.81 8.59 9.38
Over $288,350 Over $288,350 39.60 6.62 7.45 8.28 9.11 9.93
</TABLE>
---------------
*Net amount subject to Federal personal income tax after deductions
and exemptions.
The above indicated Federal income tax brackets do not take into
account the effect of a reduction in the deductibility of itemized
deductions for individual taxpayers with adjusted gross income in excess of
$128,950. The tax brackets also do not show the effects of phaseout of
personal exemptions for single filers with adjusted gross income in excess
of $128,950 and joint filers with adjusted gross income in excess of
$193,400. The effective tax brackets and equivalent taxable yields of those
taxpayers will be higher than those indicated above.
Yields shown are for illustration purposes only and are not meant
to represent the Trust's actual yield. No assurance can be given that the
Trust will achieve any specific tax-exempt yield. While it is expected that
the Trust will invest principally in obligations the interest from which is
exempt from the regular Federal income tax, other income received by the
Trust may be taxable. The table does not take into account state or local
taxes, if any, payable on Trust distributions. It should also be noted that
the interest earned on certain "private activity bonds," while exempt from
the regular Federal income tax, is treated as a tax preference item which
could subject the recipient to the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this
prospectus. Subsequent tax law changes could result in prospective or
retroactive changes in the tax brackets, tax rates, and tax-equivalent
yields set forth above. Investors should consult their tax advisor for
additional information.
==============================================================================
- ------------------------------------------------------------------------------
$40,400,000
The BlackRock Insured
Municipal Term Trust Inc.
Auction Rate Municipal Preferred Stock
1,616 Shares, Series M7
---------------------
PROSPECTUS
, 2000
---------------------
==============================================================================
- ------------------------------------------------------------------------------
The information in this statement of additional information is not complete
and may be changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective.
This statement of additional information is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 2000
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
STATEMENT OF ADDITIONAL INFORMATION
The BlackRock Insured Municipal Term Trust Inc. (the "Trust") is a
closed-end, diversified management investment company. This statement of
additional information relating to New Preferred Shares does not constitute
a prospectus, but should be read in conjunction with the prospectus
relating hereto dated ________ __, 2000. This statement of additional
information does not include all information that a prospective investor
should consider before purchasing New Preferred Shares, and investors
should obtain and read the prospectus prior to purchasing such shares. A
copy of the prospectus may be obtained without charge by calling (888)
825-2257. You may also obtain a copy of the prospectus on the Securities
and Exchange Commission's web site (http://www.sec.gov). Capitalized terms
used but not defined in this statement of additional information have the
meanings given to them in the prospectus or the Articles Supplementary and
Articles of Amendment attached to this Statement of Additional Information
as Appendices C-1, C-2 and C-3.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Investment Objective and Policies.............................................S-2
Investment Policies and Techniques............................................S-4
Management of the Trust.......................................................S-7
Portfolio Transactions and Brokerage.........................................S-11
Additional Information Concerning the Auctions for New Preferred Shares......S-12
Repurchase of Common Shares..................................................S-14
Tax Matters..................................................................S-15
Financial Statements.........................................................S-19
Additional Information.......................................................S-19
Appendix A - General Characteristics and Risks of Hedging Transactions........A-1
Appendix B - Insurance Ratings................................................B-1
Appendix C-1 - Articles of Amendment........................................C-1-1
Appendix C-2 - Articles of Amendment........................................C-2-1
Appendix C-3 - Articles Supplementary.......................................C-3-1
</TABLE>
This statement of additional information is dated _______ __ , 2000.
INVESTMENT OBJECTIVE AND POLICIES
The Trust has not established any limit on the percentage of its
portfolio that may be invested in municipal obligations subject to the
alternative minimum tax provisions of Federal tax law. New Preferred Shares
may not be a suitable investment for investors who are subject to the
Federal alternative minimum tax or who would become subject to such tax by
purchasing New Preferred Shares. The suitability of an investment in New
Preferred Shares will depend upon a comparison of the after-tax yield
likely to be provided from the Trust with that from comparable tax-exempt
investments not subject to the alternative minimum tax, and from comparable
fully taxable investments, in light of each such investor's tax position.
Special considerations apply to corporate investors. See "Tax Matters."
The types of municipal obligations in which the Trust may invest
include general obligation bonds, revenue bonds, municipal lease
obligations, installment purchase contract obligations, variable and
floating rate obligations, zero coupon securities, tax-exempt notes and
municipal commercial paper.
The two principal classifications of municipal obligations are
"general obligation" bonds and "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
facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source. Industrial development, private activity and
pollution control bonds are in most cases revenue bonds and do not
generally constitute the pledge of the credit or taxing power of the issuer
of such bonds. There are, of course, depending on numerous factors,
variations in the quality of municipal obligations both within a particular
classification and between classifications.
Also included within the general category of municipal obligations
are certain lease obligations or installment purchase contract obligations
and participations therein (hereinafter collectively called "lease
obligations") of municipal authorities or entities. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. Interest on lease
obligations is tax-exempt to the same extent as if the municipality had
issued debt obligations to finance the underlying project or purchase.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. In addition to the "non-appropriation"
risk, these securities represent a relatively new type of financing that
has not yet developed the depth of marketability associated with more
conventional bonds and some lease obligations may be illiquid. Although
"non- appropriation" lease obligations are generally secured by the leased
property, disposition of the property in the event of foreclosure might
prove difficult. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear. The Trust does not intend to invest
more than 10% of its total assets in lease obligations that contain "non-
appropriation" clauses.
Certain municipal obligations may carry variable or floating rates
of interest whereby the rate of interest is not fixed but varies with
changes in specified market rates or indices, such as a bank prime rate or
a tax-exempt money market index. Accordingly, the yield on such obligations
can be expected to fluctuate with changes in prevailing interest rates.
Other municipal obligations include zero coupon securities, which
are debt obligations that 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 municipal obligations
may be created by investment banks under proprietary programs in which they
strip the interest component from the principal component and sell both
separately. 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 having similar maturities and credit
quality that do pay periodic interest.
The term municipal obligations also includes obligations, such as
tax-exempt notes, municipal commercial paper and municipal lease
obligations, having relatively short-term maturities, although, as noted
above, the Trust intends to invest its assets in a portfolio of municipal
obligations which will have an average final maturity on or about the
Trust's termination date of December 31, 2010, except in temporary
defensive situations in which case investments in short-term assets may be
increased.
INVESTMENT RESTRICTIONS
The Trust'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 Trust's outstanding voting securities
(defined in the 1940 Act as the lesser of (a) more than 50% of the
outstanding shares (including common shares, New Preferred Shares and any
other outstanding preferred shares) or (b) 67% or more of the shares
(including common shares and New Preferred Shares and any other outstanding
preferred shares) represented at a meeting at which more than 50% of the
outstanding shares (including common shares and New Preferred Shares and
any other outstanding preferred shares) are represented) and the approval
of the holders of a majority of New Preferred Shares and any other
outstanding preferred shares voting separately as a class. All other
investment policies or practices are considered by the Trust 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 a time a transaction is effected, later changes in the
percentage resulting from changing market values will not be considered a
deviation from policy. The Trust 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 other
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 or other investment companies;
(2) invest 25% of more of the value of its total assets
in any one industry provided that such limitation shall not be
applicable to municipal obligations other than those municipal
obligations backed only by assets and revenues of non-governmental
users;
(3) issue senior securities other than (a) preferred
shares not in excess of the excess of 50% of its total assets over
any senior securities described in clause (b) below that are
outstanding, (b) senior securities other than preferred shares
(including borrowing money, including on margin if margin
securities are owned and through entering into reverse repurchase
agreements) not in excess of 331/3% of its total assets, and (c)
borrowings up to 5% of its total assets for temporary purposes
without regard to the amount of senior securities outstanding
under clauses (a) and (b) above; provided, however, that the
Trust's obligations under interest rate swaps, when issued and
forward commitment transactions and similar transactions are not
treated as senior securities if covering assets are appropriately
segregated; or pledge its assets other than to secure such
issuances or in connection with Hedging Transactions, short sales,
when-issued and forward commitment transactions and similar
investment strategies. For purposes of clauses (a), (b) and (c)
above, "total assets" shall be calculated after giving effect to
the net proceeds of any such issuance and net of any liabilities
and indebtedness that do not constitute senior securities except
for such liabilities and indebtedness as are excluded from
treatment as senior securities by the proviso to this item (3);
(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 Trust'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 Trust may be deemed
to be an underwriter;
(6) invest for the purpose of exercising control over any
issuer, except that the Trust may control a portfolio subsidiary;
(7) purchase or sell real estate or interests therein
other than municipal obligations secured by real estate or
interests therein;
(8) purchase or sell commodities or commodity contracts
except for purposes, and only to the extent, permitted by
applicable law without the Trust 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 Trust's total
assets and the Trust's aggregate short sales of a particular class
of securities does not exceed 25% of the then outstanding
securities of that class.
The Trust has no intention to file a voluntary application for
relief under Federal bankruptcy law or any similar application under state
law for as long as the Trust is solvent and does not foresee becoming
insolvent.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the
Trust's investment objective, policies and techniques that are described in
the prospectus.
HEDGING TRANSACTIONS
The following descriptions of types of hedging transactions in
which the Trust may engage supplements the information in the prospectus
under the caption "Other Investment Practices -- Hedging." For additional
information, see Appendix A "General Characteristics and Risks of Hedging
Transactions."
Interest Rate Transactions. Among the Hedging Transactions into
which the Trust may enter are interest rate swaps and the purchase or sale
of interest rate caps and floors. The Trust expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio as a duration management technique
or to protect against any increase in the price of securities the Trust
anticipates purchasing at a later date. The Trust intends to use these
transactions as a hedge and not as a speculative investment. The Trust will
not sell interest rate caps or floors that it does not own. Interest rate
swaps involve the exchange by the Trust with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal
amount from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such
interest rate floor.
The Trust may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities, and will usually enter into interest
rate-swaps on a net basis, i.e., the two payment streams are netted out,
with the Trust receiving or paying, as the case may be, only the net amount
of the two payments on the payment dates. Inasmuch as these Hedging
Transactions are entered into for good faith hedging purposes, the Advisor
and the Trust believe such obligations do not constitute senior securities
and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Trust will accrue the net amount of the excess, if any,
of the Trust's obligations over its entitlements with respect to each
interest rate swap on a daily basis and will segregate with a custodian an
amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess. The Trust will not enter into any
interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims- paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Trust will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
Futures Contracts and Options on Futures Contracts. In connection
with its hedging and other risk management strategies, the Trust may also
enter into contracts for the purchase or sale for future delivery ("futures
contracts") of debt securities, aggregates of debt securities, financial
indices, and U.S. Government debt securities or options on the foregoing to
hedge the value of its portfolio securities that might result from a change
in interest rates or market movements. The Trust will engage in such
transactions only for bona fide hedging, risk management and other
appropriate portfolio management purposes, in each case, in accordance with
the rules and regulations of the Commodity Futures Trading Commission.
Calls on Securities Indices and Futures Contracts. In order to
enhance income or reduce fluctuations in net asset value, the Trust may
sell or purchase call options ("calls") on municipal obligations and
indices based upon the prices of debt securities that are traded on US.
securities exchanges and in the over-the-counter markets. A call option
gives the purchaser of the option the right to buy, and obligates the
seller to sell, the underlying security, futures contract or index at the
exercise price at any time or at a specified time during the option period.
All such calls sold by the Trust must be "covered" as long as the call is
outstanding (i.e., the Trust must own the instrument subject to the call or
other securities or assets acceptable for applicable segregation and
coverage requirements). A call sold by the Trust exposes the Trust during
the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security, index or
futures contract and may require the Trust to hold an instrument which it
might otherwise have sold. The purchase of a call gives the Trust the right
to buy the underlying instrument or index at a fixed price. Calls on
futures contracts on municipal obligations written by the Trust must also
be covered by assets or instruments acceptable under applicable segregation
and coverage requirements.
Puts on Securities Indices and Futures Contracts. As with calls,
the Trust may purchase put options ("puts") on municipal obligations
(whether or not it holds such securities in its portfolio). For the same
purposes the Trust may also sell puts on municipal obligations financial
indices and puts on futures contracts on municipal obligations if the
Trust's contingent obligations on such puts are secured by segregated
assets consisting of cash or liquid high grade debt securities having a
value not less than the exercise price. The Trust will not sell puts if, as
a result, more than 50% of the Trust's assets would be required to cover
its potential obligation under its hedging and other investment
transactions. In selling puts, there is a risk that the Trust may be
required to buy the underlying instrument or index at higher than the
current market price.
The principal risks relating to the use of Hedging Transactions
are: (i) less than perfect correlation between the prices of the hedging
instrument and the market value of the securities in the Trust's portfolio;
(ii) possible lack of a liquid secondary market for closing out a position
in such instruments; (iii) losses resulting from interest rate or other
market movements not anticipated by the Advisor; and (iv) the obligation to
meet additional variation margin or other payment requirements. See
Appendix A "General Characteristics and Risks of Hedging Transactions."
Certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), may restrict or affect the ability of the Trust to
engage in Hedging Transactions. See "Tax Matters" and the prospectus.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Restricted and Illiquid Securities. Certain of the Trust's
investments may be illiquid. Illiquid securities are subject to legal or
contractual restrictions on disposition or lack an established secondary
trading market. The sale of restricted and illiquid securities often
requires more time and results in higher brokerage charges or dealer
discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-
the-counter markets. Restricted securities may sell at a price lower than
similar securities that are not subject to restrictions on resale.
Repurchase Agreements. The Trust may invest temporarily, without
limitation, in repurchase agreements, which are agreements pursuant to
which securities are acquired by the Trust 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 Trust is authorized to invest. Repurchase
agreements may be characterized as loans secured by the underlying
securities. The Trust 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 Trust's board of
directors ("Qualified Institutions"). The Advisor will monitor the
continued creditworthiness of Qualified Institutions, subject to the
supervision of the Trust'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 Trust
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 Trust 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 Trust's ability to dispose of the
underlying securities may be restricted. Finally, it is possible that the
Trust 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 Trust may suffer a loss to the
extent proceeds from the sale of the underlying securities are less than
the repurchase price.
Reverse Repurchase Agreements. The Trust may enter into reverse
repurchase agreements with respect to its portfolio investments subject to
the investment restrictions set forth herein and in the prospectus. Reverse
repurchase agreements involve the sale of securities held by the Trust with
an agreement by the Trust to repurchase the securities at an agreed upon
price, date and interest payment. At the time the Trust enters into a
reverse repurchase agreement, it may establish and maintain a segregated
account with its custodian containing liquid instruments having a value not
less than the repurchase price (including accrued interest). If the Trust
establishes and maintains such a segregated account, a reverse repurchase
agreement will not be considered a borrowing by the Trust; however, under
circumstances in which the Trust does not establish and maintain such a
segregated account, such reverse repurchase agreement will be considered a
borrowing for the purpose of the Trust's limitation on borrowings. The use
by the Trust of reverse repurchase agreements involves many of the same
risks of leverage since the proceeds derived from such reverse repurchase
agreements may be invested in additional securities. Reverse repurchase
agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline
below the price of the securities the Trust has sold but is obligated to
repurchase. Also, reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale by the Trust in
connection with the reverse repurchase agreement may decline in price.
If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce
the Trust's obligation to repurchase the securities, and the Trust's use of
the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision. Also, the Trust would bear the risk of
loss to the extent that the proceeds of the reverse repurchase agreement
are less than the value of the securities subject to such agreement.
When-Issued and Forward Commitment Securities. The Trust may
purchase municipal obligations on a "when- issued" basis and may purchase
or sell municipal obligations on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. When such
transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement
date, but the Trust will enter into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities,
as the case may be. If the Trust disposes of the right to acquire a
when-issued municipal obligation prior to its acquisition or disposes of
its right to deliver or receive against a forward commitment, it might
incur a gain or loss. At the time the Trust enters into a transaction on a
when-issued or forward commitment basis, it will segregate with the
custodian cash or liquid high grade debt securities with a value not less
than the value of the when-issued or forward commitment securities. The
value of these assets will be monitored daily to ensure that their marked
to market value will at all times equal or exceed the corresponding
obligations of the Trust. There is always a risk that the securities may
not be delivered and that the Trust may incur a loss. Settlements in the
ordinary course, which may take substantially more than five business days,
are not treated by the Trust as when-issued or forward commitment
transactions and accordingly are not subject to the foregoing restrictions.
Borrowings. Although it has no present intention of doing so, the
Trust receives the right to borrow funds to the extent permitted as
described under the caption "Investment Objective and Policies --
Investment Restrictions." The proceeds of borrowings may be used for any
valid purpose including, without limitation, liquidity, investing and
repurchases of capital stock of the Trust. Borrowing is a form of leverage
and, in that respect, entails risks, including volatility in net asset
value, market value and income available for distribution.
Lending of Securities. The Trust may lend its portfolio securities
to Qualified Institutions. By lending its portfolio securities, the Trust
attempts to increase its income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that
may occur during the term of the loan will be for the account of the Trust.
The Trust may lend its portfolio securities so long as the terms and the
structure of such loans are not inconsistent with requirements of the 1940
Act, which currently require that (i) the borrower pledge and maintain with
the Trust collateral consisting of cash, a letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the U.S.
Government having a value at all times not less than 100% of the value of
the securities loaned, (ii) the borrower add to such collateral whenever
the price of the securities loaned rises (i.e., the value of the loan is
"marked to the market" on a daily basis), (iii) the loan be made subject to
termination by the Trust at any time and (iv) the Trust receive reasonable
interest on the loan (which may include the Trust's investing any cash
collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. The Trust
will not lend portfolio securities if, as a result, the aggregate of such
loans exceeds 331/3% of the value of the Trust's total assets (including
such loans). Loan arrangements made by the Trust will comply with all other
applicable regulatory requirements, including the rules of the New York
Stock Exchange, which rules presently require the borrower, after
notice, to redeliver the securities within the normal settlement time of
five business days. All relevant facts and circumstances, including the
creditworthiness of the Qualified Institution, will be monitored by the
Advisor, and will be considered in making decisions with respect to the
lending of securities, subject to review by the Trust's board of directors.
The Trust may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Trust's board of 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.
Zero Coupon Bonds. The Trust may invest in zero coupon bonds. A
zero coupon bond is a bond that does not pay interest for its entire life.
The market prices of zero coupon bonds are affected to a greater extent by
changes in prevailing levels of interest rates and thereby tend to be more
volatile in price than securities that pay interest periodically. In
addition, because the Trust accrues income with respect to these securities
prior to the receipt of such interest, it may have to dispose of portfolio
securities under disadvantageous circumstances in order to obtain cash
needed to pay income dividends in amounts necessary to avoid unfavorable
tax consequences.
MANAGEMENT OF THE TRUST
The officers of the Trust manage its day to day operations. The
officers are directly responsible to the Trust's board of directors which
sets broad policies for the Trust and chooses its officers. The following
is a list of the directors and officers of the Trust and a brief statement
of their present positions and principal occupations during the past five
years. Directors who are interested persons of the Trust (as defined in the
1940 Act) are denoted by an asterisk (*). The business address of the
Advisor is 400 Bellevue Parkway, Wilmington, Delaware 19809. The business
address of the Trust and its board members and officers is 345 Park Avenue,
New York, New York 10154 , unless specified otherwise below, The directors
listed below are either trustees or directors of other closed-end funds in
which BlackRock Advisors, Inc. or an affiliate acts as investment advisor.
<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
4400 MacArthur Blvd., N.W. Washington, D.C. based economic and financial
Suite 302 consulting firm. Director of CarrAmerica Realty
Washington, DC 20007 Corporation and Borg-Warner Automotive. Formerly
Age: 72 member of the Board of Governors the Federal
Reserve System. Formerly 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), and UAL Corporation (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.
Age: 52 Former 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
Unit #602 of America and Banc PLUS Savings Association,
St. Petersburg, FL 33706 former Chairman of the Board, President and Chief
Age: 61 Executive Officer of Northeast Savings. Former
Director of ISFA (the owner of INVEST, a national
securities brokerage service designed for banks and thrift
institutions).
Frank J. Fabozzi Director Consultant. Editor of THE JOURNAL OF
858 Tower View Circle PORTFOLIO MANAGEMENT and Adjunct
New Hope, PA 18938 Professor of Finance at the School of Management at
Age: 50 Yale University. Director, Guardian Mutual Trusts
Group. Author and editor of several books on fixed
income portfolio management. Visiting Professor of
Finance and Accounting at the Sloan School of
Management, Massachusetts Institute of Technology
from 1986 to August 1992.
Laurence D. Fink* 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
Pauma Valley, CA 92061 since July 1, 1993. Director, Jacobs Engineering
Age: 69 Group, Inc., Rockwell International Corporation,
Payden & Rygel Investment Trusts (investment companies),
Timken Company (roller bearing and steel) and Motor Cargo
Industries (transportation). Acting Dean of The School of
Business, Hong Kong University of Science and Technology
1990-1993. From 1978 to September 1993, Dean of The John E.
Anderson Graduate School of Management, University of
California.
Walter F. Mondale Director Partner, Dorsey & Whitney, a law firm (December
220 South Sixth Street 1996-present, September 1987-August 1993).
Minneapolis, MN 55402 Formerly U.S. Ambassador to Japan (1993-1996).
Age: 71 Formerly Vice President of the United States, U.S.
Senator and Attorney General of the State of
Minnesota. 1984 Democratic Nominee for President
of the United States.
Ralph L. Schlosstein* Director and President President of BlackRock Financial Management, Inc.,
Age: 48 BlackRock Advisors, Inc. and BlackRock, 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 advisor. 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.
Keith T. Anderson Vice President Managing Director of BlackRock Advisors, Inc.
Age: 40 since January 1991. 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.
Age: 52 since 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.
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, and
Age: 34 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 Advisors.
Michael C. Huebsch Vice President Managing Director of BlackRock Financial
Age: 41 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.
Kevin Klingert Vice President Managing Director of BlackRock Advisors, Inc.
Age: 37 since January 1996. Managing Director of
BlackRock Financial Management, Inc. since
January 1996. Director of BlackRock Financial
Management, Inc. from January 1994 to January
1996. Vice President of BlackRock Financial
Management, Inc. from October 1991 to January
1994. From March 1985 to October 1991, Assistant
Vice President at Merrill Lynch, Pierce, Fenner &
Smith in the Unit Investment Trust Department.
Richard Shea, Esq. Vice 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>
As of February 4, 2000, no person is known to the Trust to own of
record or beneficially 5% or more of the outstanding common shares or
preferred shares, except Cede & Co., Bowling Green Station, P.O. Box 20,
New York, NY 10274-0020, which owned of record all of the outstanding
common and preferred shares.
Laurence D. Fink and Ralph L. Schlosstein serve as members of the
executive committee of the board of directors. The executive committee,
which meets between regular meetings of the board of directors, is
authorized to exercise all of the powers of the board of directors except
as otherwise set forth in the charter.
The Trust has an Audit Committee consisting of those directors who
are not interested persons of the Advisor.
No officer or employee of the Trust receives any compensation from
the Trust for serving as an officer or director of the Trust. The Trust
pays each director who is not an "interested person" of the Trust (as
defined in the 1940 Act) $6,000 per year plus $1,500 per board meeting
attended in person or by telephone for travel and out-of-pocket expenses.
The aggregate estimated compensation received by each current
director of the Trust for the fiscal year ending December 31, 1999 and the
aggregate estimated compensation to be received by each current
director/trustee of the BlackRock family of funds for the fiscal year
ending December 31, 1999 as a whole are estimated as follows:
<TABLE>
<CAPTION>
1999 Estimated
Aggregate Estimated Total Compensation from
Compensation From the Trust and Fund
Name of Board Member Trust Complex Paid to Board Member*
- -------------------- ----- -----------------------------
<S> <C> <C>
Andrew R. Brimmer $10,142 $160,000
Richard E. Cavanagh $10,142 $160,000
Kent Dixon $10,142 $160,000
Frank J. Fabozzi $10,142 $160,000
Laurence D. Fink N/A N/A
James Grosfeld** $ 9,071 $ 140,000
James Clayburn LaForce, Jr. $10,142 $160,000
Ralph L. Schlosstein N/A N/A
Walter F. Mondale $10,142 $160,000
* The BlackRock family of funds consists of 22 closed-end funds.
Total compensation from the Trust and Trust complex paid to
each board member is capped at $160,000; Director fees paid by
the Trust may be reduced based on the Trust's relative net
asset value in the event that the cap is applicable.
** Resigned on November 17, 1999.
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor is responsible for decisions to buy and sell
securities for the Trust, the selection of brokers and dealers to effect
the transactions and the negotiation of prices and any brokerage
commissions. The securities in which the Trust invests are traded
principally in the over-the-counter market. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a mark-up to the dealer. Securities
purchased in underwritten offerings generally include, in the price, a
fixed amount of compensation for the manager(s), underwriter(s) and
dealer(s). The Trust may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are
paid. Purchases and sales of debt securities on a stock exchange are
effected through brokers who charge a commission for their services.
The Advisor is responsible for effecting securities transactions
of the Trust and will do so in a manner deemed fair and reasonable to
shareholders of the Trust and not according to any formula. The Advisor's
primary considerations in selecting the manner of executing securities
transactions for the Trust will be prompt execution of orders, the size and
breadth of the market for the security, the reliability, integrity and
financial condition and execution capability of the firm, the amount of
difficulty in executing the order, and the best net price. There are many
instances when, in the judgment of the Advisor, more than one firm can
offer comparable execution services. In selecting among such firms,
consideration is given to those firms which supply research and other
services in addition to execution services. Consideration may also be given
to the sale of shares of the Trust. However, it is not the policy of the
Advisor, absent special circumstances, to pay higher commissions to a firm
because it has supplied such research or other services.
The Advisor is able to fulfill its obligations to furnish a
continuous investment program to the Trust without receiving such
information from brokers; however, it considers access to such information
to be an important element of financial management. Although such
information is considered useful, its value is not determinable, as it must
be reviewed and assimilated by the Advisor, and does not reduce the
Advisor's normal research activities in rendering investment advice. It is
possible that the Advisor's expenses could be materially increased if it
attempted to purchase this type of information or generate it through its
own staff.
One or more of the other investment companies or accounts which
the Advisor manages may own from time to time some of the same investments
as the Trust. Investment decisions for the Trust are made independently
from those of such other investment companies or accounts; however, from
time to time, the same investment decision may be made for more than one
company or account. When two or more companies or accounts seek to purchase
or sell the same securities, the securities actually purchased or sold will
be allocated among the companies and accounts on a good faith equitable
basis by the Advisor in its discretion in accordance with the accounts'
various investment objectives. In some cases, this system may adversely
affect the price or size of the position obtainable for the Trust. In other
cases, however, the ability of the Trust to participate in volume
transactions may produce better execution for the Trust. It is the opinion
of the Trust's board of directors that this advantage, when combined with
the other benefits available due to the Advisor's organization, outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
Although the investment management agreement contains no
restrictions on portfolio turnover, it is not the Trust's policy to engage
in transactions with the objective of seeking profits from short-term
trading. It is expected that the annual portfolio turnover rate of the
Trust will be approximately 100% excluding securities having a maturity of
one year or less. Because it is difficult to predict accurately portfolio
turnover rates, actual turnover may be higher or lower. Higher portfolio
turnover results in increased Trust expenses, including brokerage
commissions, dealer mark-ups and other transaction costs on the sale of
securities and on the reinvestment in other securities.
ADDITIONAL INFORMATION CONCERNING
THE AUCTIONS FOR NEW PREFERRED SHARES
GENERAL
Auction Agency Agreement. The Trust will enter into an auction
agency agreement with the auction agent (currently, Deutsche Bank Group)
which provides, among other things, that the auction agent will follow the
auction procedures for purposes of determining the applicable rate for the
New Preferred Shares so long as the applicable rate for such shares is to
be based on the results of an auction.
Broker-Dealer Agreements. Each auction requires the participation
of one or more Broker-Dealers. The auction agent will enter into
broker-dealer agreements with several Broker-Dealers selected by the Trust,
which provide for the participation of those Broker-Dealers in auctions for
New Preferred Shares.
Securities Depository. The Depository Trust Company will act as
securities depository for the Agent Members with respect to the New
Preferred Shares. One certificate for all of the New Preferred Shares will
be registered in the name of Cede & Co., as nominee of the DTC. Such
certificate will bear a legend to the effect that such certificate is
issued subject to the provisions restricting transfers of shares of New
Preferred Shares contained in the Articles Supplementary. The Trust will
also issue stop-transfer instructions to the transfer agent for New
Preferred Shares. Prior to the commencement of the right of holders of
preferred shares of the Trust to elect a majority of the Trust's directors,
as described under "Description of New Preferred Shares-Voting Rights" in
the prospectus, Cede & Co. will be the holder of record of all shares of
the New Preferred Shares and owners of such shares will not be entitled to
receive certificates representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs
services for its participants (including the Agent Members), some of whom
(and/or their representatives) own DTC. DTC maintains lists of its
participants and will maintain the positions (ownership interests) held by
each such participant (the "Agent Member") in New Preferred Shares, whether
for its own account or as a nominee for another person. Additional
information concerning DTC and the DTC depository system is included as an
Exhibit to the Registration Statement of which this statement of additional
information forms a part.
CONCERNING THE AUCTION AGENT
The auction agent will act as agent for the Trust in connection
with auctions. In the absence of bad faith or negligence on its part, the
auction agent will not be liable for any action taken, suffered, or omitted
or for any error of judgment made by it in the performance of its duties
under the auction agency agreement and will not be liable for any error of
judgment made in good faith unless the auction agent will have been
negligent in ascertaining the pertinent facts.
The auction agent may rely upon, as evidence of the identities of
the existing holders of New Preferred Shares, the auction agent's registry
of existing holders, the results of auctions and notices from any
Broker-Dealer (or other person, if permitted by the Trust) with respect to
transfers described under "The Auction" in the prospectus and notices from
the Trust. The auction agent is not required to accept any such notice for
an auction unless it is received by the auction agent by 3:00 p.m., New
York City time, on the business day preceding such auction.
The auction agent may terminate the auction agency agreement upon
notice to the Trust on a date no earlier than 60 days after such notice. If
the auction agent should resign, the Trust will use its best efforts to
enter into an agreement with a successor auction agent containing
substantially the same terms and conditions as the auction agency
agreement. The Trust may remove the auction agent provided that prior to
such removal the Trust shall have entered into such an agreement with a
successor auction agent.
BROKER-DEALERS
The auction agent after each auction for New Preferred Shares will
pay to each Broker-Dealer, from funds provided by the Trust, a service
charge at the annual rate of 0.25% in the case of any auction immediately
preceding a dividend period of 28 days or less, or a percentage agreed to
by the Trust and the Broker-Dealers in the case of any auction immediately
preceding a dividend period of 35 days or longer, of the purchase price of
shares of New Preferred Shares placed by such Broker-Dealer at such
auction. For the purposes of the preceding sentence, New Preferred Shares
will be placed by a Broker- Dealer if such shares were (a) the subject of
hold orders deemed to have been submitted to the auction agent by the
Broker- Dealer and were acquired by such Broker-Dealer for its own account
or were acquired by such Broker-Dealer for its customers who are beneficial
owners or (b) the subject of an order submitted by such Broker-Dealer that
is (i) a submitted bid of an existing holder that resulted in such existing
holder continuing to hold such shares as a result of the auction or (ii) a
submitted bid of a potential holder that resulted in such potential holder
purchasing such shares as a result of the auction or (iii) a valid hold
order. The Trust may request the auction agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one
Broker-Dealer Agreement is in effect after such termination.
The broker-dealer agreements provide that a Broker-Dealer (other
than an affiliate of the Trust) may submit orders in auctions for its own
account, unless the Trust notifies all Broker-Dealers that they may no
longer do so, in which case Broker-Dealers may continue to submit hold
orders and sell orders for their own accounts. Any Broker-Dealer that is an
affiliate of the Trust may submit orders in auctions, but only if such
orders are not for its own account. If a Broker-Dealer submits an order for
its own account in any auction, it might have an advantage over other
bidders because it would have knowledge of all orders submitted by it in
that auction; such Broker-Dealer, however, would not have knowledge of
orders submitted by other Broker-Dealers in that auction.
REPURCHASE OF COMMON SHARES
The Trust is a closed-end investment company and as such its
common shareholders will not have the right to cause the Trust to redeem
their shares. Instead, the Trust's common shares will trade in the open
market at a price that will be a function of several factors, including
dividend levels (which are in turn affected by expenses), net asset value,
call protection, price, dividend stability, relative demand for and supply
of such shares in the market, general market and economic conditions and
other factors. Because shares of a closed-end investment company may
frequently trade at prices lower than net asset value, the Trust's board of
directors may consider actions that might be taken to reduce or eliminate
any material discount from net asset value in respect of common shares,
which may include the repurchase of such shares in the open market or in
private transactions, the making of a tender offer for such shares at net
asset value, or the conversion of the Trust to an open-end investment
company. The board of directors may not decide to take any of these
actions. In addition, there can be no assurance that share repurchases or
tender offers, if undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when preferred shares
of the Trust are outstanding, the Trust may not purchase, redeem or
otherwise acquire any of its common shares unless (1) all accrued dividends
on preferred shares have been paid and (2) at the time of such purchase,
redemption or acquisition, the net asset value of the Trust's portfolio
(determined after deducting the acquisition price of the common shares) is
at least 200% of the liquidation value of the outstanding preferred shares
(expected to equal the original purchase price per share plus any accrued
and unpaid dividends thereon). The staff of the SEC currently requires that
any tender offer made by a closed-end investment company for its shares
must be at a price equal to the net asset value of such shares on the close
of business on the last day of the tender offer. Any service fees incurred
in connection with any tender offer made by the Trust will be borne by the
Trust and will not reduce the stated consideration to be paid to tendering
shareholders.
Subject to its investment limitations, the Trust may borrow to
finance the repurchase of common shares or to make a tender offer. Interest
on any borrowings to finance share repurchase transactions or the
accumulation of cash by the Trust in anticipation of share repurchases or
tenders will reduce the Trust's net income. Any share repurchase, tender
offer or borrowing that might be approved by the Trust's board of directors
would have to comply with the Securities Exchange Act of 1934 and the 1940
Act and the rules and regulations under each of those acts.
Although the decision to take action in response to a discount
from net asset value will be made by the board of directors at the time it
considers such issue, it is the board's present policy, which may be
changed by the board of directors, not to authorize repurchases of common
shares or a tender offer for such shares if (1) such transactions, if
consummated, would (a) result in the delisting of the common shares from
the NYSE, or (b) impair the Trust's status as a regulated investment
company under the Internal Revenue Code of 1986 (which would make the Trust
a taxable entity, causing the Trust's income to be taxed at the corporate
level in addition to the taxation of shareholders who receive dividends
from the Trust) or as a registered closed-end investment company under the
1940 Act; (2) the Trust would not be able to liquidate portfolio securities
in an orderly manner and consistent with the Trust's investment objective
and policies in order to repurchase shares; or (3) there is, in the board's
judgment, any (a) material legal action or proceeding instituted or
threatened challenging such transactions or otherwise materially adversely
affecting the Trust, (b) general suspension of or limitation on prices for
trading securities on the NYSE, (c) declaration of a banking moratorium by
Federal or state authorities or any suspension of payment by United States
banks in which the Trust invests, (d) material limitation affecting the
Trust or the issuers of its portfolio securities by Federal or state
authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving
the United States, or (f) other event or condition which would have a
material adverse effect (including any adverse tax effect) on the Trust or
its shareholders if shares were repurchased. The board of directors may in
the future modify these conditions in light of experience.
The repurchase by the Trust of its common shares at prices below
net asset value will result in an increase in the net asset value of those
shares that remain outstanding. However, there can be no assurance that
share repurchases or tenders at or below net asset value will result in the
Trust's common shares trading at a price equal to their net asset value.
Nevertheless, the fact that the Trust's shares may be the subject of
repurchase or tender offers at net asset value from time to time, or that
the Trust may be converted to an open-end company, may reduce any spread
between market price and net asset value that might otherwise exist.
In addition, a purchase by the Trust of its common shares will
decrease the Trust's total assets which would likely have the effect of
increasing the Trust's expense ratio. Any purchase by the Trust of its
common shares at a time when preferred shares are outstanding will increase
the leverage applicable to the outstanding common shares then remaining and
decrease the asset coverage of the preferred shares.
Before deciding whether to take any action if the common shares
trade below net asset value, the Trust's board of directors would likely
consider all relevant factors, including the extent and duration of the
discount, the liquidity of the Trust's portfolio, the impact of any action
that might be taken on the Trust or its shareholders and market
considerations. Based on these considerations, even if the Trust's shares
should trade at a discount, the board of directors may determine that, in
the interest of the Trust and its shareholders, no action should be taken.
TAX MATTERS
The Trust has qualified and elected, and intends to continue to
qualify under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), as a regulated investment company and to satisfy conditions
which enable dividends on common shares or Preferred Shares which are
attributable to interest on tax-exempt municipal securities to be exempt
from Federal income tax in the hands of owners of such shares, subject to
the possible application of the Federal alternative minimum tax.
To qualify for tax treatment as a regulated investment company,
the Trust must, among other things: (a) distribute to its shareholders at
least an amount equal to the sum of (i) 90% of its net investment income
(which is its investment company taxable income as that term is defined in
the Code but determined without regard to the deduction for dividends paid)
and (ii) 90% of its net tax-exempt interest income and (b) diversify its
holdings so that, at the end of each fiscal quarter of the Trust (i) at
least 50% of the market value of the Trust's assets is represented by cash,
cash items, U.S. government securities and securities of other regulated
investment companies, and other securities, with these other securities
limited, with respect to any one issuer, to an amount not greater in value
than 5% of the Trust's total assets, and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the market value of the Trust's assets is invested in the securities of any
one issuer (other than U.S. government securities or securities of other
regulated investment companies). In meeting these requirements, the Trust
may be restricted in the utilization of certain of the investment
techniques described above and in the prospectus. If in any year the Trust
should fail to qualify for tax treatment as a regulated investment company,
the Trust would incur a regular Federal corporate income tax upon its
taxable income for that year, and distributions to its shareholders would
be taxable to such holders as ordinary income to the extent of the Trust's
earnings and profits. A regulated investment company that fails to
distribute, by the close of each calendar year, at least an amount equal to
the sum of 98% of its ordinary taxable income for such year and 98% of its
capital gain net income for the one year period ending October 31 in such
year, plus any shortfalls from the prior year's required distribution, is
liable for a 4% excise tax on the portion of the undistributed amount of
such income that is less than the required amount for such distributions.
To avoid the imposition of this excise tax, the Trust generally makes the
required distributions of its ordinary taxable income, if any, and its
capital gain net income, to the extent possible, by the close of each
calendar year.
Certain of the Trust's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of
certain deductions or losses of the Trust, affect the holding period of
securities held by the Trust and alter the character of the gains or losses
realized by the Trust. These provisions may also require the Trust to
recognize income or gain without receiving cash with which to make
distributions in the amounts necessary to satisfy the requirements for
maintaining regulated investment company status and for avoiding income and
excise taxes. The Trust will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Trust as a regulated investment company.
The Trust intends to qualify to pay "exempt-interest" dividends,
as defined in the Code on its common shares and Preferred Shares. Under the
Code, at the close of each quarter of its taxable year, if at least 50% of
the value of the Trust's total assets consists of municipal bonds, the
Trust will be qualified to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends are dividends or any part thereof
(other than a capital gain dividend) paid by the Trust which are
attributable to interest on municipal bonds and are so designated by the
Trust within 60 days of the Trust's fiscal year-end. Exempt-interest
dividends will be exempt from Federal income tax, subject to the possible
application of the Federal alternative minimum tax. Insurance proceeds
received by the Trust under any insurance policies in respect of scheduled
interest payments on defaulted municipal bonds, as described herein, will
generally be excludable from gross income under Section 103(a) of the Code.
In the case of non-appropriation by a political subdivision, however, there
can be no assurance that payments made by the issuer representing interest
on such "non-appropriation" municipal lease obligations will be excludable
from gross income for Federal income tax purposes. See "Investment
Objective and Policies" above. Gains of the Trust that are attributable to
market discount on certain municipal obligations acquired after April 30,
1993 are treated as ordinary income. The interest on private activity bonds
in most instances is not Federally tax-exempt to a person who is a
"substantial user" of a facility financed by such bonds or a "related
person" of such "substantial user." As a result, the Trust may not be an
appropriate investment for shareholders who are considered either a
"substantial user" or a "related person" within the meaning of the Code. In
general, a "substantial user" of a facility includes a "non- exempt person
who regularly uses a part of such facility in his trade or business."
"Related persons" are in general defined to include persons among whom
there exists a relationship, either by family or business, which would
result in a disallowance of losses in transactions among them under various
provisions of the Code (or if they are members of the same controlled group
of corporations under the Code), including a partnership and each of its
partners (and certain members of their families), an S corporation and each
of its shareholders (and certain members of their families) and various
combinations of these and other relationships. The foregoing is not a
complete description of all of the provisions of the Code covering the
definitions of "substantial user" and "related person." The Code provides
that every holder of Preferred Shares required to file a tax return must
include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from the Trust.
Federal tax law imposes an alternative minimum tax with respect to
both corporations and individuals. Interest on certain municipal
obligations, such as bonds issued to make loans for housing purposes or to
private entities (but not to certain tax-exempt organizations such as
universities and non-profit hospitals) is included as an item of tax
preference in determining the amount of a taxpayer's alternative minimum
taxable income. To the extent that the Trust receives income from municipal
obligations subject to the Federal alternative minimum tax, a portion of
the dividends paid by it, although otherwise exempt from Federal income
tax, will be taxable to its shareholders to the extent that their tax
liability is determined under the alternative minimum tax. The Trust will
annually supply a report indicating the percentage of the Trust's income
attributable to municipal obligations subject to the Federal alternative
minimum tax. In addition, for certain corporations, alternative minimum
taxable income is increased by 75% of the difference between an alternative
measure of income ("adjusted current earnings") and the amount otherwise
determined to be the alternative minimum taxable income. Interest on all
municipal obligations, and therefore all distributions by the Trust that
would otherwise be tax-exempt, is included in calculating a corporation's
adjusted current earnings. Certain small corporations are not subject to
the alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the
Trust, is taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to Federal income tax.
Distributions to shareholders by the Trust of net income received,
if any, from taxable temporary investments and net short-term capital
gains, if any, realized by the Trust will be taxable to its shareholders as
ordinary income. Distributions by the Trust of net capital gain (which is
the excess of net long-term capital gain over net short-term capital loss),
if any, are taxable as long-term capital gain, regardless of the length of
time the shareholder has owned common shares or Preferred Shares. The
amount of taxable income and net capital gain allocable to the Trust's
Preferred Shares will depend upon the amount of such income and gain
realized by the Trust, but is not generally expected to be significant.
Except for dividends paid on Preferred Shares which include an allocable
portion of any net capital gain or other taxable income, the Trust
anticipates that all dividends paid on shares of its Preferred Shares will
constitute exempt-interest dividends for Federal income tax purposes.
Distributions, if any, in excess of the Trust's earnings and profits will
first reduce the adjusted tax basis of a shareholder's shares and, after
that basis has been reduced to zero, will constitute capital gains to the
shareholder (assuming the shares are held as a capital asset). As long as
the Trust qualifies as a regulated investment company under the Code, no
part of its distributions to shareholders will qualify for the
dividends-received deduction for corporations.
The Internal Revenue Service (the "IRS") requires that a regulated
investment company that has two or more classes of shares designate to each
such class proportionate amounts of each type of its income for each tax
year based upon the percentage of total dividends distributed to each class
for such year. The Trust intends each year to allocate, to the fullest
extent practicable, net tax-exempt interest income, net capital gain and
other taxable income, if any, between its common shares and preferred
shares, including the Preferred Shares, in proportion to the total
dividends paid to each class with respect to such year. To the extent
permitted under applicable law, the Trust reserves the right to make
special allocations of income within a class, consistent with the objective
of the Trust. The Trust may, at its election, notify the auction agent of
the amount of any net capital gain or other income taxable for Federal
income tax purposes to be included in any dividend on its Preferred Shares
prior to the auction establishing the applicable rate for such dividend. If
the Trust allocates any net capital gain or other taxable income for
Federal income tax purposes to its Preferred Shares without having given
advance notice thereof as described above, the Trust generally will be
required to make payments to holders of its Preferred Shares to which such
allocation was made in order to offset the Federal income tax effect of the
taxable income so allocated as described under "Description of Preferred
Shares-Dividends and Dividend Periods-Additional Dividends" in the
prospectus.
Although dividends generally will be treated as distributed when
paid, dividends declared in October, November or December, payable to
shareholders of record on a specified date in one of those months and paid
during the following January will be treated as having been distributed by
the Trust (and received by the shareholders) on December 31 of the year
declared.
If at any time when the Trust's Preferred Shares are outstanding
the Trust fails to meet the Preferred Shares Basic Maintenance Amount or
the 1940 Act Preferred Shares Asset Coverage, the Trust will be required to
suspend distributions to holders of its common shares until such
maintenance amount or asset coverage, as the case may be, is restored. See
"Description of New Preferred Shares-Dividends and Dividend Periods" in the
prospectus. This may prevent the Trust from distributing at least an amount
equal to the sum of 90% of its investment company taxable income and 90% of
its net tax- exempt interest income, and may therefore jeopardize the
Trust's qualification for taxation as a regulated investment company or
cause the Trust to incur a tax liability or a non-deductible 4% excise tax
on the undistributed taxable income (including gain), or both. Upon failure
to meet the Preferred Shares Basic Maintenance Amount or the 1940 Act
Preferred Shares Asset Coverage, the Trust will be required to redeem its
Preferred Shares in order to maintain or restore such maintenance amount or
asset coverage and avoid the adverse consequences to the Trust and its
shareholders of failing to qualify as a regulated investment company. There
can be no assurance, however, that any such redemption would achieve such
objective.
The Trust may, at its option, redeem its Preferred Shares in whole
or in part, and is required to redeem Preferred Shares to the extent
required to maintain the Preferred Shares Basic Maintenance Amount and the
1940 Act Preferred Shares Asset Coverage. Gain or loss, if any, resulting
from a redemption of Preferred Shares will be taxed as gain or loss from
the sale or exchange of Preferred Shares under Section 302 of the Code
rather than as a dividend, but only if the redemption distribution (a) is
deemed not to be essentially equivalent to a dividend, (b) is in complete
redemption of an owner's interest in the Trust, (c) is substantially
disproportionate with respect to the owner, or (d) with respect to a
non-corporate owner, is in partial liquidation of the owner's interest in
the Trust. For purposes of (a), (b) and (c) above, a shareholder's
ownership of common shares will be taken into account.
The sale or other disposition of common shares or Preferred Shares
will normally result in capital gain or loss to shareholders. Present law
taxes both long-term and short-term capital gains of corporations at the
rates applicable to ordinary income. For non-corporate taxpayers, however,
under current law short-term capital gains and ordinary income will be
taxed at a maximum rate of 39.6% while long-term capital gains generally
will be taxed at a maximum rate of 20%. However, because of the limitations
on itemized deductions and the deduction for personal exemptions applicable
to higher income taxpayers, the effective rate of tax may be higher in
certain circumstances. Losses realized by a shareholder on the sale or
exchange of shares of the Trust held for six months or less are disallowed
to the extent of any distribution of exempt- interest dividends received
with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of
net capital gain received with respect to such shares. A shareholder's
holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other
positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of shares
of the Trust will be disallowed to the extent those shares of the Trust are
replaced by other shares within a period of 61 days beginning 30 days
before and ending 30 days after the date of disposition of the original
shares. In that event, the basis of the replacement shares of the Trust
will be adjusted to reflect the disallowed loss.
The Code provides that interest on indebtedness incurred or
continued to purchase or carry the Trust's shares to which exempt-interest
dividends are allocated is not deductible. Under rules used by the IRS for
determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase or ownership of
shares may be considered to have been made with borrowed funds even though
such funds are not directly used for the purchase or ownership of such
shares.
Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S.
withholding tax at the rate of 30% (or possibly a lower rate provided by an
applicable tax treaty) on distributions of net investment income (which
includes net short-term capital gain). To the extent received by foreign
investors, exempt-interest dividends, distributions of net capital gain and
gain from the sale or other disposition of Preferred Shares generally are
exempt from United States Federal income taxation. Different tax
consequences may result if the owner is engaged in a trade or business in
the United States or, in the case of an individual, is present in the
United States for 183 or more days during a taxable year.
The Trust is required in certain circumstances to backup withhold
31% of taxable dividends and certain other payments paid to non-corporate
holders of the Trust's shares who do not furnish to the Trust their correct
taxpayer identification number (in the case of individuals, their social
security number) and certain certifications, or who are otherwise subject
to backup withholding. Backup withholding is not an additional tax. Any
amounts withheld from payments made to a shareholder may be refunded or
credited against such shareholder's United States Federal income tax
liability, if any, provided that the required information is furnished to
the IRS.
The foregoing is a general, summary of the provisions of the Code
and regulations thereunder presently in effect as they directly govern the
taxation of the Trust and its shareholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive. Moreover, the foregoing does not address many of the factors
that may be determinative of whether an investor will be liable for the
Federal alternative minimum tax. Shareholders are advised to consult their
own tax advisors for more detailed information concerning the Federal
income tax consequences of purchasing, holding and disposing of Trust
shares.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS
Deloitte & Touche LLP, located at Two World Financial Center, New
York, New York, provides auditing services to the Trust. The financial
statements and independent auditors report incorporated by reference into
this statement of additional information have been so incorporated and the
financial highlights included in the prospectus have been so included, in
reliance upon the report of Deloitte & Touche LLP given on their authority
as experts in auditing and accounting.
INCORPORATION BY REFERENCE
The Trust's Portfolio of Investments, dated December 31, 1999
(audited); Statement of Assets and Liabilities, dated December 31, 1999
(audited); Statement of Operations for the year ended December 31, 1999
(audited); Statement of Changes in Net Investment Assets for the two years
ended December 31, 1999 (audited) and the independent auditors report
included in the Trust's Annual Report for the fiscal year ended December
31, 1999 (the "Reports"), which accompany this statement of additional
information, are incorporated herein by reference. The Trust will furnish,
without charge, a copy of the Reports upon written request to the Trust at
1285 Avenue of the Americas, New York, New York 10019 or by telephone
request at
- -----------.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments
thereto, relating to the shares offered hereby, has been filed by the Trust
with the Securities and Exchange Commission, Washington, D.C. The
prospectus and this statement of additional information do not contain all
of the information set forth in the Registration Statement, including any
exhibits and schedules thereto. For further information with respect to the
Trust and the shares offered hereby, reference is made to the Registration
Statement. Statements contained in the prospectus and this statement of
additional information as to the contents of any contract or other document
referred to are not necessarily complete and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference.
A copy of the Registration Statement may be inspected without
charge at the SEC's principal office in Washington, D.C., and copies of all
or any part thereof may be obtained from the SEC upon the payment of
certain fees prescribed by the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains the Registration Statement, other
documents incorporated by reference, and other information the Trust has
filed electronically with the SEC, including proxy statements and reports
filed under the Securities Exchange Act of 1934.
APPENDIX A
GENERAL CHARACTERISTICS AND
RISKS OF HEDGING TRANSACTIONS
In order to hedge against changes in the value of its portfolio
securities, the Trust may from time to time engage in certain hedging
strategies. The Trust will engage in such activities from time to time in
the Advisor's discretion, and may not necessarily be engaging in such
activities when movements in interest rates that could affect the value of
the assets of the Trust occur. The Trust's ability to pursue certain of
these strategies may be limited by the Commodity Exchange Act, applicable
regulations of the Commodity Futures Trading Commission ("CFTC") and the
federal income tax requirements applicable to regulated investment
companies.
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Trust may purchase and sell put and call options on securities
and financial indices. A put option gives the purchaser of the option the
right to sell and the seller the obligation to buy the underlying security
at the exercise price during the option period. Index options are similar
to options on securities except that, rather than taking or making delivery
of securities underlying the option at a specified price upon exercise, an
index option gives the holder the right to receive cash upon exercise of
the option if the level of the index upon which the option is based is
greater, in the case of a call, or less, in the case of a put, than the
exercise price of the option. The purchase of a put option on a debt
security would be designed to protect the Trust's holdings in a security
against a substantial decline in the market value. A call option gives the
purchaser of the option the right to buy and the seller the obligation to
sell the underlying security at the exercise price during the option
period. The purchase of a call option on a security would be intended to
protect the Trust against an increase in the price of a security that it
intended to purchase in the future. In the case of either put or call
options that it has purchased, if the option expires without being sold or
exercised, the Trust will experience a loss in the amount of the option
premium plus any related commissions. When the Trust sells put and call
options, it receives a premium as the seller of the option. The premium
that the Trust receives for selling the option will serve as a partial
hedge, in the amount of the option premium, against changes in the value of
the securities in its portfolio. During the term of the option, however, a
covered call seller has, in return for the premium on the option, given up
the opportunity for capital appreciation above the exercise price of the
option if the value of the underlying security increases, but has retained
the risk of loss should the price of the underlying security decline.
Conversely, a secured put seller retains the risk of loss should the market
value of the underlying security decline below the exercise price of the
option, less the premium received on the sale of the option. The Trust is
authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC Options") which are privately negotiated
with the counterparty to such contract. Listed options are issued by the
Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. All put and call options
written by the Trust will be covered.
The Trust's ability to close out its position as a purchaser or
seller of an exchange-listed put or call option is dependent upon the
existence of a liquid secondary market. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange
or the OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on that exchange
(or in that class or series of options) would cease to exist, although
outstanding options on that exchange that had been listed by the OCC as a
result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. OTC options are purchased from
or sold to dealers, financial institutions or other counterparties which
have entered into direct agreements with the Trust. With OTC Options, such
variables as expiration date, exercise price and premium will be agreed
upon between the Trust and the counterparty, without the intermediation of
a third party such as the OCC. If the counterparty fails to make or take
delivery of the securities underlying an option it has written, or
otherwise settle the transaction in accordance with the terms of that
option as written, the Trust would lose the premium paid for the option as
well as any anticipated benefit of the transaction. As the Trust must rely
on the credit quality of the counterparty rather than the guarantee of the
OCC, it will only enter into OTC Options with counterparties with the
highest long-term credit ratings, and with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank in New York.
The hours of trading for options on debt securities may not
conform to the hours during which the underlying securities are traded. To
the extent that the option markets close before the markets for the
underlying securities, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Characteristics. The Trust may purchase and sell futures contracts
and purchase put and call options on such futures contracts traded on
recognized domestic exchanges as a hedge against anticipated interest rate
changes or other market movements and future risk management. The sale of a
futures contract creates an obligation by the Trust, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specified future time for a specified price. Options on futures contracts
are similar to options on securities except that an option on a futures
contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased
or sold, the Trust must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial margin that the Trust
will pay may range from approximately 1% to approximately 5% of the value
of the instruments underlying the contract. In certain circumstances,
however, such as periods of high volatility, the Trust may be required by
an exchange to increase the level of its initial margin payment
Additionally, initial margin requirements may be increased in the future
pursuant to regulatory action. An outstanding futures contract is valued
daily and the payment in cash of "variation margin" may be required, a
process known as "marking to the market." Transactions in listed options
and futures are usually settled by entering into an offsetting transaction,
and are subject to the risk that this position may not be able to be closed
if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Trust's use of futures contracts and options on futures
contracts will in all cases be consistent with applicable regulatory
requirements and in particular, the rules and regulations of the CFTC and
will be entered into only for bona fide hedging purposes or other
appropriate risk management and duration management or other appropriate
portfolio strategies. In addition, the Trust may not sell futures contracts
if the value of such futures contracts exceeds the total market value of
the Trust's portfolio securities.
The Trust will not engage in transactions in futures contracts or
options thereon for speculative purposes but only as a hedge against
changes resulting from market conditions in the values of securities in its
portfolio. In addition, the Trust will not enter into a futures contract or
option thereon if, immediately thereafter, the sum of the amount of its
initial deposits and premiums on open contracts and options would exceed 5%
of the Trust's total assets (taken at current value); provided, however,
that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to
the market value of the contract. The Advisor reserves the right to comply
with such different standards as may be established from time to time by
CFTC rules and regulations with respect to the purchase and sale of futures
contracts and options thereon.
Segregation and Cover Requirements. Futures contracts, interest
rate swaps, caps, floors and collars, and options on securities, indices
and futures contracts sold by the Trust are generally subject to
segregation and coverage requirements established by either the CFTC or the
SEC, with the result that, if the Trust does not hold the instrument
underlying the futures contract or option, the Trust will be required to
segregate on an ongoing basis with its custodian, cash, U.S. Government
securities, or other liquid high grade debt obligations in an amount at
least equal to the Trust's obligations with respect to such instruments.
Such amounts will fluctuate as the market value of the obligations
increases or decreases. The segregation requirement can result in the Trust
maintaining positions it would otherwise liquidate and consequently
segregating assets with respect thereto at a time when it might be
disadvantageous to do so.
---------------
Hedging Transactions present certain risks. In particular, the
variable degree of correlation between price movements of hedging
instruments and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value
of the Trust's positions. In addition, certain hedging instruments and
markets may not be liquid in all circumstances. As a result, in volatile
markets, the Trust may not be able to close out a transaction in certain of
these instruments without incurring losses substantially greater than the
initial deposit. Although the contemplated use of these instruments should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The
ability of the Trust to hedge successfully will depend on the Advisor's
ability to predict pertinent market movements, which cannot be assured.
Finally, the daily variation margin deposit requirements in futures
contracts that the Trust has sold create an ongoing greater potential
financial risk than do options transactions, where the exposure is limited
to the cost of the initial premium and transaction costs paid by the Trust.
Losses due to Hedging Transactions will reduce net asset value.
The Trust's use of Hedging Transactions may be limited or affected
by certain provisions of the Code and rating agency guidelines.
APPENDIX B
INSURANCE RATINGS
The Trust will purchase or obtain insurance in respect of
municipal obligations only from insurers having claims- paying ability
ratings of Aaa from Moody's Investors Service, ("Moody's") and AAA from
Standard & Poor's ("S&P") or, if unrated, which are viewed by the Advisor
to have similar claims-paying abilities.
A Moody's insurance claims-paying ability rating is an opinion of
the ability of an insurance company to repay punctually senior policyholder
obligations and claims. An insurer with an insurance claims-paying ability
rating of Aaa is adjudged by Moody's to be of the best quality. In the
opinion of Moody's, the policy obligations of an insurance company with an
insurance claims-paying ability rating of Aaa carry the smallest degree of
credit risk and, while the financial strength of these companies is likely
to change, such changes as can be visualized are most unlikely to impair
the company's fundamentally strong position. An S&P insurance claims-paying
ability rating is an assessment of an operating insurance company's
financial capacity to meet obligations under an insurance policy in
accordance with the terms. An insurer with an insurance claims-paying
ability rating of AAA has the highest rating assigned by S&P. Capacity to
honor insurance contracts is adjudged by S&P to be extremely strong and
highly likely to remain so over a long period of time.
An insurance claims-paying ability rating by Moody's or S&P does
not constitute an opinion on any specific contract in that such an opinion
can only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or cancellation penalties or the timeliness
of payment; nor does it address the ability of a company to meet non-policy
obligations (i.e., debt contracts).
The assignment of ratings by Moody's or S&P to debt issues that
are fully or partially supported by insurance policies, contracts or
guarantees is a separate process from the determination of claims-paying
ability ratings. The likelihood of a timely flow of funds from the insurer
to the trustee for the bondholders is a key element in the rating
determination for such debt issues.
Each of AMBAC Indemnity Corporation ("AMBAC"), Municipal Bond
Investors Assurance Corporation ("MBIA") and its subsidiaries, Bond
Investors Guaranty Insurance Company ("BIGI") and, Capital Markets
Assurance Company ("CAPMAC"), Financial Guaranty Insurance Company ("FGIC")
and Financial Security Assurance, Inc. ("FSA") has a claims- paying ability
rating of Aaa from Moody's and AAA from S&P, and the Trust expects to
purchase insurance from any such firm in respect of particular municipal
obligations.
AMBAC has received a letter ruling from the Internal Revenue
Service which holds in effect that insurance proceeds representing maturing
interest on defaulted municipal obligations paid by AMBAC to municipal bond
funds substantially similar to the Trust, under policy provisions
substantially identical to the policy described herein, will be excludable
from Federal gross income under Section 103(a) of the Internal Revenue
Code.
As of September 30, 1999, AMBAC's insured portfolio (unaudited)
was approximately $232 billion supported by approximately $4.8 billion in
claims paying resources (unaudited).
As of September 30, 1999, MBIA's insured portfolio (unaudited) was
approximately $396 billion supported by approximately $8.3 billion in
claims paying resources (unaudited).
As of September 30, 1999, FGIC's insured portfolio (unaudited) was
approximately $136 billion supported by approximately $2.7 billion in
claims paying resources (unaudited).
As of September 30, 1999, FSA's insured portfolio (unaudited) was
approximately $126 billion supported by approximately $2.4 billion in
claims paying resources (unaudited).
None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has
any material business relationship, direct or indirect, with the Trust.
AMBAC, MBIA, FGIC and FSA are subject to regulation by the
department of insurance in each state in which they are qualified to do
business. Such regulation, however, is not a guarantee that any of AMBAC,
MBIA, FGIC or FSA will be able to perform on its contractual insurance in
the event a claim should be made thereunder at some time in the future.
The information relating to AMBAC, MBIA, FGIC and FSA set forth
above, including the financial information, has been furnished by such
corporations. Financial information with respect to AMBAC, MBIA, FGIC and
FSA appears in reports filed by AMBAC, MBIA, FGIC and FSA with insurance
regulatory authorities and is subject to audit and review by such
authorities. No representation is made herein as to the accuracy or
adequacy of such information with respect to AMBAC, MBIA, FGIC or FSA or as
to the absence of material adverse changes in such information subsequent
to the date thereof.
APPENDIX C-1
ARTICLES OF AMENDMENT
OF
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
The undersigned, on behalf of THE BLACKROCK INSURED MUNICIPAL TERM
TRUST INC., a Maryland corporation having its principal Maryland office in
the City of Baltimore (the "Corporation") , hereby certifies to the State
Department of Assessments and Taxation of Maryland ("SDAT") that:
FIRST: The charter of the Corporation is hereby amended by
deleting the provisions of the Articles Supplementary of the Corporation
(which were approved and received for record by SDAT on April 24, 1992) in
their entirety, and inserting in lieu thereof the following provisions:
"FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by article fifth of its Charter, the Board of
Directors has reclassified 2,600 authorized and unissued shares of common
stock of the Corporation as preferred stock of the Corporation and has
given general authorization for the issuance of two series of 1,300 shares
each, as the case may be, of preferred stock, par value $.01 per share,
liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared)
thereon plus the premium, if any, resulting from the designation of a
Premium Call Period, designated respectively Auction Rate Municipal
Preferred Stock, Series M28 and Auction Rate Municipal Preferred Stock,
Series M7.
SECOND: The Executive Committee of the Board of Directors of
the Corporation, acting in accordance with Sections 2-208 and 2-411 of the
Maryland General Corporation Law, has fixed the preferences, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption, of the shares of each such series of preferred
stock as follows:
DESIGNATION
SERIES M28: A series of 1,300 shares of preferred
stock, par value $.01 per share, liquidation preference $50,000
per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) thereon plus the premium, if
any, resulting from the designation of a Premium Call Period, is
hereby designated "Auction Rate Municipal Preferred Stock, Series
M28." Each share of Auction Rate Municipal Preferred Stock, Series
M28 shall be issued on April 27, 1992; have an Initial Dividend
Rate of 3.25% per annum and the Initial Dividend Payment Date
shall be May 26, 1992; and have such other preferences,
limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Corporation's
Charter applicable to preferred stock of the Corporation, as are
set forth in these Articles Supplementary. The Auction Rate
Municipal Preferred Stock, Series M28 shall constitute a separate
series of preferred stock of the Corporation, and each share of
Auction Rate Municipal Preferred Stock, Series M28 shall be
identical.
SERIES M7: A series of 1,300 shares of preferred
stock, par value $.01 per share, liquidation preference $50,000
per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) thereon plus the premium, if
any, resulting from the designation of a Premium Call Period, is
hereby designated "Auction Rate Municipal Preferred Stock, Series
M7." Each share of Auction Rate Municipal Preferred Stock, Series
M7 shall be issued on April 27, 1992; have an Initial Dividend
Rate of 3.25% per annum and the Initial Dividend Payment Date
shall be May 5, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by
applicable law or set forth in the Corporation's Charter
applicable to preferred stock of the Corporation, as are set forth
in these Articles Supplementary. The Auction Rate Municipal
Preferred Stock, Series M7 shall constitute a separate series of
preferred stock of the Corporation, and each share of Auction Rate
Municipal Preferred Stock, Series M7 shall be identical.
1. Definitions. (a) Unless the context or use indicates another
or different meaning or intent, in these Articles Supplementary the
following terms have the following meanings, whether used in the singular
or plural:
"'AA' Composite Commercial Paper Rate" for any period less than
183 days as of any date means (i) the Interest Equivalent of the rate on
commercial paper for such period placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P, or the equivalent of such rating by
S&P or another nationally recognized statistical rating organization, as
the rate for such period is made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business Day immediately
preceding such date, or (ii) in the event that the Federal Reserve Bank of
New York does not make available such a rate, then the arithmetic average
of the Interest Equivalent of the rate on commercial paper for such period
placed on behalf of such issuers, as quoted to the Auction Agent on a
discount basis or otherwise by the Commercial Paper Dealers for the close
of business on the Business Day immediately preceding such date. If a
Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate for such period, the "AA" Composite
Commercial Paper Rate for such period will be determined on the basis of
the quotation or quotations furnished by any Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers selected by the Corporation
to provide such rate or rates not being supplied by the Commercial Paper
Dealer.
"Accountant's Confirmation" has the meaning set forth in
paragraph 7(c) of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Adviser" means the Corporation's investment adviser, BlackRock
Financial Management L.P., formerly Blackstone Financial Management L.P., and
any successor thereto.
"Affiliate" shall mean any Person, known to the Auction Agent
to be controlled by, in control of, or under common control with, the
Corporation.
"Agent Member" means a member of the Securities Depository that
will act on behalf of an Existing Holder of one or more Preferred Shares or
a Potential Holder.
"Anticipation Notes" means the following Municipal Obligations:
tax anticipation notes, revenue anticipation notes and tax and revenue
anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
11(a)(vi) of these Articles Supplementary.
"Applicable Rate" means (i) for purposes of the Auction
Procedures, the rate per annum or, in connection with any Auction in which
Bid Requirements are imposed by the Corporation, the method by which one or
more such rates may be determined, at which cash dividends are payable (if
declared) on the Preferred Shares or Other Preferred Shares, as the case
may be, for any Dividend Period and any Dividend Payment Period included
therein and (ii) for purposes of determining the amount of cash dividends
payable (if declared) at any Dividend Payment Date, the rate per annum
(including in the case of any Applicable Rate expressed as a Spread the
rate per annum determined by periodic application of such Spread to the
applicable Reference Index or Reference Security at the frequency and
weighting, if any, specified in the related Bid Requirements, subject to
any Maximum Applicable Rate or Minimum Applicable Rate applicable to such
Dividend Payment Period) at which cash dividends are payable (if declared)
on the Preferred Shares, and includes, to the extent provided by paragraph
2(c)(i) of these Articles Supplementary, any late charge provided for by
such paragraph.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Company unless and until
another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a
duly authorized committee thereof enters into an agreement with the
Corporation to follow the Auction Procedures for the purpose of determining
the Applicable Rate and to act as transfer agent, registrar, dividend
disbursing agent and redemption agent for the Preferred Shares and Other
Preferred Shares.
"Auction Procedures" means the procedures for conducting
Auctions set forth in paragraph 11 of these Articles Supplementary.
"Bid Requirements" means (i) any requirement for a Special
Dividend Period longer than 91 days that Bids by Potential Holders shall be
expressed as a Spread below, at or above the rate of a specified Reference
Index or Reference Security, (ii) the Reference Index or Reference
Security, the most recently announced rate thereof and the frequency with
which the rate of Reference Index or the Reference Security, as the case
may be, shall be recalculated for purposes of determining rates expressed
as Spreads thereon in accordance with these Articles Supplementary, which
frequency shall be the same as the frequency with which the person
maintaining the Reference Index being utilized recalculates such Reference
Index, or the same as the frequency with which the interest rate on the
Reference Security being utilized changes or such other frequency as the
Corporation shall specify (which specification may include a formula
specified by the Corporation indicating the weighting to be given to each
recalculation of the Reference Index or change in the rate of the Reference
Security during a specified period), (iii) the frequency of Dividend
Payment Dates during such Special Dividend Period (which shall not be more
often than the frequency specified pursuant to clause (ii) above), (iv) one
or more Minimum Applicable Rate or Rates (the Indicated Minimum Applicable
Rate or Rates in the case of Bid Requirements set forth in a Request for
Special Dividend Period) and/or (v) one or more Special Dividend Period
Reference Rate or Rates and the Maximum Applicable Rate or Rates (the
Indicated Maximum Applicable Rate or Rates in the case of Bid Requirements
set forth in a Request for Special Dividend Period) derivable from such
Special Dividend Period Reference Rate or Rates, in each case as set forth
in the Notice of Special Dividend Period for such Special Dividend Period.
"Broker-Dealer" shall mean any broker-dealer, or other entity
permitted by law to perform the functions required of a Broker-Dealer in
paragraph 11 of these Articles Supplementary, that has been selected by the
Corporation and has entered into a Broker-Dealer Agreement with the Auction
Agent that remains effective.
"Broker-Dealer Agreement" shall mean an agreement between the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in paragraph 11 of these Articles
Supplementary.
"Business Day" means a day on which the New York Stock
Exchange, Inc. is open for trading and which is not a Saturday, Sunday or
other day on which banks in The City of New York are authorized or
obligated by law to close.
"Charter" means the Charter, as amended and supplemented
(including these Articles Supplementary), of the Corporation on file in the
State Department of Assessments and Taxation of Maryland.
"Closing Transaction" means the termination of a futures
contract or option position by taking a position opposite thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner
& Smith Incorporated and such other commercial paper dealer or dealers as
the Corporation may from time to time appoint, or, in lieu of any thereof,
their respective affiliates or successors.
"Common Stock" means the common stock, par value $.01 per
share, of the Corporation.
"Corporation" means The BlackRock Insured Municipal Term Trust
Inc., a Maryland corporation.
"Date of Original Issue" means, April 27, 1992, with respect to
the Preferred Shares and the date on which the Corporation originally
issues any Other Preferred Shares with respect to such Other Preferred
Shares.
"Deposit Securities" means cash, the book value of Municipal
Obligations sold for which payment is due within five Business Days with
counterparties rated at least Baa by Moody's and before the next Dividend
Payment Date or Valuation Date, as the case may be, and Municipal
Obligations rated at least A-1+ or SP-l+ by S&P, VMIG-1 or MIG-1 by
Moody's.
"Discounted Value" means (i) with respect to a Moody's Eligible
Asset, the lower of par and the quotient of the Market Value thereof
divided by the applicable Moody's Discount Factor and (ii) with respect to
an S&P Eligible Asset, the quotient of the Market Value thereof divided by
the applicable S&P Discount Factor.
"Dividend Coverage Amount," as of any Valuation Date, means (i)
the aggregate amount of cash dividends that will accumulate on all
Outstanding Preferred Shares and Other Preferred Shares, in each case to
(but not including) the next Dividend Payment Date therefor that follows
such Valuation Date (calculated, in the case of cash dividends determined
by application of a Spread to a Reference Index or Reference Security, by
assuming that the Applicable Rate in effect for the immediately preceding
Dividend Payment Period will remain in effect until the next Dividend
Payment Period) plus the aggregate amount of any liabilities of the
Corporation that are required to be paid on or prior to the next Dividend
Payment Date less (ii) the combined Market Value of Deposit Securities
irrevocably deposited with the Auction Agent for the payment of cash
dividends on all Preferred Shares and Other Preferred Shares.
"Dividend Coverage Assets," as of any Valuation Date, means, in
the case of Preferred Shares and Other Preferred Shares, Deposit Securities
with maturity or tender payment dates not later in each case than the
Dividend Payment Date therefor that follows such Valuation Date.
"Dividend Payment Date," with respect to Preferred Shares, has
the meaning set forth in paragraph 2(b)(i) of these Articles Supplementary
and, with respect to Other Preferred Shares, has the equivalent meaning.
"Dividend Payment Period" means the Initial Dividend Period and
any Subsequent Dividend Payment Period.
"Dividend Period" means the Initial Dividend Period, any 28-day
Dividend Period (in the case of Series M28 Preferred Shares) or 7-day
Dividend Period (in the case of Series M7 Preferred Shares) and any Special
Dividend Period.
"Existing Holder" means a Person who is listed as the holder of
record of Preferred Shares in the Stock Books.
"Holder" means a Person identified as a holder of record of
Preferred Shares in the Stock Register.
"Independent Accountant" means a nationally recognized
accountant, or firm of accountants, that is, with respect to the
Corporation, an independent public accountant or firm of independent public
accountants under the Securities Act of 1933, as amended.
"Indicated Maximum Applicable Rate" means the Maximum
Applicable Rate that would apply if the Auction with respect to which it is
specified were conducted on the date of the Request for Special Dividend
Period in which such Indicated Maximum Applicable Rate is specified.
"Indicated Minimum Applicable Rate" means the Minimum
Applicable Rate that would apply if the Auction with respect to which it is
specified were conducted on the date of the Request for Special Dividend
Period in which such Indicated Minimum Applicable Rate is specified.
"Initial Dividend Payment Date" means with respect to each
series of Preferred Shares and Other Preferred Shares, the Initial Dividend
Payment Date specified herein.
"Initial Dividend Period," with respect to Preferred Shares,
has the meaning set forth in paragraph 2(c)(i) of these Articles
Supplementary and, with respect to Other Preferred Shares, has the
equivalent meaning.
"Initial Dividend Rate," with respect to each series of
Preferred Shares, means the rate per annum applicable to the Initial
Dividend Period for such series of Preferred Shares and, with respect to
Other Preferred Shares, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities
deposited with a broker as a margin payment at the time of purchase or sale
of a futures contract.
"Interest Equivalent" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.
"Mandatory Redemption Price" means $50,000 per share of
Preferred Shares plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) to the date fixed for redemption plus
the premium, if any, resulting from the designation of a Premium Call
Period.
"Market Value" of any asset of the Corporation shall be the
market value thereof determined by the Pricing Service. Market Value of any
asset shall include any interest accrued thereon. The Pricing Service shall
value portfolio securities at the lower of the quoted bid price or the mean
between the quoted bid and ask price or the yield equivalent when
quotations are not readily available. Securities for which quotations are
not readily available shall be valued at fair value as determined by the
Pricing Service using methods which include consideration of: yields or
prices of municipal obligations of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and
general market conditions. The Pricing Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. If
the Pricing Service fails to provide the Market Value of any Municipal
Obligation, such Municipal Obligation shall be valued at the lower of two
bid quotations (one of which shall be in writing) obtained by the
Corporation from two dealers who are members of the National Association of
Securities Dealers, Inc. and are making a market in such Municipal
Obligations. Futures contracts and options are valued at closing prices for
such instruments established by the exchange or board of trade on which
they are traded, or if market quotations are not readily available, are
valued at fair value as determined by the Pricing Service or if the Pricing
Service is not able to value such instruments they shall be valued at fair
value on a consistent basis using methods determined in good faith by the
Board of Directors.
"Maximum Applicable Rate," for any Dividend Payment Period with
respect to Preferred Shares, has the meaning set forth in paragraph
11(a)(vi) of these Articles Supplementary and, with respect to Other
Preferred Shares, has the equivalent meaning.
"Maximum Marginal Tax Rate" means the maximum marginal regular
Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate, whichever is
greater.
"Maximum Potential Additional Dividend Liability," as of any
Valuation Date, means the aggregate amount of Additional Dividends that
would be due if the Corporation were to make Retroactive Taxable
Allocations, with respect to any fiscal year, estimated based upon
dividends paid and the amount of undistributed realized net capital gains
and other taxable income earned by the Corporation, as of the end of the
calendar month immediately preceding such Valuation Date and assuming such
Additional Dividends are fully taxable.
"Minimum Applicable Rate," for any Dividend Payment Period with
respect to Preferred Shares, has the meaning set forth in paragraph
11(a)(vii) of these Articles Supplementary and, with respect to Other
Preferred Shares, has the equivalent meaning.
"Minimum Liquidity Level" means, as of any Valuation Date, an
aggregate Market Value of the Corporation's Dividend Coverage Assets not
less than the Dividend Coverage Amount.
"Moody's" means Moody's Investors Service or its successors.
"Moody's Discount Factor" means, for purposes of determining
the Discounted Value of any Moody's Eligible Asset which is a Municipal
Obligation, the percentage determined by reference to (i) (A) the rating by
Moody's or S&P on such asset or (B) in the event the Municipal Obligation
is insured under an insurance policy which guarantees the timely payment of
interest on such Municipal Obligation and principal thereof to maturity,
the Moody's insurance claims-paying ability rating of the issuer of the
insurance policy (provided that for purposes of clause (B) if the insurance
claims-paying ability of an issuer of an insurance policy is not rated by
Moody's but is rated by S&P, such issuer shall be deemed to have a Moody's
insurance claims-paying ability rating which is one full category lower
than the S&P insurance claims-paying ability rating) and (ii) the shortest
Moody's Collateral Period set forth opposite such rating that is the same
length as or is longer than the Moody's Exposure Period, in accordance with
the table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------------------------------------------------------
Moody's Collateral Period Aaa* Aa* A* Baa* Other**
- -------------------------------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
7 weeks or less.......................................... 151% 159% 168% 202% 229%
8 weeks or less but greater than seven weeks............. 154 164 173 205 235
9 weeks or less but greater than eight weeks............. 158 169 179 209 242
- -----------------
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB-, BBB or BBB+
by S&P.
</TABLE>
; provided, however, in the event a Moody's Discount Factor applicable to a
Municipal Obligation is determined by reference to an insurance
claims-paying ability rating in accordance with clause (i)(B), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the
difference between (a) the percentage set forth in the foregoing table
under the applicable rating category and (b) the percentage set forth in
the foregoing table under the rating category which is one category lower
than the applicable rating category. If a Municipal Obligation is covered
by a Portfolio Insurance policy which provides the Trust with an option to
obtain Permanent Insurance with respect to such Municipal Obligation and
such Portfolio Insurance policy has been approved in writing by Moody's,
the Moody's Discount Factor rating category shall be determined by
averaging the insurance claims paying ability rating of the Portfolio
Insurance provider and the next lowest rating category.
Notwithstanding the foregoing, (i) the Moody's Discount
Factor for short-term Municipal Obligations will be 115% so long as such
Municipal Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's or
125% if such Obligations are not rated by Moody's but are rated A-l+ or
SP-1+ or AA by S&P and mature or have a demand feature at par exercisable
in 30 days or less, and (ii) no Moody's Discount Factor will be applied to
cash or to Municipal Receivables (except to the extent provided in the
definition thereof).
"Moody's Eligible Asset" means cash, a Municipal
Receivable or a Municipal Obligation that (i) pays interest in cash, (ii)
is publicly rated Baa or higher by Moody's or, if not rated by Moody's but
rated by S&P, is rated at least BBB by S&P (provided that, for purposes of
determining the Moody's Discount Factor applicable to any such S&P-rated
Municipal Obligation, such Municipal Obligation (excluding any short-term
Municipal Obligation) will be deemed to have a Moody's rating which is one
full rating category lower than its S&P rating), (iii) does not have its
Moody's rating suspended by Moody's and (iv) is part of an issue of
Municipal Obligations of at least $10,000,000. Municipal Obligations issued
by any one issuer, not rated by Moody's and rated BBB by S&P may comprise
no more than 4% of total Municipal Obligations which are Moody's Eligible
Assets; such BBB rated Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated Baa by Moody's or
A by S&P, may comprise no more than 6% of total Municipal Obligations which
are Moody's Eligible Assets; such BBB, A and Baa rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the
same issuer and rated A by Moody's or AA by S&P, may comprise no more than
10% of total Municipal Obligations which are Moody's Eligible Assets; and
such BBB, Baa, A and AA rated Municipal Obligations, if any, together with
any Municipal Obligations issued by the same issuer and rated Aa by Moody's
or AAA by S&P, may comprise no more than 20% of total Municipal Obligations
which are Moody's Eligible Assets. Municipal Obligations issued by issuers
located within a single state or territory, not rated by Moody's and rated
BBB by S&P, may comprise no more than 12% of total Municipal Obligations
which are Moody's Eligible Assets; such BBB rated Municipal Obligations, if
any, together with any Municipal Obligations issued by issuers located
within the same state or territory and rated Baa by Moody's or A by S&P,
may comprise no more than 20% of total Municipal Obligations which are
Moody's Eligible Assets; such BBB, Baa and A rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers located
within the same state or territory and rated A by Moody's or AA by S&P, may
comprise no more than 40% of total Municipal Obligations which are Moody's
Eligible Assets; and such BBB, Baa, A and AA rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers located
within the same state or territory and rated Aa by Moody's or AAA by S&P,
may comprise no more than 60% of total Municipal Obligations which are
Moody's Eligible Assets. Additionally, Municipal Obligations whose ratings
are determined by the claims paying ability ratings of the providers of
Portfolio Insurance may comprise no more than 10% of the total Municipal
Obligations which are Moody's Eligible Assets. When the Corporation sells a
Municipal Obligation and agrees to repurchase it at a future date, the
Corporation must count as a liability for the purposes of the Preferred
Shares Basic Maintenance Amount the amount of the repurchase price of such
Municipal Obligation and such Municipal Obligation is considered a Moody's
Eligible Asset to the extent it satisfies Moody's current guidelines. When
the Corporation buys a Municipal Obligation and agrees to sell it to
another party at a future date and the long-term debt of such other party
is rated at least A2 and the transaction has a term of 30 days or less, the
cash to be received by the Corporation will be counted as a Moody's
Eligible Asset; otherwise such Municipal Obligation will be counted as a
Moody's Eligible Asset to the extent it satisfies Moody's current
guidelines.
Notwithstanding the foregoing, an asset will not be
considered a Moody's Eligible Asset if it is held in a margin account or if
it is subject to any material lien, mortgage, pledge, security interest or
security agreement of any kind, except for (i) Liens to secure payment for
services rendered or cash advanced to the Corporation by the Adviser, the
custodian of the Corporation's assets, the Auction Agent or any
Broker-Dealers and (ii) any Lien by virtue of a repurchase agreement. In
addition, an asset irrevocably deposited for the payment of any of the
items set forth in clauses (i) A through G of the Preferred Shares Basic
Maintenance Amount will not be considered Moody's Eligible Assets.
For purposes of the definition of Moody's Eligible Asset,
references to the S&P rating BBB shall be deemed to include the S&P ratings
BBB-, BBB and BBB+.
"Moody's Exposure Period" means a period that is the same
length or longer than the number of days used in calculating the cash
dividend component of the Preferred Shares Basic Maintenance Amount and
shall initially be the period commencing on a given Valuation Date and
ending 48 days thereafter.
"Moody's Hedging Transaction" means the selling of an
exchange traded futures contract based on the Municipal Index or Treasury
Bonds or the purchase of an exchange traded put option on such a futures
contract or the writing of an exchange traded call option on such a futures
contract.
"Moody's Volatility Factor" means 100% during any
Dividend Period of greater than 49 days until 49 days prior to the last day
of such Dividend Period; otherwise, "Moody's Volatility Factor" means 272%
except during that time period where legislation increasing the federal
income tax rate has been enacted into law and such increase has not yet
taken effect, in which case for such time period Moody's Volatility Factor
shall be determined by reference to the increase in the Maximum Marginal
Tax Rate as follows: for increases of up to 5%, 292%; for increases greater
than 5% and up to 10%, 313%; for increases greater than 10% and up to 15%,
338%; for increases greater than 15% and up to 20%, 364%; for increases
greater than 20% and up to 25%, 396%; for increases greater than 25% and up
to 30%, 432%; for increases greater than 30% and up to 35%, 472%; for
increases greater than 35% and up to 40%, 520%.
"Municipal Index" means The Bond Buyer Municipal Bond Index.
"Municipal Obligations" means "Municipal Obligations" as
defined in the Corporation's Registration Statement on Form N-2 (File Nos.
33-44735 and 811-6512) on file with the Securities and Exchange Commission,
as such Registration Statement may be amended from time to time.
"Municipal Receivables" means no more than the aggregate
of the following: (i) the book value of receivables for Municipal
Obligations sold as of or prior to a relevant Valuation Date if such
receivables are due within five Business Days of such Valuation Date, and
if the trades which generated such receivables are (A) settled through
clearing house firms with respect to which the Corporation has received
prior written authorization from Moody's or (B) with counterparties having
a Moody's long-term debt rating of at least Baa3; and (ii) the Moody's
Discounted Value of Municipal Obligations sold as of or prior to such
Valuation Date which generated receivables, if such receivables are due
within five Business Days of such Valuation Date but do not comply with
either of conditions (A) or (B) of the preceding clause (i).
"1940 Act" means the Investment Company Act of 1940, as
amended from time to time.
"1940 Act Preferred Shares Asset Coverage" means asset
coverage, as defined in section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Corporation which
are stock, including all outstanding Preferred Shares and Other Preferred
Shares (or such other asset coverage as may in the future be specified in
or under the 1940 Act as the minimum asset coverage for senior securities
which are stock of a closed-end investment company as a condition of paying
dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the
Corporation to maintain the 1940 Act Preferred Shares Asset Coverage (as
required by paragraph 6 of these Articles Supplementary) as of the last
Business Day of each month, means the last Business Day of the following
month.
"Non-Call Period" has the meaning set forth under
"Specific Redemption Provisions" below.
"Non-Payment Period," with respect to each series of
Preferred Shares, means any period commencing on and including the day on
which the Corporation shall fail to (i) declare, prior to the close of
business on the second Business Day preceding any Dividend Payment Date,
for payment on or (to the extent permitted by paragraph 2(c)(i) of these
Articles Supplementary) within three Business Days after such Dividend
Payment Date to the Holders as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date, the full amount of any
dividend on Preferred Shares payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any Preferred
Shares called for redemption, the Mandatory Redemption Price per share of
such Preferred Shares or, in the case of an optional redemption, the
Optional Redemption Price per share, and ending on and including the
Business Day on which, by 12:00 noon, New York City time, all unpaid cash
dividends and unpaid redemption prices shall have been so deposited or
shall have otherwise been made available to Holders in same-day funds;
provided that, a Non-Payment Period shall not end unless the Corporation
shall have given at least five days' but no more than 30 days' written
notice of such deposit or availability to the Auction Agent, all Existing
Holders (at their addresses appearing in the Stock Books) and the
Securities Depository. Notwithstanding the foregoing, the failure by the
Corporation to deposit the funds provided for by clauses (ii)(A) and
(ii)(B) above within three Business Days after a Dividend Payment Date or
any Redemption Date, as the case may be, in each case to the extent
contemplated by paragraph 2(c)(i) of these Articles Supplementary, shall
not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 250% of the
30-day "AA" Composite Commercial Paper Rate (or 300% of such rate if the
Corporation has provided notification to the Auction Agent prior to the
Auction establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable income will
be included in such dividend on Preferred Shares). Such percentages will be
used to calculate the Applicable Rate for any Non- Payment Period which
occurs during a Special Dividend Period on either series of Preferred
Shares and will be applied to the applicable Special Dividend Period
Reference Rate then in effect with respect to such series. However, the
Board of Directors of the Corporation shall have the authority to adjust,
modify, alter or change from time to time the initial Non-Payment Period
Rate if the Board of Directors of the Corporation determines and Moody's
and S&P (and any Substitute Rating Agency in lieu of Moody's or S&P in the
event either of such parties shall not rate the Preferred Shares) advise
the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then-current ratings on the
Preferred Shares.
"Normal Dividend Payment Date" has the meaning set forth
in paragraph 2(b)(i) of these Articles Supplementary.
"Notice of Redemption" means any notice with respect to
the redemption of Preferred Shares pursuant to paragraph 4 of these
Articles Supplementary.
"Notice of Revocation" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set
forth in paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" shall mean $50,000 per share
plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) to the date fixed for redemption plus the premium, if
any, resulting from the designation of a Premium Call Period.
"Original Issue Insurance" means insurance guaranteeing
the timely payment of principal of, and interest on, a Municipal Obligation
purchased by the issuer of a Municipal Obligation or by a third party at
the time of issuance of such Municipal Obligation.
"Other Preferred Shares" means the Auction Rate Municipal
Preferred Stock of the Corporation, other than the Preferred Shares.
"Outstanding" means, as of any date (i) with respect to
Preferred Shares, Preferred Shares theretofore issued by the Corporation
except, without duplication, (A) any Preferred Shares theretofore cancelled
or delivered to the Auction Agent for cancellation, or redeemed by the
Corporation, or as to which a Notice of Redemption shall have been given
and moneys shall have been deposited in trust by the Corporation pursuant
to paragraph 4(c) and (B) any Preferred Shares as to which the Corporation
or any Affiliate thereof shall be an Existing Holder and (ii) with respect
to shares of Other Preferred Stock, has the equivalent meaning.
"Parity Stock" means the Preferred Shares and each other
outstanding series of Preferred Stock the holders of which, together with
the holders of the Preferred Shares, shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to the full respective
preferential amounts to which they are entitled, without preference or
priority one over the other.
"Permanent Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the Corporation upon payment of a single, predetermined
insurance premium pursuant to an irrevocable commitment of the issuer of
Portfolio Insurance covering such Municipal Obligation.
"Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
"Portfolio Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a covered Municipal
Obligation only while such Municipal Obligation is owned by the
Corporation.
"Potential Holder" shall mean any Person, including any
Existing Holder, who may be interested in acquiring Preferred Shares (or,
in the case of an Existing Holder, additional Preferred Shares).
"Preferred Shares" means, as the case may be, Auction
Rate Municipal Preferred Stock, Series M28 or Auction Rate Municipal
Preferred Stock, Series M7.
"Preferred Shares Basic Maintenance Amount," as of any
Valuation Date, means the dollar amount equal to (i) the sum of (A) the
product of the number of Preferred Shares and Other Preferred Shares
outstanding on such Valuation Date multiplied by $50,000 plus the premium,
if any, resulting from the designation of a Premium Call Period; (B) the
aggregate amount of cash dividends that will have accumulated (whether or
not earned or declared) for each share of Preferred Shares and Other
Preferred Shares outstanding, in each case, to (but not including) the next
Dividend Payment Date therefor that follows such Valuation Date
(calculated, in the case of cash dividends determined by application of a
Spread to a Reference Index or Reference Security, by assuming that the
Applicable Rate in effect for the immediately preceding Dividend Payment
Period will remain in effect until the next Dividend Payment Period); (C)
the aggregate amount of cash dividends that would accumulate at the then
current Maximum Applicable Rate (assuming notification has been given to
the Auction Agent that net capital gains or other taxable income will be
included in the relevant dividend as contemplated pursuant to paragraphs
2(f) and 11(a)(vi) of these Articles Supplementary) on any Preferred Shares
and Other Preferred Shares outstanding from such Dividend Payment Date
through the 48th day after such Valuation Date, multiplied by the larger of
the Moody's Volatility Factor and the S&P Volatility Factor determined from
time to time by Moody's and S&P, respectively (except that if such
Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then current Non-Payment
Period Rate); (D) the amount of anticipated expenses of the Corporation for
the 90 days subsequent to such Valuation Date; (E) the amount of the
Corporation's Maximum Potential Additional Dividend Liability as of such
Valuation Date; and (F) any current liabilities as of such Valuation Date
to the extent not reflected in any of (i)(A) through (i)(E) (including,
without limitation, and immediately upon determination, payables for
Municipal Obligations purchased as of such Valuation Date) less (ii) the
lesser of (A) either the Discounted Value of the Corporation's assets
irrevocably deposited by the Corporation for the payment of any of (i)(A)
through (i)(F) or the face value of such irrevocably deposited assets that
mature prior to the payment date of the liabilities for which they are
being deposited and are either fully guaranteed by the U.S. government or
have a rating of either P-1, VMIG-1 or MIG-1 by Moody's and A-l+ or SP-1+
by S&P and (B) the Market Value of any of the Corporation's assets
irrevocably deposited by the Corporation for the payment of any of (i)(A)
through (i)(F)
For purposes of determining as of any Valuation Date
whether the Corporation has Moody's Eligible Assets and S&P Eligible Assets
each with an aggregate Discounted Value at least equal to the Preferred
Shares Basic Maintenance Amount, the Corporation shall include as a
liability in the calculation of the Preferred Shares Basic Maintenance
Amount an amount calculated semi-annually equal to 150% of the estimated
cost of obtaining Permanent Insurance with respect to Moody's Eligible
Assets or S&P Eligible Assets, as applicable, that are (i) covered by
Portfolio Insurance policies which provide the Corporation with the option
to obtain such Permanent Insurance and (ii) are discounted by a Moody's
Discount Factor or S&P Discount Factor, as applicable, determined by
reference to the insurance claims-paying ability rating of the issuer of
such Portfolio Insurance policy.
"Preferred Shares Basic Maintenance Cure Date," with
respect to the failure by the Corporation to satisfy the Preferred Shares
Basic Maintenance Amount (as required by paragraph 7(a) of these Articles
Supplementary) as of a given Valuation Date, means the fifth Business Day
following such Valuation Date.
"Preferred Shares Basic Maintenance Report" means a
report signed by the President, Treasurer, or Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets
of the Corporation, the Market Value and the Discounted Value thereof
(seriatim and in aggregate), and the Preferred Shares Basic Maintenance
Amount.
"Preferred Stock" means the preferred stock of the
Corporation, and includes Preferred Shares and Other Preferred Shares.
"Premium Call Period" has the meaning set forth under
"Specific Redemption Provisions" below.
"Pricing Service" shall mean J.J. Kenny Co., Inc. or any
pricing service designated by the Board of Directors of the Corporation
provided the Corporation obtains written assurance from S&P that such
designation will not impair the rating then assigned by S&P to the
Preferred Shares.
"Quarterly Valuation Date" means the last Business Day of
each fiscal quarter of the Corporation in each fiscal year of the
Corporation, commencing June 30, 1992.
"Reference Index" shall mean an index of interest rates
on Treasury Securities, Municipal Obligations or high quality commercial
paper or dividend rates on preferred stock of issuers registered as
closed-end management investment companies under the 1940 Act that invest
primarily in Municipal Obligations or any other index or instrument
selected and approved by the Corporation's Board of Directors, after
consultation with the Broker-Dealers and made available to the Auction
Agent, as being an appropriate index or instrument, in each case expressed
as a rate and devised and calculated not less often than monthly by one or
more parties that are not affiliated with the Corporation and made
available to the Corporation, the Auction Agent, the Broker-Dealers and
existing and potential beneficial holders of the Preferred Shares.
"Reference Rate" means the higher of the 30-day "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, or, in the case of a Special Dividend
Period with a single Applicable Rate throughout such Special Dividend
Period, the Special Dividend Period Reference Rate or, in the case of a
Special Dividend Period with a varying Applicable Rate, the Reference Rate
specified in the definition of S&P Volatility Factor that most closely
approximates the length of the interval between periodic applications of
the Spread to the relevant Reference Index or Reference Security.
"Reference Security" shall mean, in the case of a debt
obligation, a particular debt obligation which is publicly traded, which is
non-callable prior to the termination of the Special Dividend Period with
respect to which such Reference Security is relevant and the outstanding
aggregate principal amount of which at the time of the Notice of Special
Dividend Period exceeds $100 million or, in the case of a preferred stock,
a preferred stock issue which is publicly traded, which is non-redeemable
prior to the termination of the Special Dividend Period with respect to
which such Reference Security is relevant and the outstanding liquidation
value of which at the time if the Notice of Special Dividend Period exceeds
$50 million.
"Request for Special Dividend Period" has the meaning set
forth in paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph
2(c)(iii) of these Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set
forth in paragraph 2(e) of these Articles Supplementary.
"Right," with respect to Preferred Shares, has the
meaning set forth in paragraph 2(e) of these Articles Supplementary and,
with respect to Other Preferred Shares, has the equivalent meaning.
"Rightholder" has the meaning set forth in paragraph 2(e)
of these Articles Supplementary.
"S&P" means Standard & Poor's Corporation or its
successors.
"S&P Discount Factor" means, for purposes of determining
the Discounted Value of any S&P Eligible Asset, the percentage determined
by reference to (a) (i) in the event a Municipal Obligation is covered by a
Portfolio Insurance policy which does not provide the Corporation with the
option to obtain Permanent Insurance with respect to such Municipal
Obligation, or is not covered by bond insurance, the S&P or Moody's rating
on such Municipal Obligation, (ii) in the event a Municipal Obligation is
covered by an Original Issuance Insurance policy or a Secondary Insurance
policy, the S&P insurance claims-paying ability rating of the issuer of the
policy or (iii) in the event a Municipal Obligation is covered by a
Portfolio Insurance policy which provides the Corporation with the option
to obtain Permanent Insurance with respect to such Municipal Obligation and
such Portfolio Insurance policy has been reviewed and approved in writing
by S&P, at the Corporation's option, the S&P or Moody's rating on such
Municipal Obligation or the S&P insurance claims-paying ability
rating of the issuer of the Portfolio Insurance policy and (b) the shortest
S&P Collateral Period set forth opposite such rating that is the same
length as or is longer than the S&P Exposure Period, in accordance with the
table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------------------------------------------
S&P Collateral Period AAA* AA* A* BBB*
- --------------------------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
40 Business Days..................... 190% 195% 210% 250%
22 Business Days..................... 170 175 190 230
10 Business Days..................... 155 160 175 215
7 Business Days...................... 150 155 170 210
3 Business Days...................... 130 135 150 190
- ----------------
* S&P rating.
</TABLE>
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-l+ by S&P or 125% if such Municipal
Obligations are not rated by S&P but are rated VMIG-1, P-1 or MIG-l by
Moody's and mature or have a demand feature exercisable in 30 days or less;
provided, however, that such Moody's rated short-term Municipal Obligations
must be backed by a letter of credit, liquidity facility or guarantee from
a bank or other financial institution, such bank or institution having a
short-term rating of at least A-l+ from S&P; and further provided that such
short-term Municipal Obligations rated by Moody's but not rated by S&P may
comprise no more than 50% of short-term Municipal Obligations that qualify
as S&P Eligible Assets and (ii) no S&P Discount Factor will be applied to
cash or to the book value of Municipal Obligations sold for which payment
is due within five Business Days. Anticipation Notes rated SP-1+ or, if not
rated by S&P, rated MIG-1 or VMIG-l by Moody's, which do not mature or have
a demand feature at par exercisable in 30 days and which do not have a
long-term rating, will be considered to be short-term Municipal Obligations
for purposes of determining the Discounted Value of S&P Eligible Assets.
"S&P Eligible Asset" means cash or the book value of Municipal
Obligations sold for which payment is due within five Business Days of a
Valuation Date or a Municipal Obligation that (i) is issued by any of the
50 states, the territories and their subdivisions, counties, cities, towns,
villages, and school districts, agencies, such as authorities and special
districts created by the states, and certain federally sponsored agencies
such as local housing authorities (payments made on these bonds are exempt
from regular federal income taxes and are generally exempt from state and
local taxes in the state of issuance) ; (ii) is interest bearing and pays
interest at least semiannually; (iii) is payable with respect to principal
and interest in United States Dollars; (iv) is publicly rated BBB or higher
by S&P or, if not rated by S&P but rated by Moody's, is rated at least A by
Moody's (provided that such Moody's-rated Municipal Obligations will be
included in S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of
the S&P Eligible Assets; and further provided that, for purposes of
determining the S&P Discount Factor applicable to any such Moody's-rated
Municipal Obligation, such Municipal Obligation will be deemed to have an
S&P rating which is one full rating category lower than its Moody's
rating); (v) is not subject to a covered call or covered put option written
by the Corporation; (vi) is not part of a private placement of Municipal
Obligations; and (vii) is part of an issue of Municipal Obligations with an
original issue size of at least $20 million or, if of an issue with an
original issue size below $20 million (but in no event below $10 million),
is issued by an issuer with a total of at least $50 million of securities
outstanding. Notwithstanding the foregoing:
(1) Municipal Obligations of any one issuer or
guarantor (excluding bond insurers) will be
considered S&P Eligible Assets only to the
extent the Market Value of such Municipal
Obligations does not exceed 10% of the aggregate
Market Value of the S&P Eligible Assets,
provided that 2% is added to the applicable S&P
Discount Factor for every 1% by which the Market
Value of such Municipal Obligations exceeds 5%
of the aggregate Market Value of the S&P
Eligible Assets; and
(2) Municipal Obligations guaranteed or insured by
any one bond insurer will be considered S&P
Eligible Assets only to the extent the fair
market value of such municipal securities does
not exceed 25% of the aggregate fair market
value of the S&P Eligible Assets.
(3) Municipal Obligations issued by issuers in any
one state or territory will be considered S&P
Eligible Assets only to the extent the Market
Value of such Municipal Obligations does not
exceed 20% of the aggregate Market Value of the
S&P Eligible Assets.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the Preferred Shares Basic
Maintenance Cure Date, (currently 10 Business Days) that the Corporation
has under these Articles Supplementary to cure any failure to maintain, as
of such Valuation Date, the Discounted Value for its portfolio at least
equal to the Preferred Shares Basic Maintenance Amount (as described in
paragraph 7 (a) of these Articles Supplementary).
"S&P Hedging Transaction" means the purchasing or selling of a
futures contract based on the Municipal Index or Treasury Bonds or the
purchasing of an option on such a futures contract.
"S&P Volatility Factor" means, with respect to each Series of
Preferred Shares, 277% during the Initial Dividend Period. Thereafter, "S&P
Volatility Factor" means, depending on the applicable Reference Rate, the
following:
Reference Rate
Taxable Equivalent of the
Short-Term Municipal
Bond Rate.................................. 277%
30-day "AA" Composite
Commercial Paper Rate...................... 228%
60-day "AA" Composite
Commercial Paper Rate...................... 228%
90-day "AA" Composite
Commercial Paper Rate....................... 222%
180-day "AA" Composite
Commercial Paper Rate...................... 217%
1-year U.S. Treasury
Bill Rate.................................. 198%
2-year U.S. Treasury
Note Rate.................................. 185%
3-year U.S. Treasury
Note Rate.................................. 178%
4-year U.S. Treasury
Note Rate.................................. 171%
5-year U.S. Treasury
Note Rate.................................. 169%
Notwithstanding the foregoing, the S&P Volatility Factor may mean such
other potential dividend rate increase factor as S&P advises the
Corporation in writing is applicable.
"Secondary Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the Corporation or a third party subsequent to the original
issuance of such Municipal Obligation.
"Securities Depository" means The Depository Trust
Company or any successor company or other entity selected by the
Corporation as securities depository for the Preferred Shares that agrees
to follow the procedures required to be followed by such securities
depository in connection with the Preferred Shares.
"Series M7 Preferred Shares" means the Auction Rate
Municipal Preferred Stock, Series M7, liquidation preference $50,000 per
share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared), plus the premium, if any, resulting
from the designation of a Premium Call Period, of the Corporation.
"Series M28 Preferred Shares" means the Auction Rate
Municipal Preferred Stock, Series M28, liquidation preference $50,000 per
share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) plus the premium, if any, resulting
from the designation of a Premium Call Period, of the Corporation.
"Service" means the United States Internal Revenue Service.
"7-day Dividend Period" means any Dividend Period of 7
days for a series of Preferred Shares.
"Special Dividend Period" means a Dividend Period
consisting of a specified number of days (other than 28 in the case of the
Series M28 Preferred Shares or 7 in the case of the Series M7 Preferred
Shares), evenly divisible by seven (in each case subject to adjustment as
provided in paragraph 2(c) (iii)).
"Special Dividend Period Reference Rate" means the rate
or rates per annum specified by the Corporation (which may be expressed as
the lower of a specified rate or rates or a Spread under, at or over the
Reference Index or Reference Security being specified for such Special
Dividend Period) in the Notice of Special Dividend Period relating to a
particular Special Dividend Period and specifying a Reference Index or
Reference Security or, if the Corporation shall fail to so specify any such
rate or rates, then (i), in the case of a Special Dividend Period of 182
days or less, the "AA" Composite Commercial Paper Rate which most closely
matches the length of the Special Dividend Period, provided that in no case
shall the Special Dividend Reference Rate be a "AA" Composite Commercial
Paper Rate which is shorter in time than the 30-day "AA" Composite
Commercial Paper Rate, or, in the case of a Special Dividend Period of
longer than 182 days, the Treasury Rate which most closely matches the
length of the Special Dividend Period.
"Specific Redemption Provisions" means, with respect to a
Special Dividend Period either, or any combination of, (i) a period (a
"Non-Call Period") determined by the Board of Directors of the Corporation,
after consultation with the Auction Agent and the Broker-Dealers, during
which the Preferred Shares subject to such Dividend Period shall not be
subject to redemption at the option of the Corporation and (ii) a period (a
"Premium Call Period"), consisting of a number of whole years and
determined by the Board of Directors of the Corporation, after consultation
with the Auction Agent and the Broker-Dealers, during each year of which
the Preferred Shares subject to such Dividend Period shall be redeemable at
a price per share equal to $50,000 plus accumulated but unpaid dividends
plus a premium expressed as a percentage of $50,000 as determined by the
Board of Directors of the Corporation after consultation with the Auction
Agent and the Broker- Dealers; provided, however, that the Corporation
shall not adopt Specific Redemption Provisions unless Moody's and S&P or
any Substitute Rating Agency advises the Corporation in writing that such
adoption will not adversely affect their then- current ratings on the
Preferred Shares.
"Spread" means the negative or positive difference or the
absence of any difference, expressed in whole and fractional basis points,
below, at or above a Reference Index or Reference Security specified by the
Corporation in a Notice of Special Dividend Period.
"Stock Books" means the books maintained by the Auction
Agent setting forth at all times a current list, as determined by the
Auction Agent, of Existing Holders of the Preferred Shares.
"Stock Register" means the register of Holders maintained
on behalf of the Corporation by the Auction Agent in its capacity as
transfer agent and registrar for the Preferred Shares.
"Subsequent Dividend Payment Period," with respect to
Preferred Shares, has the meaning set forth in paragraph 2(c) (i) of these
Articles Supplementary and, with respect to Other Preferred Shares, has the
equivalent meaning.
"Substitute Commercial Paper Dealers" means such
Substitute Commercial Paper Dealer or Dealers as the Corporation may from
time to time appoint or, in lieu of any thereof, their respective
affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating
Agencies" shall mean (i) with respect to the Series M28 Preferred Shares
only a nationally recognized securities rating organization and two
nationally recognized securities rating organizations, respectively,
selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated, or its
respective affiliates and successors, after consultation with the
Corporation, to act as a substitute rating agency or substitute rating
agencies, as the case may be, to determine the credit ratings of Series M28
Preferred Shares or (ii) with respect to the Series M7 Preferred Shares
shall mean a nationally recognized securities rating organization and two
nationally recognized securities rating organizations, respectively,
selected by Lehman Special Securities Incorporated, or its respective
affiliates and successors, after consultation with the Corporation, to act
as a substitute rating agency or substitute rating agencies, as the case
may be, to determine the credit rating of the Series M7 Preferred Shares.
"Taxable Equivalent of the Short-Term Municipal Bond
Rate" means (i) 90% of (A) the per annum rate expressed on an interest
equivalent basis equal to the index, made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M.,
New York City time, on such date by Kenny Information Systems or any
successor thereto, based upon 30-day yield evaluations at par of bonds the
interest on which is excludable for Federal income tax purposes under the
Code, of not less than "high grade" component issuers selected by Kenny
Information Systems or any such successor from time to time in its
discretion, which component issuers shall include, without limitation,
issuers of general obligation bonds but shall exclude any bonds the
interest on which is subject to the Federal alternative minimum tax or
similar tax under the Code, unless all bonds the interest on which is so
excludable for Federal income tax purposes are subject to such tax and (B)
divided by 1 minus the Maximum Marginal Regular Federal individual income
tax rate applicable to the character of the income being distributed or the
maximum marginal regular Federal corporate income tax rate applicable to
the character of the income being distributed (in each case expressed as a
decimal), whichever is greater; or (ii) in lieu of the rate determined
pursuant to clause (i) above, a percentage, determined by the Corporation,
of (A) the per annum rate expressed on an interest equivalent basis equal
to any substitute index prepared by any person (other than an Affiliate of
the Corporation), selected from time to time by the Corporation, based on
bonds the interest on which is excludable from gross income for Federal
income tax purposes under the Code, and (B) divided by 1 minus the Maximum
Marginal Regular Federal individual income tax rate applicable to the
character of the income being distributed or the Maximum Marginal Regular
Federal corporate income tax rate applicable to the character of the income
being distributed (in each case expressed as a decimal), whichever is
greater, as made available on a discount basis or otherwise by the preparer
of such index for the Business Day immediately preceding such date but in
any event not later than 8:30 A.M., New York City time, on such date;
provided that the Corporation shall not select any such substitute index or
determine any such percentage unless the Corporation has received
confirmation from Moody's and S&P (or any Substitute Rating Agency) that
the use of such index or percentage would not affect the ratings assigned
to the Preferred Shares by Moody's and S&P (or any Substitute Rating
Agency); provided, however, that if the index then used by the Corporation
for purposes of determining the Taxable Equivalent of the Short-Term
Municipal Bond Rate is not made so available by 8:30 A.M., the case of the
index described in clause (i) above or by the preparer of such index in the
case of any substitute index described in clause (ii) above, the Taxable
Equivalent of the Short-Term Municipal Bond Rate shall mean the per annum
rate expressed on an interest equivalent basis equal to the most recent
such index so made available for any preceding Business Day, without being
multiplied by the 90% factor in the case of the index described in such
clause (i) or the percentage determined by the Corporation referred to in
such clause (ii) in the case of the index described in clause (ii).
"30-day 'AA' Composite Commercial Paper Rate," on any
date, means (i) the Interest Equivalent of the 30- day rate on commercial
paper placed on behalf of issuers whose corporate bonds are rated "AA" by
S&P, or the equivalent of such rating by S&P or another nationally
recognized statistical rating organization, as such 30-day rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day immediately preceding such date, or (ii) in
the event that the Federal Reserve Bank of New York does not make available
such a rate, then the arithmetical average of the Interest Equivalent of
the 30-day rate on commercial paper placed on behalf of such issuers, as
quoted to the Auction Agent on a discount basis or otherwise by the
Commercial Paper Dealer for the close of business on the Business Day
immediately preceding such date. If the Commercial Paper Dealer does not
quote a rate required to determine the 30-day "AA" Composite Commercial
Paper Rate, the 30-day "AA" Composite Commercial Paper Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Corporation to provide such rate or rates not being
supplied by the Commercial Paper Dealer.
"Treasury Bonds" means United States Treasury Bonds with
remaining maturities of ten years or more.
"Treasury Rate," on any date for any Special Dividend
Period exceeding 182 days, means:
(i) the yield on the most recently auctioned
non-callable direct obligations of the U.S. Government (excluding
"flower" bonds) with a remaining maturity closest to the duration
of such Special Dividend Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such
date; or
(ii) in the event that any such rate is not
published by The Wall Street Journal, then the arithmetic average
of the yields on the most recently auctioned non-callable direct
obligations of the U.S. Government (excluding "flower" bonds) with
a remaining maturity closest to the duration of such Special
Dividend Period as quoted on a discount basis or otherwise by the
U.S. Government Securities Dealers to the Auction Agent for the
close of business on the Business Day immediately preceding such
date.
If any U.S. Government Securities Dealer does not quote a
rate required to determine the Treasury Rate, the Treasury Rate shall be
determined on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers and any Substitute U.S. Government Dealers selected by the
Corporation to provide such rate or rates not being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers, as the
case may be, or, if the Trust does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities
Dealers, by the remaining U.S. Government Securities Dealer or U.S.
Government Securities Dealers.
"Treasury Securities" means United States Treasury bills,
notes or bonds.
"28-day Dividend Period" means any Dividend Period of 28
days for a series of Preferred Shares.
"U.S. Government Securities Dealer" means Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Shearson Lehman Brothers Inc. or
their respective affiliates or successors, if such entity is a U.S.
Government securities dealer. As used herein, "Substitute U.S. Government
Securities Dealer" shall mean A.G. Edwards & Sons, Inc., Kidder, Peabody &
Co. Incorporated, PaineWebber Incorporated and Prudential Securities
Incorporated or their respective affiliates or successors, if such entity
is a U.S. Government securities dealer, provided that none of such entities
shall be a U.S. Government Securities Dealer.
"Valuation Date" means, for purposes of determining
whether the Corporation is maintaining the Preferred Shares Basic
Maintenance Amount and the Minimum Liquidity Level, each Friday which is a
Business Day, or the Business Day preceding any Friday which is not a
Business Day, and the Date of Original Issue.
"Variation Margin" means, in connection with an
outstanding futures contract owned or sold by the Corporation, the amount
of cash or securities paid to and received from a broker (subsequent to the
Initial Margin payment) from time to time as the price of such futures
contract fluctuates.
(b) The foregoing definitions of Accountant's
Confirmation, Deposit Securities, Discounted Value, Dividend
Coverage Amount, Dividend Coverage Assets, Independent Accountant,
Market Value, Maximum Potential Additional Dividend Liability,
Minimum Liquidity Level, Moody's Discount Factor, Moody's Eligible
Asset, Moody's Exposure Period, Moody's Hedging Transaction,
Moody's Volatility Factor, Preferred Shares Basic Maintenance
Amount, Preferred Shares Basic Maintenance Cure Date, Preferred
Shares Basic Maintenance Report, Reference Rate, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging
Transaction, S&P Volatility Factor and Valuation Date have been
determined by the Board of Directors of the Corporation in order
to obtain an "aaa" rating from Moody's and an AAA rating from S&P
on the Preferred Shares on their Date of Original Issue; and such
definitions shall be adjusted from time to time and without
further action by the Board of Directors to reflect changes made
thereto independently by Moody's, S&P or any Substitute Rating
Agency if each of Moody's, S&P and any Substitute Rating Agency
has advised the Corporation in writing (i) separately or
collectively of such adjustments and (ii) collectively that such
adjustments will not adversely affect their then-current ratings
on the Preferred Shares. The adjustments contemplated by the
preceding sentence shall be made effective upon the time the
Corporation receives the written notice from Moody's, S&P and any
Substitute Rating Agency contemplated by clause (ii) of the
preceding sentence.
2. Dividends. (a) The Holders shall be entitled to receive, when,
as and if declared by the Board of Directors of the Corporation, out of
funds legally available therefor, cumulative dividends each consisting of
(i) cash at the Applicable Rate and (ii) an uncertificated Right to receive
cash as set forth in paragraph 2(e) below, and no more, payable on the
respective dates set forth below. Dividends on the Preferred Shares so
declared and payable shall be paid (i) in preference to and in priority
over any dividends declared and payable on the Common Stock, and (ii) to
the extent permitted by law and to the extent available, out of net
tax-exempt income earned on the Corporation's investments. To the extent
permitted by law, dividends on Preferred Shares will be designated as
exempt-interest dividends. For the purposes of this section, the term "net
tax-exempt income" shall exclude capital gains and other taxable income of
the Corporation.
(b) (i) Cash dividends on Preferred Shares shall
accumulate from the Date of Original Issue. With respect to the Series M7
Preferred Shares and Series M28 Preferred Shares, dividends will be payable
commencing on the Initial Dividend Payment Date with respect to each series
of Preferred Shares. Following the Initial Dividend Payment Date for the
Series M7 Preferred Shares and Series M28 Preferred Shares, dividends on
the Preferred Shares will be payable, at the option of the Corporation,
(ii) with respect to any Dividend Period of more than 35 and fewer than 92
days, on the day next succeeding each period of 30 days to occur during
such Dividend Period (or in the case of any Dividend Period of more than
91, days as specified in the relevant Notice of Special Dividend Period),
and on the day next succeeding the last day thereof, (iv) with respect to
any Dividend Period of 365 days or more, month on the first day of each
calendar month during such Dividend Period (or in the case of any Dividend
Period of more than 91 days, as specified in the relevant Notice of Special
Dividend Period), and on the day, next succeeding the last day thereof
(each such date referred to in clauses (i), (ii), (iii) and (iv) being
hereinafter referred to as a "Normal Dividend Payment Date"), except that
(i) if such Normal Dividend Payment Date is not a Business Day, then the
Dividend Payment Date shall be the next succeeding date if both such dates
following the Normal Dividend payment Date are Business Days, or (ii) if
the date following such Normal Dividend Payment Date is not a Business Day,
then the Dividend Payment Date will be the date next preceding such Normal
Dividend Payment Date if such both such date and such Normal Dividend
Payment Date are Business Days or (iii) if such Normal Dividend Payment
Date and either the preceding date or the succeeding date are not Business
Days, then the Dividend Payment Date shall be the first Business Day next
preceding such Normal Dividend Payment Date that is next succeeded by a
Business Day. If, however, the Securities Depository shall make available
to its participants and members in funds immediately available in New York
City on Dividend Payment Dates, the amount due as dividends on such
Dividend Payment Dates (and the Securities Depository shall have so advised
the Corporation ), and if the day that otherwise would be the Dividend
Payment Date is not a Business Day, then the Dividend Payment Date shall be
the next succeeding Business Day. Although any particular Dividend Payment
Date may not occur on a Normal Dividend Payment Date because of the
exceptions discussed above, the next succeeding Dividend Payment Date shall
be, subject to such provisos, the next Normal Dividend Payment Date. If for
any reason a Dividend Payment Date cannot be fixed as described above, then
the Board of Directors shall fix the Dividend Payment Date. Each dividend
payment date determined as provided above is hereinafter referred to as a
"Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders
as they appear in the Stock Register as of 12:00 noon, New York
City time, on the Business Day preceding the Dividend Payment
Date. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock
Register on a date, not exceeding 15 days prior to the payment
date therefor, as may be fixed by the Board of Directors of the
Corporation.
(c) (i) During the period from and including the Date of
Original Issue to but with respect to the Series M7 Preferred Shares and
Series M28 Preferred Shares, excluding the Initial Dividend Payment Date
(the "Initial Dividend Period"), the Applicable Rate shall be the Initial
Dividend Rate. Commencing on the Initial Dividend Payment Date, with
respect to the Series M7 Preferred Shares and Series M28 Preferred Shares,
the Applicable Rate for each subsequent Dividend Period or portion thereof
(hereinafter referred to as a "Subsequent Dividend Payment Period"), which
Subsequent Dividend Payment Period shall commence on a Dividend Payment
Date and shall end on the calendar day prior to the next Dividend Payment
Date, shall be equal to the lesser of (x) the Maximum Applicable Rate for
such Dividend Period or for such Subsequent Dividend Payment Period
included therein or (y) the greater of (i) the Minimum Applicable Rate for
such Dividend Period or for such Subsequent Dividend Payment Period
included therein or (ii) the rate per annum that results for such Dividend
Period or Subsequent Dividend Payment Period included therein from
implementation of the Auction Procedures including any periodic application
of a Spread to a specified Reference Index or Reference Security.
Notwithstanding the foregoing sentence, the
Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate
and each Dividend Payment Period for Preferred Shares of any
series, commencing after the first day of, and during, a
Non-Payment Period shall be a 28-day Dividend Payment Period (in
the case of the Series M28 Preferred Shares) or a 7-day Dividend
Payment Period (in the case of the Series M7 Preferred Shares).
Except in the case of the willful failure of the Corporation to
pay a dividend on a Dividend Payment Date or to redeem any
Preferred Shares on the date set for such redemption, any amount
of any dividend due on any Dividend Payment Date (if, prior to the
close of business on the second Business Day preceding such
Dividend Payment Date, the Corporation has declared such dividend
payable on such Dividend Payment Date to the Holders of such
Preferred Shares as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date) or redemption
price with respect to any Preferred Shares not paid to such
Holders when due may be paid to such Holders in the same form of
funds by 12:00 noon, New York City time, on any of the first three
Business Days after such Dividend Payment Date or due date, as the
case may be, provided that, such amount is accompanied by a late
charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment
based on the actual number of days comprising such period divided
by 365. In the case of a willful failure of the Corporation to
pay a dividend on a Dividend Payment Date or to redeem any
Preferred Shares on the date set for such redemption, the
preceding sentence shall not apply and the Applicable Dividend
Rate for the Dividend Period commencing during the Non- Payment
Period resulting from such failure shall be the Non-Payment
Period Rate. For the purposes of the foregoing, payment to a
person in same-day funds on any Business Day at any time shall be
considered equivalent to payment to such person in New York
Clearing House (next-day) funds at the same time on the preceding
Business Day, and any payment made after 12:00 noon, New York
City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person
before 12:00 noon, New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of
Preferred Shares payable (if declared) for any Dividend Payment
Period or part thereof shall be computed by multiplying the
Applicable Rate for such Dividend Payment Period by a fraction,
the numerator of which shall be the number of days in such
Dividend Payment Period or part thereof such share was outstanding
and the denominator of which shall be 365 (or 360 for a Dividend
Period of 365 days or more), multiplying the amount so obtained by
$50,000, and rounding the amount so obtained to the nearest cent.
(iii) With respect to each Dividend Period that
the Corporation desires to be a Special Dividend Period, the
Corporation may, at its sole option and to the extent permitted by
law, by telephonic and written notice (a "Request for Special
Dividend Period") to the Auction Agent and to each Broker-Dealer,
request that the next succeeding Dividend Period for such series
of Preferred Shares be a number of days (other than 28 in the case
of Series M28 Preferred Shares or 7 in the case of Series M7
Preferred Shares), evenly divisible by seven and specified in such
notice, provided that for any Auction occurring after the initial
Auction, the Corporation may not give a Request for Special
Dividend Period (and any such request shall be null and void)
unless Sufficient Clearing Bids were made in the last occurring
Auction and unless full cumulative dividends, any amounts due with
respect to mandatory redemptions, and any Additional Dividends
payable prior to such date have been paid in full. Such Request
for Special Dividend Period, in the case of a Dividend Period of
182 days or less, shall be given on or prior to the 4th day but
not more than 7 days prior to an Auction Date for the Preferred
Shares and, in the case of a Dividend Period of more than 182
days, shall be given on or prior to the 14th day but not more than
28 days prior to an Auction Date for the Preferred Shares. Such
Request for Special Dividend Period shall also specify any
proposed Bid Requirements. Upon receiving such Request for Special
Dividend Period, the Broker-Dealer(s) shall jointly determine
whether, given the factors set forth below, it is advisable that
the Corporation issue a Notice of Special Dividend Period for the
Preferred Shares as contemplated by such Request for Special
Dividend Period and, if advisable, the Specific Redemption
Provisions and shall give the Corporation and the Auction Agent
written notice (a "Response") of such determination by no later
than the third day prior to such Auction Date. In making such
determination the Broker-Dealer(s) will consider (1) existing
short-term and long-term market rates and indices of such
short-term and long-term rates, (2) existing market supply and
demand for short-term and long-term securities, (3) existing yield
curves for short-term and long-term securities comparable to the
Preferred Shares, (4) industry and financial conditions which may
affect the Preferred Shares, (5) the investment objective of the
Corporation, and (6) the Dividend Periods and dividend rates at
which current and potential beneficial holders of the Preferred
Shares would remain or become beneficial holders. If none of the
Broker-Dealer(s) give the Corporation and the Auction Agent a
Response by such third day or if the Response of all of the
Broker-Dealers providing a Response states that given the factors
set forth above it is not advisable that the Corporation give a
Notice of Special Dividend Period for the Preferred Shares, the
Corporation may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event
the Response of at least one Broker-Dealer does not indicate that
it is not advisable that the Corporation give a Notice of Special
Dividend Period for the Preferred Shares, the Corporation may by
no later than the second day prior to such Auction Date give a
notice (a "Notice of Special Dividend Period") to the Auction
Agent, the Securities Depository and each Broker-Dealer which
notice will specify the duration of the Special Dividend Period,
the Bid Requirements (if any) applicable to the Auction relating
to such Special Dividend Period and Specific Redemption Provisions
(if any). The Corporation shall not give a Notice of Special
Dividend Period or convert to a Special Dividend Period and, if
the Corporation has given a Notice of Special Dividend, the
Corporation is required to give telephonic and written notice of
revocation (a "Notice of Revocation") to the Auction Agent, each
Broker-Dealer, and the Securities Depository on or prior to the
Business Day prior to the relevant Auction Date if it has not
obtained the advice in writing of Moody's and S&P or any
Substitute Rating Agency that the proposed Special Dividend Period
will not adversely affect their then-current rating on the
Preferred Shares or if (w) either the 1940 Act Preferred Shares
Asset Coverage is not satisfied or the Corporation shall fail to
maintain S&P Eligible Assets and Moody's Eligible Assets each with
an aggregate Discounted Value at least equal to the
Preferred Shares Basic Maintenance Amount, in each case on each of
the two Valuation Dates immediately preceding the Business Day
prior to the relevant Auction Date (and in each case, with respect
to Moody's Eligible Assets, using a Moody's Exposure Period
equivalent to 14 days longer than normal) on an actual basis and
on a pro forma basis giving effect to the proposed Special
Dividend Period (using as a pro forma dividend rate with respect
to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Corporation is an approximately
equal rate for securities similar to the Preferred Shares with an
equal frequency of recalculation of the Reference Index or
Reference Security as is utilized by the Corporation with respect
to the first Dividend Payment Period within such Special Dividend
Period and using as a pro forma Maximum Applicable Rate the
highest rate specified in the Notice of Special Dividend Period
for the Dividend Payment Periods covering not less than the first
49 days of such proposed Special Dividend Period or, if no such
rate is specified in the Notice of Special Dividend Period, the
Maximum Applicable Rate resulting by operation of the definition
of Special Dividend Period Reference Rate for the Special Dividend
Period specified in such Notice of Special Dividend Period), (x)
sufficient funds for the payment of dividends payable on the
immediately succeeding Dividend Payment Date have not been
irrevocably deposited with the Auction Agent by the close of
business on the third Business Day preceding the related Auction
Date, (y) the Broker-Dealer(s) jointly advise the Corporation that
after consideration of the factors listed above they have
concluded that it is advisable to give a Notice of Revocation or
(z) the Corporation has determined to terminate the Special
Dividend Period for any reason. If the Corporation is prohibited
from giving a Notice of Special Dividend Period as a result of any
of the factors enumerated in clause (w), (x), (y) or (z) of the
prior sentence or if the Corporation gives a Notice of Revocation
with respect to a Notice of Special Dividend Period, the next
succeeding Dividend Period will be a 28-day Period (in the case of
Series M28 Preferred Shares) or a 7-day Dividend Period (in the
case of Series M7 Preferred Shares) provided that if the
then-current Dividend Period in the case of the Series M28
Preferred Shares is a Special Dividend Period of less than 28
days, the next succeeding Dividend Period for such series will be
the same length as the current Dividend Period. In addition, in
the event Sufficient Clearing Bids are not made in the applicable
Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 28-day Dividend Period (in
the case of Series M28 Preferred Shares) or a 7-day Dividend
Period (in the case of Series M7 Preferred Shares) and the
Corporation may not again give a Notice of Special Dividend Period
for the Preferred Shares (and any such attempted notice shall be
null and void) until Sufficient Clearing Bids have been made in an
Auction with respect to a 28-day Dividend Period (in the case of
Series M28 Preferred Shares) or a 7-day Dividend Period (in the
case of Series M7 Preferred Shares).
(d) (i) Holders shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein provided, on the Preferred Shares. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment on the Preferred Shares that may be in arrears.
(ii) For so long as any share of the Preferred
Shares is outstanding, the Corporation shall not declare, pay or
set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or options,
warrants or rights to subscribe for or purchase, Common Stock or
other stock, if any, ranking junior to the Preferred Shares as to
dividends or upon liquidation) in respect of the Common Stock or
any other stock of the Corporation ranking junior to or on a
parity with the Preferred Shares as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise
acquire for consideration any shares of the Common Stock or any
other such junior stock (except by conversion into or exchange for
stock of the Corporation ranking junior to the Preferred Shares as
to dividends and upon liquidation) or any other such Parity Stock
(except by conversion into or exchange for stock of the
Corporation ranking junior to or on a parity with the Preferred
Shares as to dividends and upon liquidation), unless (A)
immediately after such transaction, the Corporation shall have
Moody's Eligible Assets and S&P Eligible Assets each with an
aggregate Discounted Value equal to or greater than the Preferred
Shares Basic Maintenance Amount and the Corporation shall maintain
the 1940 Act Preferred Shares Asset Coverage, (B) full cumulative
dividends on Preferred Shares and shares of Other Preferred Shares
due on or prior to the date of the transaction have been declared
and paid or shall have been declared and sufficient funds for the
payment thereof deposited with the Auction Agent, (C) any
Additional Dividend required to be paid under paragraph 2(e) below
on or before the date of such declaration or payment has been paid
and (D) the Corporation has redeemed the full number of Preferred
Shares required to be redeemed by any provision for mandatory
redemption contained herein.
(e) Each dividend shall consist of (i) cash at the
Applicable Rate and (ii) an uncertificated right (a "Right") to receive an
Additional Dividend (as defined below). Each Right shall thereafter be
independent of the share or Preferred Shares on which the dividend was
paid. The Corporation shall cause to be maintained a record of each Right
received by the respective Holders. The Corporation shall not be required
to recognize any transfer of a Right.
If, in the case of a Dividend Period of 28 days or
fewer, the Corporation retroactively allocates any net capital gains or
other taxable income to Preferred Shares without having given advance
notice thereof to the Auction Agent as described in paragraph 2(f) hereof
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation") solely by reason of the fact that such allocation is made as a
result of the redemption of all or a portion of the outstanding Preferred
Shares or the liquidation of the Corporation, the Corporation will, within
90 days (and generally within 60 days) after the end of the Corporation's
fiscal year for which a Retroactive Taxable Allocation is made, provide
notice thereof to the Auction Agent and to each holder of a Right
applicable to such Preferred Shares (initially Cede & Co. as nominee of The
Depository Trust Company) during such fiscal year at such holder's address
as the same appears or last appeared on the Stock Books of the Corporation.
The Corporation will, within 30 days after such notice is given to the
Auction Agent, pay to the Auction Agent (who will, then distribute to such
holders of Rights), out of funds legally available therefor, an amount
equal to the aggregate Additional Dividend with respect to all Retroactive
Taxable Allocations made to such holders during the fiscal year in
question.
If the Corporation, in the case of a Dividend
Period of 35 days or more, makes a Retroactive Taxable Allocation to a
dividend paid on Preferred Shares, the Corporation will, within 90 days
(and generally within 60 days) after the end of the Corporation's fiscal
year for which a Retroactive Taxable Allocation is made, provide notice
thereof to the Auction Agent and to each holder of a Right applicable to
such Preferred Shares (initially Cede & Co. as nominee of The Depository
Trust Company) during such fiscal year at such holder's address as the same
appears or last appeared on the Stock Books of the Corporation. The
Corporation will, within 30 days after such notice is given to the Auction
Agent, pay to the Auction Agent (who will then distribute to such holders
of Rights), out of funds legally available therefor, an amount equal to the
aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a holder
of Preferred Shares of an amount which, when taken together with the
aggregate amount of Retroactive Taxable Allocations allocated to such
holder with respect to the fiscal year in question, would cause such
holder's dividends from the aggregate of both the Retroactive Taxable
Allocations and the Additional Dividend to be equal to the dollar amount of
the dividends which would have been received and retained by such holder if
the Retroactive Taxable Allocations had not been made. Such Additional
Dividend shall be calculated (i) without consideration being given to the
time value of money; (ii) assuming that no holder of Preferred Shares is
subject to the Federal alternative minimum tax with respect to dividends
received from the Corporation; and (iii) assuming that each Retroactive
Taxable Allocation would be taxable in the hands of each holder of
Preferred Shares at the maximum marginal combined regular Federal income
tax rate applicable to individuals or corporations, whichever is greater,
in effect during the fiscal year in question.
(f) Whenever the Corporation intends to include any net
capital gains or other taxable income in any dividend on Preferred Shares
the Applicable Rate for which will be established at the next succeeding
Auction, the Corporation will, in the case of a Dividend Period of 28 days
or fewer, and may, in the case of a Dividend Period of 35 days or more,
notify the Auction Agent of the amount to be so included at least five
Business Days prior to the Auction Date on which the Applicable Rate for
such dividend is to be established. If, in the case of a Dividend Period of
28 days or fewer, the Corporation retroactively allocates any net capital
gains or other taxable income to a dividend paid on Preferred Shares
without having given advance notice thereof to the Auction Agent as
described in paragraph 2(f) hereof solely by reason of the fact that such
allocation is made as a result of the redemption of all or a portion of the
outstanding Preferred Shares or the liquidation of the Corporation, the
Corporation will make certain payments to holders of Preferred Shares to
offset the tax effect thereof. If, in the case of a Dividend Period of 35
days or more, the Corporation allocates any net capital gains or other
taxable income to a dividend paid on Preferred Shares without having given
advance notice thereof to the Auction Agent as described in Paragraph 2(f)
hereof, the Corporation will make certain payments to holders of Preferred
Shares to offset the tax effect thereof.
(g) No fractional share of Preferred Shares shall be
issued.
3. Liquidation Rights. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
Holders shall be entitled to receive, out of the assets of the Corporation
available for distribution to shareholders, before any distribution or
payment is made upon any Common Stock or any other capital stock ranking
junior in right of payment upon liquidation to the Preferred Shares, the
sum of $50,000 per share plus accumulated but unpaid dividends (whether or
not earned or declared) thereon plus the premium, if any, resulting from
the designation of a Premium Call Period to the date of distribution, and
after such payment the holders of Preferred Shares will be entitled to no
other payments other than Additional Dividends as provided in paragraph
2(e) hereof. If upon any liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Preferred Shares and
any other outstanding class or series of Preferred Stock of the Corporation
ranking on a parity with the Preferred Shares as to payment upon
liquidation are not paid in full, the Holders and the holders of such other
class or series will share ratably in any such distribution of assets in
proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the Holders will not be entitled to any further
participation in any distribution of assets by the Corporation except for
any Additional Dividends. A consolidation or merger of the Corporation with
or into any other corporation or corporations or a sale, whether for cash,
shares of stock, securities or properties, of all or substantially all or
any part of the assets of the Corporation shall not be deemed or construed
to be a liquidation, dissolution or winding up of the Corporation.
4. Redemption. (a) Preferred Shares shall be redeemable by
the Corporation as provided below:
(i) To the extent permitted under the 1940 Act
and Maryland law, upon giving a Notice of Redemption, the
Corporation at its option may redeem Preferred Shares, in whole or
in part, out of funds legally available therefor, at the Optional
Redemption Price per share, on any Dividend Payment Date; provided
that no Preferred Shares shall be subject to optional redemption
during a Non-Call Period. In addition, holders of Preferred Shares
which are redeemed shall be entitled to receive Additional
Dividends to the extent provided herein. The Corporation may not
give a Notice of Redemption relating to an optional redemption as
described in this paragraph 4(a) (i) or effect an optional
redemption unless, at the time of giving such Notice of Redemption
or effecting such optional redemption, the Corporation has
available Deposit Securities with maturity or tender dates not
later than the day preceding the applicable redemption date and
having a value not less than the amount due to Holders by reason
of the redemption of their Preferred Shares on such redemption
date and, if as a result of such optional redemption, the
Corporation would fail to maintain S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to
the Preferred Shares Basic Maintenance Amount.
(ii) The Corporation shall redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per
share, Preferred Shares to the extent permitted under the 1940 Act
and Maryland law, on a date fixed by the Board of Directors, if
the Corporation fails to maintain Moody's Eligible Assets and S&P
Eligible Assets each with an aggregate Discounted Value equal to
or greater than the Preferred Shares Basic Maintenance Amount as
provided in paragraph 7(a) or to satisfy the 1940 Act Preferred
Shares Asset Coverage as provided in paragraph 6 and such failure
is not cured on or before the Preferred Shares Basic Maintenance
Cure Date or the 1940 Act Cure Date (herein respectively referred
to as the "Cure Date"), as the case may be. In addition, holders
of Preferred Shares so redeemed shall be entitled to receive
Additional Dividends to the extent provided herein. The number of
Preferred Shares to be redeemed shall be equal to the lesser of
(i) the minimum number of Preferred Shares the redemption of
which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, would together with all shares of
Other Preferred Stock subject to redemption or retirement, result
in the Corporation having S&P Eligible Assets and Moody's Eligible
Assets each with an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount or satisfaction
of the 1940 Act Preferred Shares Asset Coverage, as the case may
be, on such Cure Date (provided that, if there is no such minimum
number of Preferred Shares and shares of Other Preferred Stock the
redemption of which would have such result, all Preferred Shares
and shares of Other Preferred Stock then outstanding shall be
redeemed), and (ii) the maximum number of Preferred Shares,
together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds
expected to be legally available therefor on such redemption date.
In determining the number of Preferred Shares required to be
redeemed in accordance with the foregoing, the Corporation shall
allocate the number required to be redeemed which would result in
the Corporation having Moody's Eligible Assets and S&P Eligible
Assets each with an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount or satisfaction
of the 1940 Act Preferred Shares Asset Coverage, as the case may
be, pro rata among Preferred Shares, Other Preferred Shares and
other Preferred Stock subject to redemption pursuant to provisions
similar to those contained in this paragraph 4(a) (ii) provided
that, Preferred Shares which may not be redeemed at the option of
the Corporation (a) will be subject to mandatory redemption only
to the extent that other shares are not available to satisfy the
number of shares required to be redeemed and (b) will be selected
for redemption in an ascending order of outstanding number of days
in the Non-Call Period during which such shares are not subject to
optional redemption (with shares with the lowest number of days to
be redeemed first) and by lot in the event of shares having an
equal number of days in such period. The Corporation shall effect
such redemption on a Business Day which is not later than 30 days
after such Cure Date, except that if the Corporation does not have
funds legally available for the redemption of all of the required
number of Preferred Shares and shares of other Preferred Stock
which are subject to mandatory redemption or the Corporation
otherwise is unable to effect such redemption on or prior to 30
days after such Cure Date, the Corporation shall redeem those
Preferred Shares which it is unable to redeem on the earliest
practicable date on which it is able to effect such redemption out of
funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph
4, no Preferred Shares may be redeemed pursuant to paragraph 4(a) (i) of
these Articles Supplementary unless all dividends in arrears on all
remaining outstanding shares of Parity Stock shall have been or are being
contemporaneously paid or declared and set apart for payment. In the event
that less than all the outstanding Preferred Shares are to be redeemed and
there is more than one Holder, the shares to be redeemed shall be selected
by lot or such other method as the Corporation shall deem fair and
equitable.
(c) Whenever Preferred Shares are to be redeemed, the
Corporation, not less than 20 or more than 60 days prior to the date fixed
for redemption, shall mail a notice ("Notice of Redemption") by first-class
mail, postage prepaid, to each Holder of Preferred Shares to be redeemed
and to the Auction Agent. The Corporation shall cause the Notice of
Redemption also to be published in the eastern and national editions of The
Wall Street Journal. The Notice of Redemption to set forth (i) the
redemption date, (ii) the amount of the redemption price, (iii) the
aggregate number of Preferred Shares to be redeemed, (iv) the place or
places where Preferred Shares are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be
redeemed shall cease to accumulate on such redemption date (except that
holders may be entitled to Additional Dividends) and (vi) the provision of
these Articles Supplementary pursuant to which such shares are being
redeemed. No defect in the Notice of Redemption or in the mailing or
publication thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given
as aforesaid and, concurrently or thereafter, the Corporation shall have
deposited in trust with the Auction Agent a cash amount equal to the
redemption payment for the Preferred Shares as to which such Notice of
Redemption has been given with irrevocable instructions and authority to
pay the redemption price to the Holders of such shares, then upon the date
of such deposit or, if no such deposit is made, then upon such date fixed
for redemption (unless the Corporation shall default in making the
redemption payment), all rights of the Holders of such shares as
shareholders of the Corporation by reason of the ownership of such shares
will cease and terminate (except their right to receive the redemption
price in respect thereof and any additional dividends, but without
interest), and such shares shall no longer be deemed outstanding. The
Corporation shall be entitled to receive, from time to time, from the
Auction Agent the interest, if any, on such moneys deposited with it and
the Holders of any shares so redeemed shall have no claim to any of such
interest. In case the Holder of any shares so called for redemption shall
not claim the redemption payment for his shares within one year after the
date of redemption, the Auction Agent shall, upon demand, pay over to the
Corporation such amount remaining on deposit and the Auction Agent shall
thereupon be relieved of all responsibility to the Holder of such shares
called for redemption and such Holder thereafter shall look only to the
Corporation for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
Charter, each Holder of Preferred Shares shall be entitled to one vote for
each share held on each matter submitted to a vote of stockholders of the
Corporation to which the stockholders are entitled to vote, and the holders
of outstanding shares of Preferred Stock, including Preferred Shares, and
of shares of Common Stock shall vote together as a single class with
respect to all matters on which all stockholders are entitled to vote.
Notwithstanding the preceding sentence, at the first annual meeting of
stockholders, the holders of outstanding shares of Preferred Stock,
including Preferred Shares, represented in person or by proxy shall be
entitled as a class, and to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation, to elect one
Class I director and one Class II director and shall thereafter be so
entitled to elect any successors from time to time to the Class I and Class
II directors so elected at any meeting of shareholders in which successors
are elected. At each meeting of shareholders at which entire classes of
Class I and Class II directors are to be elected, or at any meeting at
which a successor to a director elected by the holders of Preferred Stock
in accordance with this Section is to be elected (including directors
elected pursuant to this sentence), the holders of outstanding shares of
Preferred Stock, including Preferred Shares, represented in person or by
proxy shall be entitled as a class and to the exclusion of the holders of
all other securities and classes of capital stock of the Corporation to
elect one Class I and one Class II director or to elect such successor. In
the event that the Charter is amended to eliminate the classification of
the Corporation's Board of Directors, the holders of outstanding shares of
Preferred Stock, including Preferred Shares, represented in person or by
proxy shall be entitled as a class, and to the exclusion of the holders of
all other securities and classes of capital stock of the Corporation, to
elect two directors. Subject to paragraph 5(b) hereof, the holders of
outstanding shares of capital stock of the Corporation, voting as a single
class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors. During
any period in which any one or more of the conditions described below shall
exist (such period being referred to herein as a "Voting Period"), the
number of directors constituting the Board of Directors shall be
automatically increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock,
would constitute a majority of the Board of Directors as so increased by
such smallest number; and the holders of shares of Preferred Stock shall be
entitled, voting as a class on a one-vote-per-share basis (to the exclusion
of the holders of all other securities and classes of capital stock of the
Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled
to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends
(whether or not earned or declared, and whether or not funds are
then legally available in an amount sufficient therefor) on the
outstanding Preferred Shares equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent
for the payment of such accumulated dividends; or
(ii) if at any time holders of any Preferred
Stock are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the
voting rights described in this paragraph 5(b) shall cease, subject always,
however, to the revesting of such voting rights in the Holders upon the
further occurrence of any of the events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters.
So long as any Preferred Shares are outstanding, the Corporation shall not,
without the affirmative vote of the holders of a majority of the
Outstanding shares of Preferred Stock outstanding at the time, in person or
by proxy, at a meeting (voting separately as one class) or by the unanimous
written consent of the holders of all Outstanding shares of Preferred
Stock: (i) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to or on a parity
with any series of Preferred Stock with respect to payment of dividends or
the distribution of assets on liquidation, or increase the authorized
amount of Preferred Shares or any other Preferred Stock (except that,
notwithstanding the foregoing, but subject to the provisions of Section 13
of the 1940 Act, the Board of Directors, without the vote or consent of the
Holders of Preferred Shares, may from time to time authorize, create and
issue, and may increase the authorized or issued amount of, classes or
series of Preferred Stock, including Preferred Shares, ranking on a parity
with the Preferred Shares with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Corporation, subject to continuing compliance by the
Corporation with 1940 Act Preferred Shares Asset Coverage and Preferred
Shares Basic Maintenance Amount requirements, provided that the Fund
obtains written confirmation from Moody's (if Moody's is then rating
Preferred Shares), S&P (if S&P is then rating Preferred Shares) or any
Substitute Rating Agency (if any such Substitute Rating Agency is then
rating Preferred Shares) that the issuance of such class or series would
not impair the rating then assigned by such rating agency to the Preferred
Shares), (ii) amend, alter or repeal the provisions of the Charter whether
by merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Charter of holders of Preferred
Shares or any Other Preferred Stock, (iii) authorize the Corporation's
conversion from a closed-end to an open-end investment company as defined
in Section 5(a) of the 1940 Act, or (iv) amend the provisions of the
Charter which provide for the classification of the Board of Directors of
the Corporation into three classes, each with a term of office of three
years with only one class of directors standing for election in any year
(presently Article VI of the Charter). To the extent permitted under the
1940 Act, the Corporation shall not approve any of the actions set forth in
clause (i) or (ii) which adversely affects the contract rights expressly
set forth in the Charter of a Holder of shares of a series of Preferred
Shares differently than those of a Holder of shares of any other series of
Preferred Shares without the affirmative vote of the holders of at least a
majority of the Preferred Shares of each series adversely affected and
Outstanding at such time, in person or by proxy, at a meeting (each such
adversely affected series voting separately as a class) or by the unanimous
written consent of the holders of all Outstanding shares of Preferred
Stock. The Corporation shall notify Moody's and S&P 10 Business Days prior
to any such vote described in clauses (i) and (ii) . Unless a higher
percentage is provided for under the Charter, the affirmative vote of the
holders of a majority of the Outstanding shares of Preferred Stock,
including Preferred Shares, voting together as a single class, will be
required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote
of security holders under Section 13(a) of the 1940 Act. The class vote of
holders of shares of Preferred Stock, including Preferred Shares, described
above will in each case be in addition to a separate vote of the requisite
percentage of shares of Common Stock and shares of Preferred Stock,
including Preferred Shares, voting together as a single class necessary to
authorize the action in question. Notwithstanding the preceding sentence,
to the extent permitted by Maryland General Corporation Law, no vote of
holders of Common Stock, either separately or together with holders of
Preferred Shares as a single class, shall be necessary to take the actions
contemplated by clauses (i) and (ii) of the first sentence of this Section
5(c) and the holders of Common Stock shall not be entitled to vote in
respect of such matters, unless, in the case of the actions contemplated by
clause (ii) of the first sentence of this section 5(c), the action would
adversely affect the contract rights expressly set forth in the Charter of
the holders of Common Stock.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of
any right of the Holders of shares of Preferred Stock to elect
additional directors as described in paragraph 5(b) above, the
Corporation shall notify the Secretary of the Corporation and
instruct the Secretary to call a special meeting of such Holders,
by mailing a notice of such special meeting to such Holders, such
meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Secretary of the
Corporation does not call such a special meeting, it may be called
by Holders of at least 25% of the votes entitled to be cast at
such meeting on like notice. The record date for determining the
Holders entitled to notice of and to vote at such special meeting
shall be the close of business on the fifth Business Day preceding
the day on which such notice is mailed. At any such special
meeting and at each meeting held during a Voting Period, such
Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of
the Corporation), shall be entitled to elect the number of
directors prescribed in paragraph 5(b) above on a
one-vote-per-share basis. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders
present in person or by proxy shall have the power to adjourn the
meeting without notice, other than by an announcement at the
meeting, to a date not more than 120 days after the original
record date.
(ii) For purposes of determining any rights of
the Holders to vote on any matter or the number of shares required
to constitute a quorum, whether such right is created by these
Articles Supplementary, by the other provisions of the Charter, by
statute or otherwise, a share of Preferred Shares which is not
outstanding shall not be counted.
(iii) The terms of office of all persons who are
directors of the Corporation at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors
shall continue, notwithstanding the election at such meeting by
the Holders and such other holders of the number of directors that
they are entitled to elect, and the persons so elected by the
Holders and such other holders, together with the two incumbent
directors elected by the Holders and such other holders of
Preferred Stock and the remaining incumbent directors elected by
the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
(iv) The terms of office of the additional
directors elected by the Holders and holders of other Preferred
Stock pursuant to paragraph 5(b) above shall terminate on the
earliest date permitted by the Maryland General Corporation Law
following the termination of a Voting Period, the remaining
directors shall constitute the directors of the Corporation and
the voting rights of the Holders and such other holders to elect
additional directors pursuant to paragraph 5(b) above shall cease,
subject to the provisions of the last sentence of paragraph
5(b)(ii).
(e) Exclusive Remedy. Unless otherwise required by law,
the Holders of Preferred Shares shall not have any relative rights or
preferences or other special rights other than those specifically set forth
herein. The Holders of Preferred Shares shall have no preemptive rights or
rights to cumulative voting. In the event that the Corporation fails to pay
any dividends on the Preferred Shares, the exclusive remedy of the Holders
shall be the right to vote for directors pursuant to the provisions of this
paragraph 5.
(f) Notification to Moody's and S&P. In the event a vote
of Holders of Preferred Shares is required pursuant to the provisions of
Section 13(a) of the 1940 Act, the Corporation shall, not later than ten
business days prior to the date on which such vote is to be taken, notify
Moody's and S&P that such vote is to be taken and the nature of the action
with respect to which such vote is to be taken. Upon completion of any such
vote, the Corporation shall notify Moody's and S&P as to the result of such
vote.
6. 1940 Act Preferred Shares Asset Coverage. The Corporation
shall maintain, as of the last Business Day of each month in which any
share of Preferred Shares is outstanding, the 1940 Act Preferred Shares
Asset Coverage.
7. Preferred Shares Basic Maintenance Amount. A. The Corporation
shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date, (i) Moody's
Eligible Assets having an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount and (ii) S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to
alter the composition of its portfolio to retain the Preferred Shares Basic
Maintenance Amount on or prior to the Preferred Shares Basic Maintenance
Cure Date.
(b) On or before 5:00 p.m., New York City time, on the
third Business Day after a Valuation Date on which the Corporation fails to
satisfy the Preferred Shares Basic Maintenance Amount, the Corporation
shall complete and deliver to the Auction Agent, Moody's and S&P a complete
Preferred Shares Basic Maintenance Report as of the date of such failure,
which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Corporation mails to the
Auction Agent for delivery on the next Business Day the complete Preferred
Shares Basic Maintenance Report. The Corporation shall also give a notice
of cure of its failure to satisfy the Preferred Shares Basic Maintenance
Amount along with the complete Preferred Shares Basic Maintenance Report to
the Auction Agent, Moody's and S&P within three Business Days of its
determination that it has satisfied such requirement following any period
during which it has failed to satisfy such requirement. The Corporation
will also deliver a Preferred Shares Basic Maintenance Report to the
Auction Agent as of (i) the fifteenth day of each month (or, if such day is
not a Business Day, the next succeeding Business Day) and (ii) the last
Business Day of each month, in each case on or before the third Business
Day after such day. The Corporation will also deliver a Preferred Shares
Basic Maintenance Report to Moody's or S&P, as the case may be, for each
Valuation Date that the Discounted Value of Moody's Eligible Assets or S&P
Eligible Assets is less than or equal to 125% of the Preferred Shares Basic
Maintenance Amount, provided, however, that if the Valuation Date is every
day that is a Business Day, the Corporation will deliver a Preferred Shares
Basic Maintenance Report to Moody's or S&P, as the case may be, for each
Valuation Date that the Discounted Value of Moody's Eligible Assets or S&P
Eligible Assets is less than or equal to 105% of the Preferred Shares Basic
Maintenance Amount. The Corporation will deliver a Preferred Shares Basic
Maintenance Report to Moody's upon request and when the Corporation redeems
any shares of Common Stock. The Corporation will deliver a Preferred Shares
Basic Maintenance Report to S&P upon request. A failure by the Corporation
to deliver a Preferred Shares Basic Maintenance Report under this paragraph
7(b) shall be deemed to be delivery of a Preferred Shares Basic Maintenance
Report indicating the Discounted Value for S&P Eligible Assets and Moody's
Eligible Assets of the Corporation is less than the Preferred Shares Basic
Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery
of a Preferred Shares Basic Maintenance Report and a Certificate of Minimum
Liquidity in accordance with paragraph 7(b) above relating to a Quarterly
Valuation Date, the Corporation shall cause the Independent Accountant to
confirm in writing to the Auction Agent, Moody's and S&P (i) the
mathematical accuracy of the calculations reflected in such Report (and in
any other Preferred Shares Basic Maintenance Report, randomly selected by
the Independent Accountant, that was delivered by the Corporation during
the quarter ending on such Quarterly Valuation Date) and (with respect to
S&P only while S&P is rating the Preferred Shares) such Certificate, (ii)
that, in such Report (and in such randomly selected Report), the
Corporation correctly determined the assets of the Corporation which
constitute S&P Eligible Assets or Moody's Eligible Assets, as the case may
be, at such Quarterly Valuation Date in accordance with these Articles
Supplementary, (iii) that, in such Report (and in such randomly selected
Report) , the Corporation determined whether the Corporation had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly selected Report) in accordance with these Articles Supplementary,
S&P Eligible Assets of an aggregate Discounted Value at least equal to the
Preferred Shares Basic Maintenance Amount and Moody's Eligible Assets of an
aggregate Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount, (iv) that (with respect to S&P only) in such
Certificate, the Corporation determined the Minimum Liquidity Level and the
Corporation's Deposit Securities in accordance with these Articles
Supplementary, including maturity or tender date, (v) with respect to the
S&P rating on Municipal Obligations, the issuer name, issue size and coupon
rate listed in such Report and (with respect to S&P only) such Certificate,
that the Independent Accountant has requested that S&P verify such
information and the Independent Accountant shall provide a listing in its
letter of any differences, (vi) with respect to the Moody's ratings on
Municipal Obligations, the issuer name, issue size and coupon rate listed
in such Report and (with respect to S&P only) such Certificate, that such
information has been verified by Moody's (in the event such information is
not verified by Moody's, the Independent Accountant will inquire of Moody's
what such information is, and provide a listing in its letter of any
differences), and (vii) with respect to the bid or mean price (or such
alternative permissible factor used in calculating the Market Value)
provided by the custodian of the Corporation's assets to the Corporation
for purposes of valuing securities in the Corporation's portfolio, the
Independent Accountant has traced the price used in such Report and (with
respect to S&P only) such Certificate to the bid or mean price listed in
such Report and (with respect to S&P only) such Certificate as provided to
the Corporation and verified that such information agrees (in the event
such information does not agree, the Independent Accountant will provide a
listing in its letter of such differences) (such confirmation is herein
called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery
to the Auction Agent, S&P and Moody's of a Preferred Shares Basic
Maintenance Report in accordance with paragraph 7(b) above relating to any
Valuation Date on which the Corporation failed to maintain S&P Eligible
Assets with an aggregate Discounted Value and Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than the Preferred Shares
Basic Maintenance Amount, and relating to the Preferred Shares Basic
Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, S&P and Moody's an
Accountant's Confirmation as to such Preferred Shares Basic Maintenance
Report.
(e) If any Accountant's Confirmation delivered pursuant
to subparagraph (c) or (d) of this paragraph 7 shows that an error was made
in the Preferred Shares Basic Maintenance Report for a particular Valuation
Date for which such Accountant's Confirmation was required to be delivered,
or shows that a lower aggregate Discounted Value for the aggregate of all
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, of the
Corporation was determined by the Independent Accountant, the calculation
or determination made by such Independent Accountant shall be final and
conclusive and shall be binding on the Corporation, and the Corporation
shall accordingly amend and deliver the Preferred Shares Basic Maintenance
Report to the Auction Agent, S&P and Moody's promptly following receipt by
the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the
first Business Day after the Date of Original Issue of the Preferred
Shares, the Corporation will complete and deliver to S&P and Moody's a
Preferred Shares Basic Maintenance Report as of the close of business on
such Date of Original Issue. Within five business days of such Date of
Original Issue, the Corporation shall cause the Independent Accountant to
confirm in writing to S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the aggregate
Discounted Value of S&P Eligible Assets and the aggregate Discounted Value
of Moody's Eligible Assets reflected thereon equals or exceeds the
Preferred Shares Basic Maintenance Amount reflected thereon.
(g) For so long as Preferred Shares are rated by Moody's,
in managing the Corporation's portfolio, the Corporation shall require that
the Adviser will not alter the composition of the Corporation's portfolio
if, in the reasonable belief of the Adviser, the effect of any such
alteration would be to cause the Corporation to have Moody's Eligible
Assets with an aggregate Discounted Value, as of the immediately preceding
Valuation Date, less than the Preferred Shares Basic Maintenance Amount as
of such Valuation Date; provided, however, that in the event that, as of
the immediately preceding Valuation Date, the aggregate Discounted Value of
Moody's Eligible Assets exceeded the Preferred Shares Basic Maintenance
Amount by twenty-five percent or less (or, in the event the Valuation Date
is every day that is a Business Day, five percent or less), the Adviser
will not alter the composition of the Corporation's portfolio in a manner
reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after
giving effect to such alteration, the aggregate Discounted Value of Moody's
Eligible Assets would exceed the Preferred Shares Basic Maintenance Amount.
8. Minimum Liquidity Level. (i) For so long as any Preferred
Shares are rated by S&P, the Corporation shall be required to have, as of
each Valuation Date, Dividend Coverage Assets having in the aggregate a
value not less than the Dividend Coverage Amount.
(ii) As of each Valuation Date as long as any
Preferred Shares are rated by S&P, the Corporation shall determine
(A) the Market Value of the Dividend Coverage Assets owned by the
Corporation as of that Valuation Date, (B) the Dividend Coverage
Amount on that Valuation Date, and (C) whether the Minimum
Liquidity Level is met as of that Valuation Date. The calculations
of the Dividend Coverage Assets, the Dividend Coverage Amount and
whether the Minimum Liquidity Level is met shall be set forth in a
certificate (a "Certificate of Minimum Liquidity") dated as of the
Valuation Date. The Preferred Shares Basic Maintenance Report and
the Certificate of Minimum Liquidity may be combined in one
certificate. The Corporation shall cause the Certificate of
Minimum Liquidity to be delivered to S&P not later than the close
of business on the third Business Day after the Valuation Date
applicable to such Certificate pursuant to paragraph 7(b). The
Minimum Liquidity Level shall be deemed to be met as of any date
of determination if the Corporation has timely delivered a
Certificate of Minimum Liquidity relating to such date which
states that the same has been met and which is not manifestly
inaccurate. In the event that a Certificate of Minimum Liquidity
is not delivered to S&P when required, the Minimum Liquidity Level
shall be deemed not to have been met as of the applicable date.
(iii) If the Minimum Liquidity Level is not met
as of any Valuation Date, then the Corporation shall purchase or
otherwise acquire Dividend Coverage Assets to the extent necessary
so that the Minimum Liquidity Level is met as of the fifth
Business Day following such Valuation Date. The Corporation shall,
by such fifth Business Day, provide to S&P a Certificate of
Minimum Liquidity setting forth the calculations of the Dividend
Coverage Assets and the Dividend Coverage Amount and showing that
the Minimum Liquidity Level is met as of such fifth Business Day
together with a report of the custodian of the Corporation's
assets confirming the amount of the Corporation's Dividend
Coverage Assets as of such fifth Business Day.
9. Certain Other Restrictions. (a) So long as there are Preferred
Shares Outstanding, the Corporation will enter into futures and options
transactions only for bona fide hedging purposes and not for leveraging or
speculative purposes. So long as Moody's and S&P are rating the Preferred
Shares, the Corporation will only engage in futures or options transactions
in accordance with the then-current guidelines of such ratings agencies,
only if it is valuing its assets daily and only after it has received
written confirmation from Moody's and S&P, as appropriate, that such
transactions would not impair the ratings then assigned by S&P and Moody's
to Preferred Shares. The S&P guidelines in effect as of the Date of
Original Issue are set forth in their entirety in the following paragraph.
The Corporation may engage in futures and options transactions in
accordance therewith and such transactions shall have the consequences
included in such guidelines set forth therein (as such guidelines are
amended, modified and supplemented from time to time by S&P), provided,
however, that it may not engage in any such transactions unless it has
satisfied the relevant provisions of this paragraph relating to complying
with Moody's guidelines and obtaining written confirmation from Moody's and
S&P.
For so long as Preferred Shares are rated by S&P, the
Corporation will not, unless it has received written confirmation from S&P
that any such action would not impair the rating then assigned by S&P to
Preferred Shares, purchase or sell futures contracts or options thereon or
write uncovered put or uncovered call options on portfolio securities
except (provided that the Corporation has received such written
confirmation in advance from S&P) that (i) the Corporation may engage in
S&P Hedging Transactions based on the Municipal Index, provided that (A)
the Corporation shall not engage in any S&P Hedging Transaction based on
the Municipal Index (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold (1) more
than 1,000 outstanding futures contracts based on the Municipal Index, (2)
outstanding futures contracts based on the Municipal Index exceeding in
number 25% of the quotient of the fair market value of the Corporation's
total assets divided by 100,000 or (3) outstanding futures contracts based
on the Municipal Index exceeding in number 10% of the average number of
daily traded futures contracts based on the Municipal Index in the month
prior to the time of effecting such transaction as reported by The Wall
Street Journal and (ii) the Corporation may engage in S&P Hedging
Transactions based on Treasury Bonds, provided that (A) the Corporation
shall not engage in any S&P Hedging Transactions based on Treasury Bonds
(other than Closing Transactions) which would cause the Corporation at the
time of such transaction to own or have sold the lesser of (1) outstanding
futures contracts based on Treasury Bonds exceeding in number 25% of the
quotient of the fair market value of the Corporation's total assets divided
by 100,000 or (2) outstanding futures contracts based on Treasury Bonds
exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in the month prior to the time of
effecting such transaction as reported by The Wall Street Journal. For so
long as Preferred Shares are rated by S&P, the Corporation will engage in
Closing Transactions to close out any outstanding futures contract which
the Corporation owns or has sold or any outstanding option thereon owned by
the Corporation in the event (i) the Corporation does not have S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount on two consecutive Valuation
Dates and (ii) the Corporation is required to pay Variation Margin on the
second such Valuation Date. For so long as Preferred Shares are rated by
S&P, the Corporation will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon
unless the Corporation holds securities deliverable under such terms. For
purposes of calculating the Discounted Value of S&P Eligible Assets to
determine compliance with the Preferred Shares Basic Maintenance Amount,
such Discounted Value shall be reduced by an amount equal to (i) 30% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are
owned by the Corporation. For so long as Preferred Shares are rated by S&P,
when the Corporation writes a futures contract or option thereon, it will
maintain an amount of cash, cash equivalents or short-term, fixed-income
securities in a segregated account with the Corporation's custodian, so
that the amount so segregated plus the amount of Initial Margin and
Variation Margin held in the account of the Corporation's broker equals the
fair market value of the futures contract, except that in the event the
Corporation writes a futures contract or option thereon which requires
delivery of an underlying security, the Corporation shall hold such
underlying security.
(b) For so long as Preferred Shares are rated by Moody's
or S&P, the Corporation will not, unless it has received written
confirmation from Moody's and/or S&P, as the case may be, that such action
would not impair the ratings then assigned to Preferred Shares by Moody's
and/or S&P, as the case may be, (i) borrow money, (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or
series of stock ranking prior to or on a parity with the Preferred Shares
with respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the Corporation, (v) reissue any
Preferred Shares previously purchased or redeemed by the Corporation, (vi)
merge or consolidate into or with any other corporation, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.
10. Notice. All notices or communications, unless otherwise
specified in these Articles Supplementary, shall be sufficiently given if
in writing and delivered in person or mailed by first-class mail, postage
prepaid. Notice shall be deemed given on the earlier of the date received
or the date seven days after which such notice is mailed.
11. Auction Procedures. (a) Certain definitions. As used in
this paragraph 11, the following terms shall have the following meanings,
unless the context otherwise requires:
(i) "Auction Date" shall mean the first Business Day
preceding the first day of a Dividend Period.
(ii) "Available Preferred Shares" shall have the meaning
specified in paragraph 11(d)(i) below.
(iii) "Bid" shall have the meaning specified in paragraph
11(b)(i) below.
(iv) "Bidder" shall have the meaning specified in paragraph
11(b)(i) below.
(v) "Hold Order" shall have the meaning specified in
paragraph 11(b)(i) below.
(vi) "Maximum Applicable Rate" for any Dividend Payment
Period for the Preferred Shares will be the Applicable Percentage
of the higher of the 30-day "AA" Composite Commercial Paper Rate
and the Taxable Equivalent of the Short-Term Municipal Bond Rate
except in the case of a Special Dividend Period in which case the
Maximum Applicable Rate for any Dividend Payment Period included
in such Special Dividend Period will be the Applicable Percentage
(determined on the date of the Notice of Special Dividend Period
in the case of any such Notice that specifies a Maximum
Applicable Rate applicable to such Special Dividend Payment
Period) of the Special Dividend Period Reference Rate for such
Dividend Payment Period. The Applicable Percentage will be
determined based on (i) the lower of the credit rating or ratings
assigned on such date to such shares by Moody's and S&P (or if
Moody's or S&P or both shall not make such rating available, the
equivalent of either or both of such ratings by a Substitute
Rating Agency or two Substitute Rating Agencies or, in the event
that only one such rating shall be available, such rating) and
(ii) whether the Corporation has provided notification to the
Auction Agent prior to the Auction establishing the Applicable
Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such
dividend on Preferred Shares as follows:
<TABLE>
<CAPTION>
Applicable Applicable
Percentage: Percentage:
Credit Ratings No Notification Notification
- ---------------------------------------------------------- ------------------------------- --------------------------------
Moody's S&P
- --------------------------- ---------------------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3"to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
"ba3" to "ba1" BB- to BB+ 200% 275%
Below "ba3" Below BB- 250% 300%
</TABLE>
The Corporation will take all reasonable action necessary
to enable Moody's and S&P to provide a rating for both series of Preferred
Shares. If either Moody's or S&P shall not make such a rating available, or
neither Moody's nor S&P shall make such a rating available, Merrill Lynch,
Pierce, Fenner & Smith Incorporated or its affiliates and successors
together with Lehman Special Securities Incorporated or its affiliates and
successors, after consultation with the Corporation, will select a
nationally recognized statistical rating organization (a "Substitute Rating
Agency") or two nationally recognized statistical rating organizations
("Substitute Rating Agencies") to act as Substitute Rating Agency or
Substitute Rating Agencies, as the case may be; provided that if such a
rating is not made available with respect to the Series M28 Preferred
Shares only, Merrill Lynch, Pierce, Fenner & Smith or its affiliates and
successors, after consultation with the Corporation, shall select a
Substitute Rating Agency or Agencies and if such rating is not made
available with respect to the Series M7 Preferred Shares only, Lehman
Special Securities Incorporated or its affiliates and successors, after
consultation with the Corporation, shall select a Substitute Rating Agency
or Agencies.
(vii) "Minimum Applicable Rate," for any Dividend Payment Period
included in a Special Dividend Period for which Bid Requirements are
imposed will be such rate as may be specified by the Corporation in
the Notice of Special Dividend Period relating to the Special Dividend
Period within which such Dividend Payment Period occurs.
(viii) "Order" shall have the meaning specified in paragraph
11(b)(i) below.
(ix) "Preferred Shares" shall mean the Preferred Shares being
auctioned pursuant to this paragraph 11.
(x) "Sell Order" shall have the meaning specified in paragraph
11(b)(i) below.
(xi) "Submission Deadline" shall mean 1:00 P.M., New York City
time, on any Auction Date or such other time on any Auction Date as
may be specified by the Auction Agent from time to time as the time by
which each Broker-Dealer must submit to the Auction Agent in writing
all Orders obtained by it for the Auction to be conducted on such
Auction Date.
(xii) "Submitted Bid" shall have the meaning specified in
paragraph 11(d)(i) below.
(xiii) "Submitted Hold Order" shall have the meaning specified in
paragraph 11(d)(i) below.
(xiv) "Submitted Order" shall have the meaning specified in
paragraph 11(d)(i) below.
(xv) "Submitted Sell Order" shall have the meaning specified in
paragraph 11(d)(i) below.
(xvi) "Sufficient Clearing Bids" shall have the meaning specified
in paragraph 11(d)(i) below.
(xvii) "Winning Bid Rate" shall have the meaning specified in
paragraph 11(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
------------------------------------------------
(i) On or prior to the Submission Deadline on each Auction
Date:
(A) each Existing Holder may submit to a Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of
Preferred Shares held by such Existing Holder
which such Existing Holder desires to continue to
hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of
Preferred Shares held by such Existing Holder
which such Existing Holder desires to continue to
hold, provided that the Applicable Rate for the
next succeeding Dividend Period shall not be less
than the rate per annum or, in the case of an
Auction with Bid Requirements including a Spread,
the Spread specified by such Existing Holder;
and/or
(3) the number of Outstanding shares, if any, of
Preferred Shares held by such Existing Holder
which such Existing Holder offers to sell without
regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Holders
that shall be maintained in good faith for the purpose
of conducting a competitive Auction, shall contact
Potential Holders, including Persons that are not
Existing Holders, on such list to determine the number
of Outstanding shares, if any, of Preferred Shares
which each such Potential Holder offers to purchase,
provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the
rate per annum or Spread specified by such Potential
Holder.
For the purposes hereof, the communication to a
Broker-Dealer of information referred to in clause (A) or (B) of this
paragraph 11(b)(i) is hereinafter referred to an "Order" and each Existing
Holder and each Potential Holder placing an Order is hereinafter referred
to as a "Bidder"; an Order containing the information referred to in clause
(A)(1) of this paragraph 11(b) (i) is hereinafter referred to as a "Hold
Order"; an Order containing the information referred to in clause (A)(2) or
(B) of this paragraph 11(b)(i) is hereinafter referred to as a "Bid"; and
an Order containing the information referred to in clause (A)(3) of this
paragraph 11(b)(i) is hereinafter referred to as a "Sell Order".
(ii) (A) A Bid by an Existing Holder shall constitute
an irrevocable offer to sell:
(1) the number of Outstanding Preferred Shares specified in
such Bid if the Applicable Rate determined on such
Auction Date shall be less than the rate per annum or
Spread specified in such Bid; or
(2) such number of a lesser number of Outstanding Preferred
Shares to be determined as set forth in paragraph
11(e)(i)(D) if the Applicable Rate determined on such
Auction Date shall be equal to the rate per annum or
Spread specified therein; or
(3) a lesser number of Outstanding Preferred Shares to be
determined as set forth in paragraph 11(e)(ii)(C) if
such specified rate per annum shall be higher than the
Maximum Applicable Rate and Sufficient Clearing Bids do
not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding Preferred Shares specified in
such Sell Order; or
(2) such number or a lesser number of Outstanding Preferred
Shares to be determined as set forth in paragraph
11(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of Outstanding Preferred Shares specified in
such Bid if the Applicable Rate determined on such
Auction Date shall be higher than the rate per annum or
Spread specified in such Bid; or
(2) such number or a lesser number of Outstanding Preferred
Shares to be determined as set forth in paragraph
11(e)(i)(E) if the Applicable Rate determined on such
Auction Date shall be equal to the rate per annum or
Spread specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
--------------------------------------------------------
(i) Each Broker-Dealer shall submit in writing or
through the Auction Agent's Auction Processing System to the
Auction Agent prior to the Submission Deadline on each
Auction Date all Orders obtained by such Broker-Dealer and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of Outstanding Preferred Shares that
are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of Preferred
Shares subject to any Hold Order placed by such
Existing Holder;
(2) the number of Outstanding shares, if any, of Preferred
Shares subject to any Bid placed by such Existing
Holder and the rate per annum or Spread specified in
such Bid; and
(3) the number of Outstanding shares, if any, of Preferred
Shares subject to any Sell Order placed by such
Existing Holder; and
(4) (i) to the extent such Bidder is a Potential Holder,
the rate per annum or Spread specified in such
Potential Holder's Bid.
(ii) If any rate per annum or Spread specified
in any Bid contains more than three figures to the right of the
decimal point, the Auction Agent shall round such rate up to the
next highest one-thousandth (.001) of 1% and shall round such
Spread to the next highest one-thousandth (.001) of a basis point.
(iii) If an Order or Orders covering all of the
Outstanding Preferred Shares held by an Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline,
the Auction Agent shall deem a Hold Order to have been submitted
on behalf of such Existing Holder covering the number of
Outstanding Preferred Shares held by such Existing Holder and not
subject to Orders submitted to the Auction Agent; provided,
however, that with respect to an Auction to establish a Special
Dividend Period longer than 91 days, the Auction Agent shall deem
a Sell Order to have been submitted on behalf of such Existing
Holder covering such number of Outstanding Preferred Shares.
(iv) If one or more Orders on behalf of an
Existing Holder covering in the aggregate more than the number of
Outstanding Preferred Shares held by such Existing Holder are
submitted to the Auction Agent, such Orders shall be considered
valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing
Holder shall be considered valid up to and including
the number of Outstanding Preferred Shares held by such
Existing Holder; provided that if more than one Hold
Order is submitted on behalf of such Existing Holder
and the number of Preferred Shares subject to such Hold
Orders exceeds the number of Outstanding Preferred
Shares held by such Existing Holder, the number of
Preferred Shares subject to each of such Hold Orders
shall be reduced pro rata so that such Hold Orders, in
the aggregate, will cover exactly the number of
Outstanding Preferred Shares held by such Existing
Holder;
(B) any Bids submitted on behalf of such Existing Holder
shall be considered valid, in the ascending order of
their respective rates per annum or Spread, if more
than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of
Outstanding Preferred Shares held by such Existing
Holder over the number of Preferred Shares subject to
any Hold Order referred to in paragraph 11(c)(iv)(A)
above (and if more than one Bid submitted on behalf of
such Existing Holder specifies the same rate per annum
or Spread and together they cover more than the
remaining number of shares that can be the subject of
valid Bids after application of paragraph 11(c)(iv)(A)
above and of the foregoing portion of this paragraph
11(c)(iv)(B) to any Bid or Bids specifying a lower rate
or rates per annum or Spread, the number of shares
subject to each of such Bids shall be reduced pro rata
so that such Bids, in the aggregate, cover exactly such
remaining number of shares) ; and the number of shares,
if any, subject to Bids not valid under this paragraph
11(c)(iv)(B) shall be treated as the subject of a Bid
by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding
Preferred Shares held by such Existing Holder over the
number of Preferred Shares subject to Hold Orders
referred to in paragraph 11(c)(iv)(A) and Bids referred
to in paragraph 11(c)(iv)(B); provided that if more
than one Sell Order is submitted on behalf of any
Existing Holder and the number of Preferred Shares
subject to such Sell Orders is greater than such
excess, the number of Preferred Shares subject to each
of such Sell Orders shall be reduced pro rata so that
such Sell Orders, in the aggregate, cover exactly the
number of Preferred Shares equal to such excess.
(v) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a separate
Bid with the rate per annum or Spread and number of Preferred
Shares specified.
(vi) Any Bid by an Existing Holder that
specifies a Spread, with respect to an Auction in which a Spread
is not included in any Bid Requirements or in which there are no
Bid Requirements and any Order that does not specify a Spread with
respect to an Auction in which a Spread is included in any Bid
Requirements shall be treated as a Sell Order.
(b) Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate.
(i) Not earlier than the Submission Deadline on
each Auction Date, the Auction Agent shall assemble all Orders
submitted or deemed submitted to it by the Broker-Dealers (each
such Order as submitted or deemed submitted by a Broker-Dealer
being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case
may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of
Outstanding Preferred Shares over the
number of Outstanding Preferred Shares
that are the subject of Submitted Hold
Orders (such excess being hereinafter
referred to as the "Available Preferred
Shares");
(B) from the Submitted Orders whether the
number of Outstanding Preferred Shares
that are the subject of Submitted Bids
by Potential Holders specifying one or
more rates per annum or Spreads that
result in one or more rates per annum
on such date equal to or lower than the
Maximum Applicable Rate in effect for
the first Dividend Payment Period after
the Auction Date exceeds or is equa1 to
the sum of:
(1) the number of Outstanding
Preferred Shares that are the
subject of Submitted Bids by
Existing Holders specifying one
or more rates per annum or
Spreads that result in one or
more rates per annum on such
date higher than such Maximum
Applicable Rate, and
(2) the number of Outstanding
Preferred Shares that are
subject to Submitted Sell
Orders (if such excess or such
equality exists (other than
because the number of
Outstanding Preferred Shares in
clauses (1) and (2) above are
each zero because all of the
Outstanding Preferred Shares
are the subject of Submitted
Hold Orders), such Submitted
Bids by Potential Holders being
hereinafter referred to
collectively as "Sufficient
Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the
lowest rate per annum or, in the case
of an Auction with Bid Requirements
including a Spread, the lowest Spread
specified in the Submitted Bids (the
"Winning Bid Rate") that if:
(1) each Submitted Bid from
Existing Holders specifying the
Winning Bid Rate and all other
Submitted Bids from Existing
Holders specifying lower rates
per annum or Spreads were
rejected, thus entitling such
Existing Holders to continue to
hold the Preferred Shares that
are the subject of such
Submitted Bids, and
(2) each Submitted Bid from
Potential Holders specifying
the Winning Bid Rate and all
other Submitted Bids from
Potential Holders specifying
lower rates per annum or
Spreads were accepted, thus
entitling the Potential Holders
to purchase the Preferred
Shares that are the subject of
such Submitted Bids, would
result in the number of shares
subject to all Submitted Bids
specifying the Winning Bid Rate
or a lower rate per annum or
Spread being at least equal to the
Available Preferred Shares.
(D) For purposes of these Articles
Supplementary, a positive Spread shall
be considered lower than another
positive Spread to the extent it is a
lower number, a Spread of zero shall be
considered lower than a positive
Spread, a negative Spread shall be
considered lower than a Spread of zero
and a negative Spread shall be
considered lower than another negative
Spread to the extent it is a higher
number.
(ii) Promptly after the Auction Agent has made
the determinations pursuant to paragraph 11(d)(i), the Auction
Agent shall advise the Corporation of the Maximum Applicable Rate
(or, in the event the Corporation has specified a Maximum
Applicable Rate or Rates, or a Minimum Applicable Rate or Rates
the Auction Agent shall confirm to the Corporation the calculation
of such Maximum Applicable Rate or Rates or such Minimum
Applicable Rate or Rates) and, based on such determinations, the
Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding Dividend
Period shall be equal to the Winning Bid Rate,
subject to the effect of any applicable Minimum
Applicable Rate and any applicable Maximum
Applicable Rate;
(B) if Sufficient Clearing Bids do not exist (other
than because all of the Outstanding Preferred
Shares are the subject of Submitted Hold Orders
and other than in the event the Auction is being
conducted with respect to a Special Dividend
Period), that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the
Maximum Applicable Rate;
(C) if all of the Outstanding Preferred Shares are the
subject of Submitted Hold Orders that the Dividend
Period next succeeding the Auction shall
automatically be the same length as the
immediately preceding Dividend Period and the
Applicable Rate for the next succeeding Dividend
Period will be the higher of the 30-day "AA"
Composite Commercial Paper Rate and the Taxable
Equivalent of the Short-Term Municipal Bond Rate
multiplied by 1 minus the maximum marginal regular
Federal individual income tax rate then applicable
to ordinary income or the maximum marginal regular
Federal corporate tax rate then applicable,
whichever is greater (or 90% of such rate if the
Corporation has provided notification to the
Auction Agent prior to the Auction establishing
the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or
other taxable income will be included in such
dividend on Preferred Shares) on the date of the
Auction; or
(D) If the Auction is being conducted with respect to
a Special Dividend Period and Sufficient Clearing
Bids do not exist, that the Dividend Period next
succeeding the Auction shall automatically be 28
days (in the case of Series M28 Preferred Shares)
or 7 days (in the case of Series M7 Preferred
Shares) and the Applicable Rate for the next
succeeding Dividend Period will be as set forth in
paragraph 11(d)(ii)(C) above.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Based on the determinations
made pursuant to paragraph 11(d)(i), the Submitted Bids and Submitted Sell
Orders shall be accepted or rejected and the Auction Agent shall take such
other action as set forth below:
(i) If Sufficient Clearing Bids have been made,
subject to the provisions of paragraph 11(e)(iii) and paragraph
11(e)(iv), Submitted Bids and Submitted Sell Orders shall be
accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders
shall be accepted and the Submitted Bid of each of
the Existing Holders specifying any rate per annum
or Spread that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such
Existing Holder to sell the Outstanding Preferred
Shares that are the subject of such Submitted Sell
Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum or Spread that is
lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to
continue to hold the Outstanding Preferred Shares
that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than
the Winning Bid Rate or Spread shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum or Spread that is
equal to the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to
continue to hold the Outstanding Preferred Shares
that are the subject of such Submitted Bid, unless
the number of Outstanding Preferred Shares subject
to all such Submitted Bids shall be greater than
the number of Outstanding Preferred Shares
("Remaining Shares") equal to the excess of the
Available Preferred Shares over the number of
Outstanding Preferred Shares subject to Submitted
Bids described in paragraph 11(e)(i)(B) and
paragraph 11(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall
be accepted, and each such Existing Holder shall
be required to sell Outstanding Preferred Shares,
but only in an amount equal to the difference
between (1) the number of Outstanding Preferred
Shares then held by such Existing Holder subject
to such Submitted Bid and (2) the number of
Preferred Shares obtained by multiplying (x) the
number of Remaining Shares by (y) a fraction the
numerator of which shall be the number of
Outstanding Preferred Shares held by such Existing
Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the
numbers of Outstanding Preferred Shares subject to
such Submitted Bids made by all such Existing
Holders that specified a rate per annum or Spread
equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum or Spread that is
equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the number of
Outstanding Preferred Shares obtained by
multiplying (x) the difference between the
Available Preferred Shares and the number of
Outstanding Preferred Shares subject to Submitted
Bids described in paragraph 11(e)(i)(B), paragraph
11(e)(i)(C) and paragraph 11(e)(i)(D) by (y) a
fraction the numerator of which shall be the
number of Outstanding Preferred Shares subject to
such Submitted Bid and the denominator of which
shall be the sum of the numbers of Outstanding
Preferred Shares subject to such Submitted Bids
made by all such Potential Holders that specified
a rate per annum or Spread equal to the Winning
Bid Rate.
(ii) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding Preferred Shares
are subject to Submitted Hold Orders), subject to the provisions
of paragraph 11(e)(iii), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder
specifying any rate per annum or Spread that is
equal to or lower than the Maximum Applicable Rate
(a Bid specifying a Spread being converted to a
rate per annum for this purpose by applying the
Spread to the most recently available Reference
Index or Reference Security) shall be rejected,
thus entitling such Existing Holder to continue to
hold the Outstanding Preferred Shares that are the
subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder
specifying any rate per annum or Spread that is
equal to or lower than the Maximum Applicable Rate
(a Bid specifying a Spread being converted to a
rate per annum for this purpose by applying the
Spread to the most recently available Reference
Index or Reference Security) shall be accepted,
thus requiring such Potential Holder to purchase
the Outstanding Preferred Shares that are the
subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder
specifying any rate per annum or Spread that is
higher than the Maximum Applicable Rate (a Bid
specifying a Spread being converted to a rate per
annum for this purpose by applying the Spread to
the most recently available Reference Index or
Reference Security) shall be accepted and the
Submitted Sell Orders of each Existing Holder
shall be accepted, in both cases only in an amount
equal to the difference between (1) the number of
Outstanding Preferred Shares then held by such
Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of
Preferred Shares obtained by multiplying (x) the
difference between the Available Preferred Shares
and the aggregate number of Outstanding Preferred
Shares subject to Submitted Bids described in
paragraph 11(e)(ii)(A) and paragraph 11(e)(ii)(B)
by (y) a fraction the numerator of which shall be
the number of Outstanding Preferred Shares held by
such Existing Holder subject to such Submitted Bid
or Submitted Sell Order and the denominator of
which shall be the number of Outstanding Preferred
Shares subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures
described in paragraph 11(e)(i) or paragraph 11(e)(ii), any
Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a
fraction of a share of Preferred Shares on any Auction Date, the
Auction Agent shall, in such manner as in its sole discretion it
shall determine, round up or down the number of Preferred Shares
to be purchased or sold by any Existing Holder or Potential Holder
on such Auction Date so that each Outstanding share of Preferred
Shares purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be a whole share of Preferred
Shares.
(iv) If, as a result of the procedures described
in paragraph 11(e)(i), any Potential Holder would be entitled or
required to purchase less than a whole share of Preferred Shares
on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate Preferred Shares
for purchase among Potential Holders so that only whole Preferred
Shares are purchased on such Auction Date by any Potential Holder,
even if such allocation results in one or more of such Potential
Holders not purchasing any Preferred Shares on such Auction Date.
(v) Based on the results of each Auction, the
Auction Agent shall determine, with respect to each Broker-Dealer
that submitted Bids or Sell Orders on behalf of Existing Holders
or Potential Holders, the aggregate number of Outstanding
Preferred Shares to be purchased and the aggregate number of
Outstanding Preferred Shares to be sold by such Potential Holders
and Existing Holders and, to the extent that such aggregate number
of Outstanding shares to be purchased and such aggregate number of
Outstanding shares to be sold differ, the Auction Agent shall
determine to which other Broker-Dealer or Broker-Dealers acting
for one or more purchasers such Broker-Dealer shall deliver, or
from which other Broker-Dealer or Broker-Dealers acting for one or
more sellers such Broker-Dealer shall receive, as the case may be,
Outstanding Preferred Shares.
(f) Miscellaneous. An Existing Holder (A) may sell,
transfer or otherwise dispose of Preferred Shares only pursuant to a Bid or
Sell Order in accordance with the procedures described in this paragraph 11
or to or through a broker-dealer, provided that in the case of all
transfers other than pursuant to Auctions such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such
transfer and (B) except as otherwise required by law, shall have the
ownership of the Preferred Shares held by it maintained in book entry form
by the Securities Depository in the account of its Agent Member, which in
turn will maintain records of such Existing Holder's beneficial ownership.
Neither the Corporation nor any Affiliate shall submit an Order in any
Auction. Any Existing Holder that is an Affiliate shall not sell, transfer
or otherwise dispose of Preferred Shares to any Person other than the
Corporation. All of the Outstanding Preferred Shares of each series shall
be represented by a single certificate registered in the name of the
nominee of the Securities Depository unless otherwise required by law or
unless there is no Securities Depository. If there is no Securities
Depository, at the Corporation's option and upon its receipt of such
documents as it deems appropriate, any Preferred Shares may be registered
in the Stock Register in the name of the Existing Holder thereof and such
Existing Holder thereupon will be entitled to receive certificates therefor
and required to deliver certificates therefor upon transfer or exchange
thereof.
12. Securities Depository; Stock Certificates. A. If there is a
Securities Depository, one certificate for all of the Preferred Shares of
each series shall be issued to the Securities Depository and registered in
the name of the Securities Depository or its nominee. Additional
certificates may be issued as necessary to represent Preferred Shares. All
such certificates shall bear a legend to the effect that such certificates
are issued subject to the provisions restricting the transfer of Preferred
Shares contained in these Articles Supplementary. Unless the Corporation
shall have elected, during a Non- Payment Period, to waive this
requirement, the Corporation will also issue stop-transfer instructions to
the Auction Agent for the Preferred Shares. Except as provided in paragraph
(b) below, the Securities Depository or its nominee will be the Holder, and
no Existing Holder shall receive certificates representing its ownership
interest in such shares.
(b) If the Applicable Rate applicable to all Preferred
Shares of a series shall be the Non-Payment Period Rate or there is no
Securities Depository, the Corporation may at its option issue one or more
new certificates with respect to such shares (without the legend referred
to in paragraph 12 (a)) registered in the names of the Existing Holders or
their nominees and rescind the stop-transfer instructions referred to in
paragraph 12(a) with respect to such shares.
13. Interpretations. The Board of Directors may interpret the
provisions of these Articles Supplementary to resolve any inconsistency or
ambiguity, remedy any formal defect or make any other change or
modification that does not adversely affect the rights of Existing Holders
of Preferred Shares."
SECOND: The amendment to the charter of the Corporation
set forth in these Articles of Amendment was advised by the Board of
Directors of the Corporation and approved by the stockholders of the
Corporation at a special meeting of the stockholders of the Corporation
held on July 13, 1994.
THIRD: The amendment to the charter of the
Corporation set forth in these Articles of Amendment does not increase the
authorized capital stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these
Articles of Amendment to be executed by its President and its corporate
seal to be affixed hereto and attested to by its Secretary as of the 13th
day of July, 1994.
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
(SEAL)
By: ___________________________________________
Ralph L. Schlosstein
President
ATTEST:
_________________________
Barbara G. Novick
Secretary
The undersigned, the President of The BlackRock Insured
Municipa1 Term Trust Inc., hereby acknowledges the foregoing to be the
corporate act of such Corporation and that, to the best of his knowledge,
information and belief, the matters and facts set forth therein are true in
all material respects, and that this statement has been made under the
penalties of perjury.
______________________________________
Ralph L. Schlosstein
President
APPENDIX C-2
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
ARTICLES OF AMENDMENT
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC., a Maryland
corporation (the "Corporation"), hereby certifies as follows:
FIRST: For the purposes of these Articles of Amendment, the
following terms, when used herein in capitalized form, shall have the
meanings indicated: (a) "Articles Supplementary" shall mean the Articles
Supplementary of the Corporation which (i) created the classes of capital
stock of the Corporation designated as the "Auction Rate Municipal
Preferred Stock, Series M28" and the "Auction Rate Municipal Preferred
Stock, Series M7" and (ii) were amended pursuant to Articles of Amendment
that were filed with, and approved for record by, the Maryland State
Department of Assessments and Taxation on July 21, 1994; and (b) "Effective
Date" shall mean 5:00 p.m. (Eastern Daylight Time) on the date that these
Articles of Amendment are filed with, and accepted for record by, the
Maryland State Department of Assessments and Taxation in accordance with
the Maryland General Corporation Law.
SECOND: The amendment to the Charter of the Corporation
hereinafter set forth in these Articles of Amendment shall become effective
at the Effective Date.
THIRD: Effective as of the Effective Date, the Charter of the
Corporation shall be, and is hereby, amended for the purposes of changing
and reclassifying certain of the shares of the authorized capital stock of
the Corporation into additional authorized shares of the "Auction Rate
Municipal Preferred Stock, Series M28" and the "Auction Rate Municipal
Preferred Stock, Series M7" and decreasing the liquidation preferences
thereof as follows:
(a) By striking out the "DESIGNATION" set forth in the first
paragraph of Article SECOND of the Articles Supplementary and inserting in
lieu thereof the following:
"SERIES M28: A series of 2,600 shares of
preferred stock, par value $.01 per share, liquidation
preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or
declared) thereon plus the premium, if any, resulting from
the designation of a Premium Call Period, is hereby
designated "Auction Rate Municipal Preferred Stock, Series
M28." Each share of Auction Rate Municipal Preferred Stock,
Series M28 shall have such preferences, limitations and
relative voting rights, in addition to those required by
applicable law or set forth in the Corporation's Charter
applicable to preferred stock of the Corporation, as are set
forth in these Articles Supplementary. The Auction Rate
Municipal Preferred Stock, Series M28 shall constitute a
separate series of preferred stock of the Corporation, and
each share of the Auction Rate Municipal Preferred Stock,
Series M28 shall be identical."
"SERIES M7: A series of 2,600 shares of
preferred stock, par value $.0l per share,
liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon plus the premium, if any,
resulting from the designation of a Premium Call Period, is
hereby designated "Auction Rate Municipal Preferred Stock,
Series M7." Each share of Auction Rate Municipal Preferred
Stock, Series M7 shall have such preferences, limitations and
relative voting rights, in addition to those required by
applicable law or set forth in the Corporation's Charter
applicable to preferred stock of the Corporation, as are set
forth in these Articles Supplementary. The Auction Rate
Municipal Preferred Stock, Series M7 shall constitute a
separate series of preferred stock of the Corporation, and
each share of the Auction Rate Municipal Preferred Stock,
Series M7 shall be identical."
(b) By striking out the
first sentence of Paragraph 3 (Liquidation Rights) of Article SECOND of the
Articles Supplementary and inserting in lieu thereof the following:
"3. Liquidation Rights.
Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the Holders
shall be entitled to receive, out of the assets of the
Corporation available for distribution to shareholders,
before any distribution or payment is made upon any Common
Stock or any other capital stock ranking junior in right of
payment upon liquidation to the Preferred Shares, the sum of
$25,000 plus accumulated but unpaid dividends (whether or
not earned or declared) thereon plus the premium, if any,
resulting from the designation of a Premium Call Period to
the date of distribution, and after such payment the holders
of Preferred Shares will be entitled to no other payments
other than Additional Dividends as provided in paragraph
2(e) hereof."
FOURTH: Effective as of the Effective Date, each share of the
issued and outstanding "Auction Rate Municipal Preferred Stock, Series M28"
shall be converted into two (2) shares of the "Auction Rate Municipal
Preferred Stock, Series M28," each of which shall have all of the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as are afforded to each and every other share of the "Auction
Rate Municipal Preferred Stock, Series M28" pursuant to the Charter of the
Corporation (as amended by these Articles of Amendment) and the Maryland
General Corporation Law.
FIFTH: Effective as of the Effective Date, each share of the
issued and outstanding "Auction Rate Municipal Preferred Stock, Series M7"
shall be converted into two (2) shares of the "Auction Rate municipal
Preferred Stock, Series M7," each of which shall have all of the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as are afforded to each and every other share of the "Auction
Rate Municipal Preferred Stock, Series M7" pursuant to the Charter of the
Corporation (as amended by these Articles of Amendment) and the Maryland
General Corporation Law.
SIXTH: The amendment to the Charter of the Corporation set
forth in these Articles of Amendment was advised by the Board of Directors
of the Corporation in accordance with the Charter and Bylaws of the
Corporation and the Maryland General Corporation Law.
SEVENTH: The amendment to the Charter of the Corporation set
forth in these Articles of Amendment was approved by the stockholders of
the Corporation at a meeting of the stockholders of the Corporation held on
May 16, 1995 in accordance with the Charter and Bylaws of the Corporation
and the Maryland General Corporation Law.
EIGHTH: The amendment to the Charter of the Corporation set
forth in these Articles of Amendment changes and reclassifies certain of
the authorized shares of the capital stock of the Corporation into
additional authorized shares of the "Auction Rate Municipal Preferred
Stock, Series M28" and the "Auction Rate Municipal Preferred Stock, Series
M7," respectively, but does not increase the aggregate number of authorized
shares of the capital stock of the Corporation. Prior to the Effective
Date, there were 1,300 authorized shares of the "Auction Rate Municipal
Preferred Stock, Series M28." As of the Effective Dater there will be 2,600
shares of the "Auction Rate Municipal Preferred Stock, Series M28. "Prior
to the Effective Date, there were 1,300 authorized shares of the "Auction
Rate Municipal Preferred Stock, Series M7." As of the Effective Date, there
will be 2,600 shares of the "Auction Rate Municipal Preferred Stock, Series
M7."
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment to be executed in its name and on its behalf by its President
and its corporate seal to be affixed and attested to by its Secretary as of
the ___ day of June, 1995.
ATTEST: THE BLACKROCK INSURED MUNICIPAL TERM
TRUST INC.
- ----------------
Karen H. Sabath
Secretary By: ___________________________________
Ralph L. Schlosstein
President
The undersigned, being duly elected and acting President of
The BlackRock Insured Municipal Term Trust Inc. hereby acknowledges that
the foregoing Articles of Amendment, of which this certificate is a part,
is the act and deed of The BlackRock Insured Municipal Term Trust Inc., and
certifies, under the penalties for perjury, to the best of his knowledge,
information and belief, that all matters and facts set forth therein are
true in all material respects.
----------------------
Ralph L. Schlosstein
APPENDIX C-3
FORM OF
ARTICLES SUPPLEMENTARY
OF THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC., a Maryland
corporation having its principal Maryland office in the City of Baltimore
(the "Corporation"), certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the
Board of Directors of the Corporation by article fifth of its Charter, the
Board of Directors has reclassified 1,616 authorized and unissued shares of
common stock of the Corporation as preferred stock of the Corporation by
increasing the number of shares of stock designated as Auction Rate
Municipal Preferred Stock, Series M7 from 2,600 to 4,216.
SECOND: All of the authorized shares of the Auction Rate Municipal
Preferred Stock, Series M7 shall be subject in all respects to the
preferences, voting powers, restrictions, qualifications, and terms and
conditions of redemption applicable to shares of Auction Rate Municipal
Preferred Stock, Series M7 as provided in the Corporation's Charter;
provided, however, that the Initial Dividend Period for such 1,616 shares
shall be days and the Initial Dividend Rate for such shares shall be
%.
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed and acknowledged in its name and on its behalf
on this ___ day of ________________, 2000, by its President, who
acknowledges that these Articles Supplementary are the act of the
Corporation and, to the best of his knowledge, information and belief and
under penalties of perjury, all matters and facts contained in these
Articles Supplementary are true in all material respects.
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
By:_____________________________
Ralph L. Schlosstein
President
Attest:
- ------------------------
Karen H. Sabath
Secretary
PART C - OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Part A of the Registration Statement
Financial Highlights for the period ended December 31, 1992 each of the
seven years ended December 31, 1999
PART I
Incorporated by reference to Registrant's most recent Annual Report to
Shareholders dated December 31, 1999:
Independent Auditors Report for year ended December 31, 1999
Portfolio of Investments, December 31, 1999 (audited)
Statement of Assets and Liabilities, December 31, 1999 (audited)
Statement of Operations for the year ended December 31, 1999 (audited)
Statement of Changes in Net Investment Assets for the two years ended December
31, 1999 (audited)
(2) EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit Index
located elsewhere herein.
ITEM 25: MARKETING ARRANGEMENTS
See the forms of Purchase Agreement, Master Agreement Among Underwriters
and Master Selected Dealer Agreement filed herewith as Exhibits (h)(1),
(h)(2) and (h)(3).
ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission fees $10,666
Printing and engraving expenses $100,000
Legal fees $90,000
Accounting expenses $5,000
Rating Agency fees $35,000
Blue Sky filing fees and expenses $5,000
Miscellaneous expenses $54,334
Total* $300,000
- ----------
* Estimated
ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Trust is not under common control with any person except to the extent
that the existence of identical boards of directors or trustees as the case
may be, at other investment companies advised by the Advisor would render
the Trust under common control with such other investment companies. The
Trust does not control any person.
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At February 4, 2000:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- ---------------
Common Stock, $.01 par value 1131
Preferred Shares, $.01 par value 1
ITEM 29: INDEMNIFICATION
Under Registrant's Articles of Incorporation and By-Laws, the directors and
officers of Registrant will be indemnified to the fullest extent allowed
and in the manner provided by Maryland law and applicable provisions of the
Investment Company Act of 1940, including advancing of expenses incurred in
connection therewith. Indemnification shall not be provided however to any
officer or director against any liability to the Registrant or its
securityholders to which he or she 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 or her office.
Article 2, Section 405.2 of the Maryland General Corporation Law provides
that the Articles of Incorporation of a Maryland corporation may limit the
extent to which directors or officers may be personally liable to the
Corporation or its stockholders for money damages in certain instances. The
Registrant's Articles of Incorporation provide that, to the fullest extent
permitted by Maryland law, as it may be amended or interpreted from time to
time, no director or officer of the Registrant shall be personally liable
to the Registrant or its stockholders. The Registrant's Articles of
Incorporation also provide that no amendment of the Registrant's Articles
of Incorporation or repeal of any of its provisions shall limit or
eliminate any of the benefits provided to directors and officers in respect
of any act or omission that occurred prior to such amendment or repeal.
The underwriting agreements filed as Exhibit h hereto contain provisions
requiring indemnification of the Registrant's underwriters by the
Registrant.
ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "Management of the Trust" in the Prospectus and for information
regarding the business of the investment advisor. For information as to the
business, profession, vocation or employment of a substantial nature of
each of the officers and directors of BlackRock Advisors, Inc., reference
is made to the Advisor's current Form ADV filed under the Investment
Advisers Act of 1940, incorporated herein by reference.
ITEM 31: LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are maintained in part at the
office of the Advisor at 400 Bellevue Parkway, Wilmington, Delaware 19809,
in part at the offices of State Street, 1776 Heritage Drive, North Quincy,
Massachusetts 02171, in part at the offices of State Street Bank & Trust
Company, 150 Royal Street, Canton, Massachusetts 02021 and in part at the
offices of the Administrator, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
ITEM 32: MANAGEMENT SERVICES
Except as described in Part I of this Registration Statement under the
caption "Management of the Trust," the Registrant is not a party to any
management service related contract.
ITEM 33: UNDERTAKINGS
(1) Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (a) subsequent to the effective date of its
Registration Statement, the net assets value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement, or (b) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) Registrant undertakes that:
(a) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the
form of prospectus filed as a part of a registration
statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 497(h)
under the Securities Act of 1933 shall be deemed to be a
part of this Registration Statement as of the time it was
declared effective.
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(6) Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding
(is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York,
on the 2nd day of March 2000.
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
*
--------------------------
Ralph L. Schlosstein
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signatures Title Date
---------- ----- ----
* President (Principal Executive March 2, 2000
- -------------------------- Officer) and Director
Ralph L. Schlosstein
* Treasurer (Principal Financial March 2, 2000
- -------------------------- and Accounting Officer)
Henry Gabbay
* Director March 2, 2000
- -------------------------
Laurence D. Fink
* Director March 2, 2000
- -------------------------
Andrew F. Brimmer
* Director March 2, 2000
- -------------------------
Richard E. Cavanagh
* Director March 2, 2000
- -------------------------
Kent Dixon
* Director March 2, 2000
- -------------------------
Frank J. Fabozzi
* Director March 2, 2000
- -------------------------
James Clayburn LaForce, Jr.
* Director March 2, 2000
- -------------------------
Walter F. Mondale
- --------------
* Signed by Karen Sabath pursuant to power of attorney, dated January 3, 2000.
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------ ----
a. (1) Articles of Incorporation*
(2) Articles of Amendment dated July 15, 1994 (for
outstanding preferred shares)*
(3) Articles of Amendment dated July 20, 1995 (for
outstanding preferred shares)*
(4) Form of Articles Supplementary (for New Preferred
Shares)*
b. By-Laws*
c. None
d. (1) Specimen Stock Certificate Representing Shares of
Common Stock*
(2) Form of Specimen Stock Certificate Representing
Series M7 Preferred Shares*
(3) Form of Specimen Stock Certificate Representing
Series M28 Preferred Shares*
e. Dividend Reinvestment Plan*
f. Not Applicable
g. (1) Advisory Agreement*
(2) Administration Agreement*
h. (1) Form of Purchase Agreement for initial public
offering+
(2) Form of Master Agreement Among Underwriters for
initial public offering+
(3) Form of Master Selected Dealer Agreement for
initial public offering+
i. Not Applicable
j. (1) Custodian Agreement*
(2) Transfer Agent Agreement*
k. (1) Auction Agent Agreement*
(2) Form of Broker-Dealer Agreement+
(3) Form of Depository Agreement+
l. Opinion and consent of counsel++
m. Not Applicable
n. Consent of Independent Accountants+
o. Not Applicable
p. Not Applicable
q. Not Applicable
r. Code of Ethics++
s. Powers of Attorney*
- --------------
* Previously filed.
+ Filed herewith.
++ To be filed by amendment.
Auction Rate Municipal Preferred Stock
THE BLACKROCK[ ] TRUST INC.
[ ] Shares, Series [ ]
Liquidation Preference $25,000 Per Share
UNDERWRITING AGREEMENT
March [ ], 2000
SALOMON SMITH BARNEY INC.
[ ]
c/o SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
The BlackRock [ ] Trust Inc., a [ ]
(the "Trust"), proposes, upon the terms and conditions set forth herein, to
issue and sell an aggregate of [ ] shares of its Auction Rate Municipal
Preferred Stock, Series [ ], each with a liquidation preference of
$25,000 per share (the "Shares"). The Shares will be authorized by, and
subject to the terms and conditions of, the Articles Supplementary of the
Trust, dated [ ], 2000, (the "Articles Supplementary") and the Articles of
Incorporation of the Trust dated as of [ ], as amended by the Articles
of Amendment dated [ ] and June [ ] (the "Articles of Incorporation"),
in the forms filed as exhibits to the Registration Statement referred to in
Section 1 of this agreement, as the same may be amended from time to time.
The Trust and its investment adviser, BlackRock Advisors, Inc. (the "Adviser"),
wish to confirm as follows their agreement with Salomon Smith Barney Inc.,
[ ] (the "Underwriters"), in connection with the purchase of the Shares
by the Underwriters.
Collectively, the Investment Advisory Agreement dated as of
[ ] between the Trust and the Adviser (the "Advisory Agreement"), the
Administration Agreement dated as of [ ] between the Trust and [ ],
the Custodian Contract dated as of [ ] between the Trust and State
Street Bank and Trust Company, the Registrar, Transfer Agency and Service
Agreement dated as of [ ] between the Trust and State Street Bank and
Trust Company and the Auction Agent Agreement dated as of [______________]
between the Trust and Bankers Trust Company are hereinafter referred to as
the "Trust Agreements." This Underwriting Agreement is hereinafter referred
to as the "Agreement."
For purposes of this Agreement, references to a
post-effective amendment to the Registration Statement (defined below)
shall only be deemed to refer to those amendments which are filed with the
Commission before the later of (i) one year from the date of this Agreement
or (ii) the date on which a prospectus relating to the Shares is no longer
required by the 1933 Act (defined below) to be delivered in connection with
any sales by any Underwriter or dealer.
1. Registration Statement and Prospectus. The Trust has
prepared and filed in accordance with the provisions of the Securities Act
of 1933, as amended (the "1933 Act"), the Investment Company Act of 1940,
as amended (the "1940 Act"), and the rules and regulations of the
Securities and Exchange Commission (the "Commission") promulgated under the
1933 Act (the "1933 Act Rules and Regulations") and the 1940 Act (the "1940
Act Rules and Regulations" and, together with the 1933 Act Rules and
Regulations, the "Rules and Regulations"), a registration statement on Form
N-2, [as amended by Pre-Effective Amendments Nos. 1 and 2] (File Nos. 333-[
] and 811-[ ]) (the "registration statement"), including a prospectus
relating to the Shares. The Trust also has filed a notification of
registration of the Trust as an investment company under the 1940 Act on
Form N-8A (the "1940 Act Notification"). The term "Registration Statement"
as used in this Agreement means the registration statement (including all
financial schedules and exhibits), as amended at the time it becomes
effective under the 1933 Act or, if the registration statement became
effective under the 1933 Act prior to the execution of this Agreement, as
amended or supplemented at the time it became effective, prior to the
execution of this Agreement, and includes any information deemed to be
included by Rule 430A under the 1933 Act Rules and Regulations. If it is
contemplated, at the time this Agreement is executed, that a post-effective
amendment to the registration statement will be filed under the 1933 Act
and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means
the registration statement as amended by said post-effective amendment. If
the Trust has filed an abbreviated registration statement to register an
additional amount of Shares pursuant to Rule 462(b) under the 1933 Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall include such Rule 462 Registration
Statement. The term "Prospectus" as used in this Agreement means the
prospectus and statement of additional information in the forms included in
the Registration Statement or, if the prospectus and statement of
additional information included in the Registration Statement omit
information in reliance on Rule 430A under the 1933 Act Rules and
Regulations and such information is included in a prospectus and statement
of additional information filed with the Commission pursuant to Rule 497(h)
under the 1933 Act, the term "Prospectus" as used in this Agreement means
the prospectus and statement of additional information in the forms
included in the Registration Statement as supplemented by the addition of
the information contained in the prospectus filed with the Commission
pursuant to Rule 497(h). The term "Prepricing Prospectus" as used in this
Agreement means the prospectus and statement of additional information
subject to completion in the forms included in the registration statement
at the time of filing of Pre-Effective Amendment No. 1 to the registration
statement with the Commission on [ ], 2000, and as such prospectus and
statement of additional information shall have been amended from time to
time prior to the date of the Prospectus. The terms "Registration
Statement," "Prospectus" and "Prepricing Prospectus" shall also include any
financial statements and other information incorporated by reference
therein.
The Trust has furnished you with copies of such registration
statement, each amendment to such registration statement filed with the
Commission and each Prepricing Prospectus.
2. Agreements to Sell and Purchase. The Trust hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell
to the Underwriters and, upon the basis of the representations, warranties
and agreements of the Trust and the Adviser herein contained and subject to
all the terms and conditions set forth herein, each Underwriter agrees
severally and not jointly to purchase from the Trust, at a purchase price
of $________ per share, the number of Shares set forth opposite the name of
such Underwriter in Schedule I hereto.
3. Terms of Public Offering. The Trust and the Adviser have
been advised by you that the Underwriters propose to make a public offering
of their respective Shares as soon after the Registration Statement and
this Agreement have become effective as in your judgment is advisable and
initially to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to
the Underwriters of and payment for the Shares shall be made at the office
of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, or
through the facilities of the Depository Trust Company or another mutually
agreeable facility, at 9:30 A.M., New York City time, on [ ], 2000 (the
"Closing Date"). The place of closing for the Shares and the Closing Date
may be varied by agreement between you and the Trust.
Certificates for the Shares purchased hereunder shall be
registered in such names and in such denominations as you shall request
prior to 9:30 A.M., New York City time, on the second business day
preceding the Closing Date. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M.,
New York City time, on the business day next preceding the Closing Date.
The certificates evidencing the Shares purchased hereunder shall be
delivered to you on the Closing Date, through the facilities of The
Depository Trust Company, against payment of the purchase price therefor in
immediately available funds.
5. Agreements of the Trust and the Adviser. The Trust and
the Adviser, jointly and severally, agree with the several Underwriters as
follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective under the 1933
Act before the offering of the Shares may commence, the Trust will use its
best efforts to cause the Registration Statement or such post-effective
amendment to become effective under the 1933 Act and will advise you
promptly and, if requested by you, will confirm such advice in writing when
the Registration Statement or such post-effective amendment has become
effective.
(b) Except as otherwise stated in (iii) below, for a period
of five years from the date hereof, the Trust (in the case of (i), (ii),
(iii)(A) and (iv) below) and the Adviser (in the case of (iii)(B) below)
will advise you promptly and, if requested by you, will confirm such advice
in writing: (i) of any request made by the Commission for amendment of or a
supplement to the Registration Statement, any Prepricing Prospectus or the
Prospectus (or any amendment or supplement to any of the foregoing) or for
additional information, (ii) of the issuance by the Commission, the
National Association of Securities Dealers, Inc. (the "NASD"), any state
securities commission, any national securities exchange, any arbitrator,
any court or any other governmental, regulatory, self-regulatory or
administrative agency or any official of any order suspending the
effectiveness of the Registration Statement, prohibiting or suspending the
use of the Prospectus or any Prepricing Prospectus, or any sales material
(as hereinafter defined), of any notice pursuant to Section 8(e) of the
1940 Act, of the suspension of qualification of the Shares for offering or
sale in any jurisdiction, or the initiation of any proceeding for any such
purposes, (iii) of receipt by (A) the Trust, any affiliate of the Trust or
any representative or attorney of the Trust of any other material
communication adverse to the Trust from the Commission or (B) the Trust,
the Adviser, any affiliate of the Trust or the Adviser or any
representative or attorney of the Trust or the Adviser of any other
material communication adverse to the Trust from the Commission, the NASD,
any state securities commission, any national securities exchange, any
arbitrator, any court or any other governmental, regulatory,
self-regulatory or administrative agency or any official relating to the
Trust (if such communication relating to the Trust is received by such
person within three years after the date of this Agreement), the
Registration Statement, the 1940 Act Notification, the Prospectus, any
Prepricing Prospectus, any sales material (as herein defined) (or any
amendment or supplement to any of the foregoing) or this Agreement or any
of the Trust Agreements and (iv) within the period of time referred to in
paragraph (f) below, of any material adverse change in the condition
(financial or other), general affairs, assets or results of operations of
the Trust or any event which should reasonably be expected to have a
material adverse effect on the ability of the Adviser to perform its
obligations under this Agreement and the Advisory Agreement (in either
case, other than as a result of changes in market conditions generally or
the market for municipal securities generally) or of the happening of any
other event which makes any statement of a material fact made in the
Registration Statement or the Prospectus, or any Prepricing Prospectus (or
any amendment or supplement to any of the foregoing) untrue or which
requires the making of any additions to or changes in the Registration
Statement or the Prospectus, or any Prepricing Prospectus (or any amendment
or supplement to any of the foregoing) in order to state a material fact
required by the 1933 Act, the 1940 Act or the Rules and Regulations to be
stated therein or necessary in order to make the statements therein (in the
case of a prospectus, in light of the circumstances under which they were
made) not misleading, or of the necessity to amend or supplement the
Registration Statement, the Prospectus, or any Prepricing Prospectus (or
any amendment or supplement to any of the foregoing) to comply with the
1933 Act, the 1940 Act, the Rules and Regulations or any other law or order
of any court or regulatory body. If at any time the Commission shall issue
any order suspending the effectiveness of the Registration Statement,
prohibiting or suspending the use of the Prospectus or any sales material
(as herein defined) (or any amendment or supplement to any of the
foregoing) or suspending the qualification of the Shares for offering or
sale in any jurisdiction, the Trust and the Adviser will use their
reasonable best efforts to obtain the withdrawal of such order at the
earliest possible time. If at any time the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court or
any other governmental, regulatory, self-regulatory or administrative
agency or any official shall issue any order suspending the effectiveness
of the Registration Statement, prohibiting or suspending the use of the
Prospectus or any sales material (as herein defined) (or any amendment or
supplement to any of the foregoing) or suspending the qualification of the
Shares for offering or sale in any jurisdiction, the Adviser will use its
reasonable best efforts to obtain the withdrawal of such order at the
earliest possible time.
(c) The Trust will furnish to you, without charge, three
signed copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements
and all exhibits thereto, and will also furnish to you, without charge,
such number of conformed copies of the Registration Statement as originally
filed and of each amendment thereto, but without exhibits, as you may
reasonably request.
(d) The Trust will not file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus, or any sales material (as herein defined), of which you shall
not previously have been advised or to which you shall reasonably object
after being so advised. So long as, in the opinion of counsel for the
Underwriters, a Prospectus is required by the 1933 Act to be delivered in
connection with sales by any Underwriter or any dealer, the Adviser will
deliver a copy of any information, documents or reports filed by the Trust
pursuant to the Securities Exchange Act of 1934, as amended (the "1934
Act"), to you prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement,
the Trust has delivered to you, without charge, in such quantities as you
have requested, copies of each form of the Prepricing Prospectus. The Trust
consents to the use, in accordance with the provisions of the 1933 Act and
with the state securities or blue sky laws of the jurisdictions in which
the Shares are offered by the several Underwriters and by dealers, prior to
the date of the Prospectus, of each Prepricing Prospectus so furnished by
the Trust.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as
in the opinion of counsel for the Underwriters a prospectus is required by
the 1933 Act to be delivered in connection with sales by any Underwriter or
any dealer, the Trust will promptly deliver to each Underwriter and each
dealer, without charge, as many copies of the Prospectus (and of any
amendment or supplement thereto) as you may reasonably request. The Trust
consents to the use of the Prospectus (and of any amendment or supplement
thereto) in accordance with the provisions of the 1933 Act and with the
state securities or blue sky laws of the jurisdictions in which the Shares
are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the Prospectus is required by the
1933 Act to be delivered in connection with sales by any Underwriter or any
dealer. If during such period of time any event shall occur that is
required to be set forth in the Registration Statement or the Prospectus
(as then amended or supplemented) or is required to be set forth therein in
order to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, or
if it is necessary to supplement or amend the Registration Statement or the
Prospectus to comply with the 1933 Act, the 1940 Act, or the Rules and
Regulations, the Trust will forthwith notify you of such event, prepare
and, subject to the provisions of paragraph (d) above, promptly file with
the Commission an appropriate supplement or amendment thereto, and will
promptly furnish to the Underwriters and dealers, without charge, a
reasonable number of copies thereof. In the event that the Trust and you
agree that the Registration Statement or the Prospectus should be amended
or supplemented, the Trust (if it is required by law to do so) will
promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement or will otherwise
appropriately disseminate the required information.
(g) The Trust will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of
the Shares for offering and sale by the several Underwriters and by dealers
under the securities or blue sky laws of such jurisdictions as you may
designate and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall the Trust be obligated to
qualify to do business in any jurisdiction where it is not now so qualified
or to take any action which would subject it to service of process in
suits, other than those arising out of the offering or sale of the Shares,
in any jurisdiction where it is not now so subject.
(h) The Trust will make generally available to its security
holders an earnings statement, which need not be audited, covering a
twelve-month period ending not later than 17 months after the effective
date of the Registration Statement as soon as practicable after the end of
such period, which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act and Rule 158 of the 1933 Act Rules and
Regulations.
(i) During the period of three years hereafter, the Adviser
will furnish to you (i) as soon as available, a copy of each proxy
statement, annual and semi-annual report of the Trust mailed to
shareholders or filed with the Commission or furnished to the New York
Stock Exchange (the "NYSE") other than reports on Form N-SAR, and (ii) from
time to time such other information concerning the Trust as you may
reasonably request.
(j) If this Agreement shall be terminated by the Trust or
the Adviser after execution pursuant to any provisions hereof or if this
Agreement shall be terminated by the Underwriters because of (i) any
failure or refusal on the part of the Trust or the Adviser to comply with
any material term or fulfill any material condition of this Agreement
required to be complied with or fulfilled by them, or (ii) the
non-occurrence of any other condition contained in Section 9 of this
Agreement, the Trust and the Adviser, jointly and severally, agree to
reimburse the Underwriters for all out-of-pocket expenses (including
reasonable fees and expenses of counsel for the Underwriters) reasonably
incurred by the Underwriters in connection herewith.
(k) The Trust will apply the net proceeds from the sale of
the Shares in accordance with the description set forth in the Prospectus
and in such a manner as to comply with the investment objectives, policies
and restrictions of the Trust as described in the Prospectus, as the same
may be amended from time to time.
(l) The Trust will timely file the requisite copies of the
Prospectus with the Commission pursuant to Rule 497(c) or Rule 497(h) of
the 1933 Act Rules and Regulations, whichever is applicable or, if
applicable, will timely file the certification permitted by Rule 497(j) of
the 1933 Act Rules and Regulations and will advise you of the time and
manner of such filing.
(m) Except as provided in this Agreement, the Trust will not
sell, contract to sell or otherwise dispose of any of its preferred shares
of the same series as the Shares or any securities convertible into or
exercisable or exchangeable for its preferred shares of the same series as
the Shares, or grant any options or warrants to purchase its preferred
shares of the same series as the Shares, for a period of 180 days after the
date of the Prospectus, without the prior written consent of Salomon Smith
Barney Inc.
(n) The Trust intends to direct the investment of the
proceeds from the offering of the Shares so as to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") to qualify as a regulated investment company under the
Code.
(o) The Trust and the Adviser will use their reasonable best
efforts to perform all of the agreements required of them and discharge all
conditions of theirs to closing as set forth in this Agreement.
6. Representations and Warranties of the Trust and the
Adviser. The Trust and the Adviser, jointly and severally, represent and
warrant to each Underwriter that:
(a) The Commission has not issued any order preventing or
suspending the use of the Prospectus.
(b) The registration statement in the form in which it
became or becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and the Prospectus
and any supplement or amendment thereto when filed with the Commission
under Rule 497 of the 1933 Act Rules and Regulations and the 1940 Act
Notification when originally filed with the Commission and any amendment or
supplement thereto when filed with the Commission, complied or will comply
in all material respects with the requirements of the 1933 Act, the 1940
Act and the Rules and Regulations, as applicable, and the Prospectus and
the registration statement (and any supplement or amendment to either of
them) did not or will not at any such times contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the registration statement or the
Prospectus made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Trust in writing by or on
behalf of any Underwriter through you expressly for use therein.
(c) All the shares of capital stock of the Trust outstanding
as of the date hereof have been duly authorized and validly issued, are
fully paid and nonassessable and are free of any preemptive or similar
rights; the Shares have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive or similar rights that entitle or will entitle any person to
acquire any Shares upon the issuance thereof by the Trust, and will conform
in all material respects to the description thereof in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them); and the capitalization of the Trust conforms in all material
respects to the description thereof in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them).
(d) The Trust is a corporation duly organized and validly
existing in good standing under the laws of the State of Maryland with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification, except
where the failure to so register or qualify does not have a material
adverse effect on the condition (financial or other), general affairs,
assets or results of operations of the Trust; and the Trust has no
subsidiaries.
(e) There are no legal or governmental proceedings pending
or, to the knowledge of the Trust or the Adviser, threatened, against the
Trust, or to which the Trust or any of its properties is subject, that are
required to be described in the Registration Statement or the Prospectus
(and any amendment or supplement to either of them) but are not described
as required, and there are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus (and any amendment or supplement to either of
them) or to be filed as an exhibit to the Registration Statement that are
not described or filed as required by the 1933 Act, the 1940 Act or the
Rules and Regulations.
(f) The Trust is not in violation of the Articles
Supplementary, the Articles of Incorporation or its bylaws (the "Bylaws"),
or other organizational documents or of any law, ordinance, administrative
or governmental rule or regulation applicable to the Trust or of any decree
of the Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court or governmental agency, body
or official having jurisdiction over the Trust, or in default in the
performance of any material obligation, agreement or condition contained in
any bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Trust
is a party or by which it or any of its properties may be bound, except
where such violation or default does not have a material adverse effect on
the condition (financial or other), general affairs, assets or results of
operations of the Trust.
(g) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement or any of the Trust
Agreements by the Trust, nor the consummation by the Trust of the
transactions contemplated hereby or thereby (A) requires any consent,
approval, authorization or other order of, or registration or filing with,
the Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court, regulatory body,
administrative agency or other governmental body, agency or official having
jurisdiction over the Trust (except such as may have been obtained prior to
the date hereof and such as may be required for compliance with the state
securities or blue sky laws of various jurisdictions which have been or
will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default
under, the Articles Supplementary, the Articles of Incorporation, the
Bylaws or other organizational documents of the Trust or (B) conflicts or
will conflict with or constitutes or will constitute a material breach of,
or a default under, any material agreement, indenture, lease or other
instrument to which the Trust is a party or by which it or any of its
properties may be bound, or materially violates or will materially violate
any material statute, law, regulation or judgment, injunction, order or
decree applicable to the Trust or any of its properties, or will result in
the creation or imposition of any material lien, charge or encumbrance upon
any property or assets of the Trust pursuant to the terms of any agreement
or instrument to which it is a party or by which it may be bound or to
which any of its property or assets is subject. As of the date hereof, the
Trust is not subject to any order of any court or of any arbitrator,
governmental authority or administrative agency.
(h) The accountants, Deloitte & Touche LLP, who have
certified or shall certify the financial statements included or
incorporated by reference in the Registration Statement and the Prospectus
(or any amendment or supplement to either of them) are independent public
accountants as required by the 1933 Act, the 1940 Act and the Rules and
Regulations.
(i) The financial statements, together with related
schedules and notes, included or incorporated by reference in the
Registration Statement and the Prospectus (and any amendment or supplement
to either of them), present fairly the financial position of the Trust on
the basis stated or incorporated by reference in the Registration Statement
at the respective dates or for the respective periods to which they apply;
and such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein.
(j) The execution and delivery of, and the performance by
the Trust of its obligations under, this Agreement and the Trust Agreements
have been duly and validly authorized by the Trust, and this Agreement and
the Trust Agreements have been duly executed and delivered by the Trust
and, assuming due authorization, execution and delivery by the other
parties thereto, each constitutes the valid and legally binding agreement
of the Trust, enforceable against the Trust in accordance with its terms,
except as rights to indemnity and contribution hereunder and thereunder may
be limited by federal or state securities laws, and subject to the
qualification that the enforceability of the Trust's obligations hereunder
and thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and by general equitable principles
whether enforcement is considered in a proceeding in equity or at law.
(k) Except as disclosed in or contemplated by the
Registration Statement and the Prospectus (or any amendment or supplement
to either of them), subsequent to the respective dates as of which such
information is given in the Registration Statement and the Prospectus (or
any amendment or supplement to either of them), the Trust has not incurred
any material liability or material obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that
is material to the Trust, and there has not been any change in the
capitalization, or material increase in the short-term debt or long-term
debt, of the Trust, or any material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or other), general affairs, assets or results of operations of
the Trust, whether or not arising in the ordinary course of business (other
than as a result of changes in market conditions generally or the market
for municipal securities generally).
(l) The Trust has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of
the Shares, will not distribute any offering material in connection with
the offering and sale of the Shares other than the Registration Statement,
the Prepricing Prospectus, the Prospectus or other materials permitted by
the 1933 Act, the 1940 Act or the Rules and Regulations.
(m) The Trust has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto),
subject to such qualifications as may be set forth in the Prospectus.
(n) The Trust maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) No holder of any security of the Trust has any right to
require registration of any security of the Trust because of the filing of
the registration statement or consummation of the transactions contemplated
by this Agreement.
(p) The Trust, subject to the registration statement having
been declared effective and the filing of the Prospectus under Rule 497
under the 1933 Act Rules and Regulations, has taken all required action
under the 1933 Act, the 1940 Act and the Rules and Regulations to make the
public offering and consummate the sale of the Shares as contemplated by
this Agreement.
(q) The Trust is registered under the 1940 Act and the 1940
Act Rules and Regulations as a diversified, closed-end management
investment company and the 1940 Act Notification has been duly filed with
the Commission and, at the time of filing thereof and any amendment or
supplement thereto, conformed in all material respects with all applicable
provisions of the 1940 Act and the 1940 Act Rules and Regulations; no order
of suspension or revocation of such registration under the 1940 Act and the
1940 Act Rules and Regulations has been issued or proceedings therefor
initiated or, to the knowledge of the Trust or the Adviser, threatened by
the Commission. The provisions of the Articles Supplementary, the Articles
of Incorporation and Bylaws, and the investment policies and restrictions
described in the Registration Statement and the Prospectus, comply in all
material respects with the requirements of the 1940 Act and the 1940 Act
Rules and Regulations.
(r) All advertising, sales literature or other promotional
material (including "prospectus wrappers") intended for public distribution
and authorized in writing by or prepared by the Trust for use in connection
with the offering and sale of the Shares (collectively, "sales material")
complied and comply in all material respects with the applicable
requirements of the 1933 Act, the 1933 Act Rules and Regulations and the
rules and interpretations of the NASD and no such sales material, when read
together with the Prospectus, contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(s) Each of the Trust Agreements complies in all material
respects with all applicable provisions of the 1933 Act, the 1940 Act, the
Rules and Regulations, the Investment Advisers Act of 1940, as amended (the
"Advisers Act") and the rules and regulations of the Commission promulgated
under the Advisers Act (the "Advisers Act Rules and Regulations").
(t) The Trust's common shares are duly listed on the NYSE.
(u) The Shares have been, or prior to the Closing Date will
be, assigned a rating of 'aaa' by Moody's Investors Service, Inc.
("Moody's") and "AAA" by Standard & Poor's Rating Services ("S&P").
(v) In accordance with the Certificate of Incorporation, the
Trust has received written confirmation from each of Moody's and S&P that
the issuance of the Shares will not impair the ratings currently assigned
by each of them to any of the Trust's currently outstanding preferred
shares.
7. Representations and Warranties of the Adviser. The
Adviser represents and warrants to each Underwriter that:
(a) The Adviser is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Delaware,
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them), and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or to qualify does
not have a material adverse effect on the ability of the Adviser to perform
its obligations under this Agreement and the Advisory Agreement.
(b) The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the
Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the
1940 Act Rules and Regulations from acting under the Advisory Agreement for
the Trust as contemplated by the Prospectus (or any amendment or supplement
thereto). There does not exist any proceeding which should reasonably be
expected to have a material adverse affect on the registration of the
Adviser with the Commission.
(c) There are no legal or governmental proceedings pending
or, to the knowledge of the Adviser, threatened against the Adviser, that
are required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement to either of them) but are not
described as required or that should reasonably be expected to have a
material adverse effect on the ability of the Adviser to perform its
obligations under this Agreement and the Advisory Agreement.
(d) Neither the execution, delivery or performance of this
Agreement or the Advisory Agreement by the Adviser, nor the consummation by
the Adviser of the transactions contemplated hereby or thereby (A) requires
the Adviser to obtain any consent, approval, authorization or other order
of, or registration or filing with, the Commission, the NASD, any state
securities commission, any national securities exchange, any arbitrator,
any court, regulatory body, administrative agency or other governmental
body, agency or official having jurisdiction over the Adviser or conflicts
or will conflict with or constitutes or will constitute a breach of or a
default under, the certificate of incorporation or bylaws, or other
organizational documents, of the Adviser or (B) conflicts or will conflict
with or constitutes or will constitute a material breach of or a default
under, any material agreement, indenture, lease or other instrument to
which the Adviser is a party or by which the Adviser or any of its
properties may be bound, or materially violates or will materially violate
any material statute, law, regulation or judgment, injunction, order or
decree applicable to the Adviser or any of its properties or will result in
the creation or imposition of any material lien, charge or encumbrance upon
any property or assets of the Adviser pursuant to the terms of any
agreement or instrument to which it is a party or by which it may be bound
or to which any of the property or assets of the Adviser is subject, except
in any case under clause (A) or (B) as should not reasonably be expected to
have a material adverse effect on the ability of the Adviser to perform its
obligations under this Agreement and the Advisory Agreement. The Adviser is
not subject to any order of any court or of any arbitrator, governmental
authority or administrative agency.
(e) The execution and delivery of, and the performance by
the Adviser of its obligations under, this Agreement and the Advisory
Agreement have been duly and validly authorized by the Adviser, and this
Agreement and the Advisory Agreement have been duly executed and delivered
by the Adviser and, assuming due authorization, execution and delivery by
the other parties thereto, each constitutes the valid and legally binding
agreement of the Adviser, enforceable against the Adviser in accordance
with its terms, except as rights to indemnity and contribution hereunder
may be limited by federal or state securities laws, and subject to the
qualification that the enforceability of the Trust's obligations hereunder
and thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and by general equitable principles
whether enforcement is considered in a proceeding in equity or at law.
(f) The Adviser has the financial resources necessary for
the performance of its services and obligations as contemplated in the
Prospectus (or any amendment or supplement thereto) and under this
Agreement and the Advisory Agreement.
(g) The description of the Adviser in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them) complied and comply in all material respects with the provisions of
the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and
the Advisers Act Rules and Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
(in the case of the Prospectus, in light of the circumstances under which
they were made) not misleading.
(h) The Advisory Agreement complies in all material respects
with all applicable provisions of the 1940 Act, the 1940 Act Rules and
Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(i) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement to either of them),
subsequent to the respective dates as of which such information is given in
the Registration Statement and the Prospectus (or any amendment or
supplement to either of them), there has not occurred any event which
should reasonably be expected to have a material adverse effect on the
ability of the Adviser to perform its obligations under this Agreement and
the Advisory Agreement.
(j) The Adviser has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto),
except to the extent that the failure to so have should not reasonably be
expected to have a material adverse effect on the ability of the Adviser to
perform its obligations under the Advisory Agreement; the Adviser has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the Adviser under any such permit,
except where the revocation, termination or impairment of the Adviser's
rights under such permits should not reasonably be expected to have a
material adverse effect on the ability of the Adviser to perform its
obligations under the Advisory Agreement.
(k) Except as stated in this Agreement and in the Prospectus
(and in any amendment or supplement thereto), the Adviser has not taken,
nor will it take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in stabilization or
manipulation of the price of any securities issued by the Trust to
facilitate the sale or resale of the Shares, and the Adviser is not aware
of any such action taken or to be taken by any affiliates of the Adviser
who are not underwriters or dealers participating in the offering of the
Shares.
(l) Each Prepricing Prospectus complied when filed with the
Commission in all material respects with the provisions of the 1933 Act,
the 1940 Act and the Rules and Regulations. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus or
the Prospectus.
8. Indemnification and Contribution. (a) The Trust and the
Adviser, jointly and severally, agree to indemnify and hold harmless you
and each other Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation),
joint or several, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus or in the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with information relating to
any Underwriter furnished in writing to the Trust by or on behalf of any
Underwriter through you expressly for use in connection therewith;
provided, however, that the indemnification contained in this paragraph (a)
with respect to any Prepricing Prospectus shall not inure to the benefit of
any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of the Shares by such Underwriter to any
person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the 1933 Act and the 1933 Act Rules
and Regulations, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the
Trust has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The
foregoing indemnity agreement shall be in addition to any liability which
the Trust or the Adviser may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in
respect of which indemnity may be sought against the Trust or the Adviser,
such Underwriter or such controlling person shall promptly notify the Trust
or the Adviser, and the Trust or the Adviser may assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such Underwriter or any such controlling person shall have the
right to employ separate counsel in any such action, suit or proceeding and
to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Trust or the Adviser have agreed in writing to pay
such fees and expenses, (ii) the Trust and the Adviser have failed to
assume the defense and employ counsel, or (iii) the named parties to any
such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the Trust or the
Adviser and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and
the Trust or the Adviser by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Trust and the
Adviser shall not have the right to assume the defense of such action, suit
or proceeding on behalf of such Underwriter or such controlling person). It
is understood, however, that the Trust and the Adviser shall, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of only one separate firm of attorneys (in
addition to any local counsel) at any time for all such Underwriters and
controlling persons not having actual or potential differing interests with
you or among themselves, which firm shall be designated in writing by you,
and that all such fees and expenses shall be reimbursed as they are
incurred. The Trust and the Adviser shall not be liable for any settlement
of any such action, suit or proceeding effected without their written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the
Trust and the Adviser agree to indemnify and hold harmless any Underwriter,
to the extent provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Trust and the Adviser, their trustees and
directors, any officers who sign the Registration Statement, and any person
who controls the Trust or the Adviser within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, to the same extent as the
foregoing indemnity from the Trust and the Adviser to each Underwriter, but
only with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use
in the Registration Statement, the Prospectus or any Prepricing Prospectus,
or any amendment or supplement thereto. If any action, suit or proceeding
shall be brought against the Trust or the Adviser, any of their trustees
and directors, any such officer, or any such controlling person based on
the Registration Statement, the Prospectus or any Prepricing Prospectus, or
any amendment or supplement thereto, and in respect of which indemnity may
be sought against any Underwriter pursuant to this paragraph (c), such
Underwriter shall have the rights and duties given to the Trust and the
Adviser by paragraph (b) above (except that if the Trust or the Adviser
shall have assumed the defense thereof such Underwriter shall not be
required to do so, but may employ separate counsel therein and participate
in the defense thereof, but the fees and expenses of such counsel shall be
at such Underwriter's expense), and the Trust and the Adviser, their
trustees and directors, any such officer, and any such controlling person
shall have the rights and duties given to the Underwriters by paragraph (b)
above. The foregoing indemnity agreement shall be in addition to any
liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Trust and the Adviser on the one hand
(treated jointly for this purpose as one person) and the Underwriters on
the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Trust
and the Adviser on the one hand (treated jointly for this purpose as one
person) and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Trust and the Adviser on the one hand
(treated jointly for this purpose as one person) and the Underwriters on
the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Trust bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The Trust and the Adviser agree that as between the
Trust, and the Adviser (and solely for the purpose of allocating among such
parties the total amount to be contributed by each of them to one another
and without prejudice to the right of the Underwriters to receive
contributions from the Trust and the Adviser under this Section 8(d) on a
joint and several basis) the relative benefits received by the Trust, on
the one hand, and the Adviser on the other hand, shall be deemed to be in
the same proportion that the total net proceeds from the offering (before
deducting expenses) received by the Trust bear to the present value of the
future revenue stream to be generated by the advisory fee to be paid by the
Trust to the Adviser pursuant to the Advisory Agreement. The relative fault
of the Trust and the Adviser on the one hand (treated jointly for this
purpose as one person) and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Trust and the Adviser on the one hand (treated jointly for this purpose as
one person) or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Trust, the Adviser and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section
8 were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (d) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities
and expenses referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which such
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective number of Shares set forth opposite their names in Schedule I
hereto (or such numbers of Shares increased as set forth in Section 11
hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses
are incurred. The indemnity and contribution agreements contained in this
Section 8 and the representations and warranties of the Trust and the
Adviser set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter, the Trust,
the Adviser, their trustees, directors or officers, or any person
controlling the Trust or the Adviser, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter or any person controlling any Underwriter, or
to the Trust, the Adviser, their trustees, directors or officers, or any
person controlling the Trust or the Adviser, shall be entitled to the
benefits of the indemnity, contribution, and reimbursement agreements
contained in this Section 8.
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a
post-effective amendment thereto to be declared effective before
the offering of the Shares may commence, the registration statement
or such post-effective amendment shall have become effective not
later than 5:30 P.M., New York City time, on the date hereof, or at
such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 497 and 430A under
the 1933 Act and the 1933 Act Rules and Regulations shall have been
timely made; no stop order suspending the effectiveness of the
Registration Statement or order pursuant to Section 8(e) of the
1940 Act shall have been issued and no proceeding for those
purposes shall have been instituted or, to the knowledge of the
Trust, the Adviser or any Underwriter, threatened by the
Commission, and any request of the Commission for additional
information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your
reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change or any development
involving a prospective change in or affecting the condition
(financial or other), business, general affairs, properties, net
assets, or results of operations of the Trust or the Adviser not
contemplated by the Prospectus, which in your opinion, would
materially adversely affect the market for the Shares, or (ii) any
event or development relating to or involving the Trust or the
Adviser or any officer, trustee or director of the Trust or the
Adviser which makes any statement made in the Prospectus untrue or
which, in the opinion of the Trust and its counsel or the
Underwriters and their counsel, requires the making of any addition
to or change in the Prospectus in order to state a material fact
required by the 1933 Act, the 1940 Act or the Rules and Regulations
or any other law to be stated therein or necessary in order to make
the statements therein not misleading, if amending or supplementing
the Prospectus to reflect such event or development would, in your
opinion, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion
of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Trust,
dated the Closing Date and addressed to you, in the form attached
hereto as Exhibit A.
(d) You shall have received on the Closing Date an opinion
of Daniel Waltcher, Esq., counsel for the Adviser, dated the
Closing Date and addressed to you, in form and substance
satisfactory to you and to the effect that:
(i) Based on certificates of the Secretary of State
of the State of Delaware, the Adviser is a corporation duly
incorporated and validly existing in good standing under the
laws of the State of Delaware, with all necessary corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or
supplement to either of them). Based on certificates of the
applicable secretaries of state, the Adviser is duly
registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires
such registration or qualification, except where the failure
to so register and qualify does not have a material adverse
effect on the ability of the Adviser to perform its
obligations under this Agreement and the Advisory Agreement.
(ii) The Adviser is duly registered with the
Commission as an investment adviser under the Advisers Act
and is not prohibited by the Advisers Act, the Advisers Act
Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the Advisory Agreement for
the Trust as contemplated by the Prospectus (or any
amendment or supplement thereto); and, to the best knowledge
of such counsel after reasonable inquiry, there does not
exist any proceeding which should reasonably be expected to
adversely affect the registration of the Adviser with the
Commission;
(iii) The Adviser has corporate power and authority
to enter into this Agreement and the Advisory Agreement, and
this Agreement and the Advisory Agreement have been duly
authorized, executed and delivered by the Adviser and the
Advisory Agreement is a valid and legally binding agreement
of such Adviser, enforceable against the Adviser in
accordance with its terms except as rights to indemnity and
contribution hereunder and thereunder may be limited by
Federal or state securities laws or principles of public
policy and subject to the qualification that the
enforceability of the Adviser's obligations thereunder may
be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and by general
equitable principles whether enforcement is considered in a
proceeding in equity or at law;
(iv) Neither the execution, delivery or performance
of this Agreement or the Advisory Agreement by the Adviser
which is a party thereto, nor the consummation by the
Adviser of the transactions contemplated hereby and thereby
(A) conflicts or will conflict with, or constitutes or will
constitute a breach of or default under, the certificate of
incorporation or bylaws, or other organizational documents,
of the Adviser or (B) conflicts or will conflict with, or
constitutes or will constitute a material breach of or
material default under any material agreement, indenture,
lease or other instrument to which the Adviser is a party,
or will result in the creation or imposition of any material
lien, charge or encumbrance upon any material property or
material assets of the Adviser, nor will any such action
result in any material violation of any law of the State of
New York, the Delaware General Corporation Law, the 1940
Act, the Advisers Act or any regulation or judgment,
injunction, order or decree applicable to the Adviser or any
of its properties;
(v) No consent, approval, authorization or other
order of, or registration or filing with, the Commission,
any arbitrator, any court, regulatory body, administrative
agency or other governmental body, agency, or official of
the State of New York is required on the part of the Adviser
for the execution, delivery and performance of this
Agreement or the Advisory Agreement, or the consummation by
the Adviser of the transactions contemplated hereby and
thereby;
(vi) To the best knowledge of such counsel after
reasonable inquiry, there are no legal or governmental
proceedings pending or threatened against the Adviser or to
which the Adviser or any of its properties is subject, which
are required to be described in the Registration Statement
or the Prospectus (or any amendment or supplement to either
of them) but are not described as required;
(vii) The Adviser has all material permits, licenses,
franchises and authorizations of governmental or regulatory
authorities as are necessary to own its properties and to
conduct its business in the manner described in the
Prospectus (and any amendment or supplement thereto), and to
perform its obligations under the Advisory Agreement; and
(viii) Such counsel shall also state that the
description of the Adviser contained in the Registration
Statement (and any amendment or supplement thereto) does not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading and that the description of the Adviser contained
in the Prospectus or any amendment or supplement thereto, as
of its issue date and as of the Closing Date does not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements contained therein, in the
light of the circumstances under which they were made, not
misleading.
(e) Reserved.
(f) You shall have received on the Closing Date an opinion
of Simpson Thacher & Bartlett, counsel for the Underwriters, dated
the Closing Date and addressed to you, with respect to such matters
as you may reasonably request.
(g) You shall have received letters addressed to you and
dated the date hereof and the Closing Date from Deloitte & Touche
LLP, independent certified public accountants, substantially in the
forms heretofore approved by you.
(h) (i) No order suspending the effectiveness of the
registration statement or the Registration Statement or prohibiting
or suspending the use of the Prospectus (or any amendment or
supplement thereto) or any Prepricing Prospectus shall have been
issued and no proceedings for such purpose or for the purpose of
commencing an enforcement action against the Trust, the Adviser or
with respect to the transactions contemplated by the Prospectus (or
any amendment or supplement thereto) and this Agreement (other than
enforcement actions against any Underwriter with respect to the
transactions contemplated by the Prospectus (or any amendment or
supplement thereto) and this Agreement) may be pending before or,
to the knowledge of the Trust, the Adviser or any Underwriter or in
the reasonable view of counsel to the Underwriters, shall be
threatened by the Commission at or prior to the Closing Date and
that any request for additional information on the part of the
Commission (to be included in the Registration Statement, the
Prospectus or otherwise) be complied with to the reasonable
satisfaction of the Underwriters; (ii) there shall not have been
any change in the capitalization of the Trust nor any material
increase in the short-term or long-term debt of the Trust (other
than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or
any amendment or supplement thereto); (iii) there shall not have
been, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or any
amendment or supplement to either of them), except as may otherwise
be stated in the Registration Statement and Prospectus (or any
amendment or supplement to either of them), any material adverse
change (other than as a result of changes in market conditions
generally or the market for municipal securities generally) in the
condition (financial or other), general affairs, assets or results
of operations of the Trust; (iv) the Trust shall not have any
liabilities or obligations, direct or contingent (whether or not in
the ordinary course of business), that are material to the Trust,
other than those reflected in or contemplated by the Registration
Statement or the Prospectus (or any amendment or supplement to
either of them); and (v) all the representations and warranties of
the Trust and the Adviser contained in this Agreement that are
qualified by a materiality standard shall be true and correct, and
all representations and warranties of the Trust and the Adviser
contained in this Agreement that are not so qualified shall be true
and correct in all material respects, on and as of the date hereof
and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate of the
Trust and the Adviser, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of each of
the Trust and the Adviser (or such other officers as are reasonably
acceptable to you), to the effect set forth in this Section 9(h)
and in Section 9(i) hereof.
(i) Neither the Trust nor the Adviser shall have failed at
or prior to the Closing Date to have performed or complied in all
material respects with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(j) The Trust shall have delivered and you shall have
received evidence satisfactory to you that the Shares are rated
'aaa' by Moody's and 'AAA' by S&P as of the Closing Date, and there
shall not have been given any notice of any intended or potential
downgrading, or of any review for a potential downgrading, in the
rating accorded to the Shares by Moody's or by S&P.
(k) As of the Closing Date and assuming the receipt of the
net proceeds from the sale of the Shares, the 1940 Act Preferred
Shares Asset Coverage and the Preferred Shares Basic Maintenance
Amount (each as defined in Appendix C-1 to the statement of
additional information contained in the Registration Statement)
each will be met.
(l) The Trust and the Adviser shall have furnished or caused
to be furnished to you such further certificates and documents as
you shall have reasonably requested in order to verify the
satisfaction of the conditions set forth in this Section 9,
including, without limitation, a certificate of the secretary or
assistant secretary of the Trust and the Adviser, an incumbency
certificate of the Trust and the Adviser and a certificate of the
auction agent.
(m) You shall have received on the Closing Date the written
confirmations referred to in Section 6(v) hereof.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are
reasonably satisfactory in form and substance to you and your counsel.
10. Expenses. The Trust agrees to pay the following costs
and expenses and all other costs and expenses incident to the performance
by it of its obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the 1940 Act Notification, the Prospectus and each amendment or
supplement to any of them (including, without limitation, the filing fees
prescribed by the 1933 Act, the 1940 Act and the Rules and Regulations);
(ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of
the Registration Statement, each Prepricing Prospectus, the Prospectus, any
sales material and all amendments or supplements to any of them as may be
reasonably requested for use in connection with the offering and sale of
the Shares; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp taxes in
connection with the original issuance and sale of the Shares; (iv) the
reproduction and delivery of this Agreement, any dealer agreements and all
other agreements or documents reproduced and delivered in connection with
the offering of the Shares; (v) the registration or qualification of the
Shares for offer and sale under the securities or blue sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements of counsel relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental
blue sky memoranda and such registration and qualification); (vi) fees paid
to Moody's and/or S&P; (vii) the transportation and other expenses incurred
by or on behalf of Trust representatives in connection with presentations
to prospective purchasers of the Shares; and (viii) the fees and expenses
of the Trust's accountants and the fees and expenses of counsel (including
local and special counsel) for the Trust.
11. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties
hereto; or (ii) if, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective
amendment thereto to be declared effective before the offering of the
Shares may commence, when the registration statement or such post-effective
amendment has become effective. Until such time as this Agreement shall
have become effective, it may be terminated by the Trust, by notifying you,
or by you, by notifying the Trust.
If any one or more of the Underwriters shall fail or refuse
to purchase Shares which it or they are obligated to purchase hereunder on
the Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is
not more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date, each
non-defaulting Underwriter shall be obligated, severally, in the proportion
which the number of Shares set forth opposite its name in Schedule I hereto
bears to the aggregate number of Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify,
to purchase the Shares which such defaulting Underwriter or Underwriters
are obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to you and the
Trust for the purchase of such Shares by one or more non-defaulting
Underwriters or other party or parties approved by you and the Trust are
not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Trust
or the Adviser. In any such case which does not result in termination of
this Agreement, either you or the Trust shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that
the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not
listed in Schedule I hereto who, with your approval and the approval of the
Trust, purchases Shares which a defaulting Underwriter is obligated, but
fails or refuses, to purchase.
Any notice under this Section 11 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
12. Termination of Agreement. This Agreement shall be
subject to termination in your absolute discretion, without liability on
the part of any Underwriter to the Trust or the Adviser, by notice to the
Trust or the Adviser, if prior to the Closing Date (i) trading in the
Trust's common shares or securities generally on the New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market or the
Nasdaq Stock Market shall have been suspended or materially limited, (ii)
additional material governmental restrictions not in force on the date of
this Agreement have been imposed upon trading in securities generally or a
general moratorium on commercial banking activities in New York shall have
been declared by either federal or state authorities, or (iii) there shall
have occurred any outbreak or material escalation of hostilities or other
international or domestic calamity, crisis or material adverse change in
political, financial or economic conditions, the effect of which is to make
it, in your judgment, impracticable or inadvisable to commence or continue
the offering of the Shares at the offering price to the public set forth on
the cover page of the Prospectus or to enforce contracts for the resale of
the Shares by the Underwriters. Notice of such termination may be given to
the Trust or the Adviser by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
13. Information Furnished by the Underwriters. The
statements set forth in the last paragraph on the cover page, and the
statements in the first and third paragraphs under the caption
"Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections
6(b) and 8 hereof.
14. Miscellaneous. Except as otherwise provided in Sections
5, 11 and 12 hereof, notice given pursuant to any provision of this
Agreement shall be in writing and shall be delivered (i) if to the Trust or
the Adviser, at the office of BlackRock Financial Management, Inc. at 345
Park Avenue, New York, New York 10154, Attention: Ralph L. Schlosstein; or
(ii) if to you, to Salomon Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit
of the several Underwriters, the Trust, the Adviser, their trustees,
directors and officers, and the other controlling persons referred to in
Section 8 hereof and their respective successors and assigns, to the extent
provided herein, and no other person shall acquire or have any right under
or by virtue of this Agreement. Neither the term "successor" nor the term
"successors and assigns" as used in this Agreement shall include a
purchaser from any Underwriter of any of the Shares in his status as such
purchaser.
15. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart
hereof shall have been executed and delivered on behalf of each party
hereto.
Please confirm that the foregoing correctly sets forth the
agreement among the Trust, the Adviser and the several Underwriters.
Very truly yours,
THE BLACKROCK [ ] TRUST INC.
By:___________________________________
BLACKROCK FINANCIAL
MANAGEMENT, INC.
By:____________________________________
Confirmed as of the date
first above mentioned.
SALOMON SMITH BARNEY INC.
[ ]
By: SALOMON SMITH BARNEY INC.
By: __________________________
Managing Director
SCHEDULE I
THE BLACKROCK [ ] TRUST INC.
Number of
Underwriter Shares
----------- ---------
Salomon Smith Barney Inc.
---------
Total.................................. 2600
EXHIBIT A
FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
[LOGO]
FORM OF MASTER AGREEMENT AMONG UNDERWRITERS
REGISTERED SEC OFFERINGS
(INCLUDING MULTIPLE SYNDICATE OFFERINGS),
STANDBY UNDERWRITINGS AND EXEMPT OFFERINGS
(OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)
July 1, 1999
Ladies and Gentlemen:
From time to time SALOMON SMITH BARNEY INC. ("SALOMON SMITH
BARNEY") may invite you (and others) to participate on the terms set forth
herein as an underwriter or an initial purchaser, or in a similar capacity,
in connection with certain offerings of securities that are managed solely
by us or with one or more other co-managers. If we invite you to
participate in a specific offering and sale (an "OFFERING") to which this
Master Agreement Among Underwriters (the "SALOMON SMITH BARNEY MASTER AAU")
shall apply, we will send the information set forth below in Section 1.1 to
you by one or more wires, telexes, facsimile or electronic data
transmissions or other written communications (each a "WIRE" and
collectively, an "AAU"). Each Wire will indicate that it is a Wire pursuant
to the SALOMON SMITH BARNEY MASTER AAU. The Wire inviting you to
participate in an Offering is referred to herein as the "INVITATION WIRE".
You and we hereby agree that by the terms hereof the provisions of this
SALOMON SMITH BARNEY MASTER AAU automatically shall be incorporated by
reference in each AAU, EXCEPT THAT ANY SUCH AAU MAY ALSO EXCLUDE OR REVISE
ANY PROVISION OF THIS SALOMON SMITH BARNEY MASTER AAU OR MAY CONTAIN SUCH
ADDITIONAL PROVISIONS AS MAY BE SPECIFIED IN SUCH AAU.
I. GENERAL
1.1. TERMS OF AAU; CERTAIN DEFINITIONS; CONSTRUCTION. Each AAU
shall relate to an Offering and shall identify (i) the securities to be
offered in the Offering (the "SECURITIES"), their principal terms, the
issuer or issuers (each an "ISSUER") and any guarantor (each a "GUARANTOR")
thereof and, if different from the Issuer, the seller or sellers (each a
"SELLER") of the Securities, (ii) the underwriting agreement, purchase
agreement, standby underwriting agreement, distribution agreement or
similar agreement (as identified in such AAU and as amended or
supplemented, including a terms agreement or pricing agreement pursuant to
any of the foregoing, collectively, the "UNDERWRITING AGREEMENT") providing
for the purchase, on a several and not joint basis, of the Securities by
the several underwriters, initial purchasers or others acting in a similar
capacity on whose behalf the Manager (as defined below) executes the
Underwriting Agreement (including the Manager and the Co-Managers (as
defined below), the "UNDERWRITERS"), (iii) if applicable, that the
Underwriting Agreement includes an option (an "OVER-ALLOTMENT OPTION") to
purchase Additional Securities (as defined below) to cover over-allotments,
if any, (iv) if applicable, that the Offering is part of an offering that
includes concurrent offerings by two or more syndicates (an "INTERNATIONAL
OFFERING"), each of which will offer and sell Securities subject to such
restrictions as shall be specified in any Intersyndicate Agreement (as
defined below) referred to in such AAU, (v) the price at which the
Securities are to be purchased by the several Underwriters from any Issuer
or Seller thereof (the "PURCHASE PRICE"), (vi) the offering terms,
including, if applicable, the price or prices at which the Securities
initially will be offered by the Underwriters (the "OFFERING PRICE"), any
selling concession to dealers (the "SELLING CONCESSION"), reallowance (the
"REALLOWANCE"), management fee, global coordinators' fee, praecipium or
other similar fees, discounts or commissions (collectively, the "FEES AND
COMMISSIONS") with respect to the Securities, (vii) the proposed pricing
date ("PRICING DATE") and settlement date (the "SETTLEMENT DATE"), (viii)
any contractual restrictions on the offer and sale of the Securities
pursuant to the Underwriting Agreement, Intersyndicate Agreement or
otherwise, (ix) any co-managers for such Offering (the "CO-MANAGERS"), (x)
your proposed participation in the Offering, (xi) if applicable, the
trustee, fiscal agent or similar agent (the "TRUSTEE") for the indenture,
trust agreement, fiscal agency agreement or similar agreement (the
"INDENTURE") under which such Securities will be issued and (xii) any other
principal terms of the Offering.
The term "MANAGER" means SALOMON SMITH BARNEY. The term
"UNDERWRITERS" includes the Manager and the Co-Managers. The term "FIRM
SECURITIES" means the number or amount of Securities that the several
Underwriters are initially committed to purchase under the Underwriting
Agreement (which may be expressed as a percentage of an aggregate number or
amount of Securities to be purchased by the Underwriters as in the case of
a standby Underwriting Agreement). The term "ADDITIONAL SECURITIES" means
the Securities, if any, that the several Underwriters have an option to
purchase under the Underwriting Agreement to cover over-allotments, if any.
The number, amount or percentage of Firm Securities set forth opposite each
Underwriter's name in the Underwriting Agreement plus any additional Firm
Securities that such Underwriter has become obligated to purchase under the
Underwriting Agreement or Article XI hereof is hereinafter referred to as
the "ORIGINAL PURCHASE OBLIGATION" of such Underwriter and the ratio which
such Original Purchase Obligation bears to the total of all Firm Securities
set forth in the Underwriting Agreement (or, in the case of a standby
Underwriting Agreement, to 100%) is hereinafter referred to as the
"UNDERWRITING PERCENTAGE" of such Underwriter.
References herein to statutory sections, rules, regulations,
forms and interpretive materials shall be deemed to include any successor
provisions.
1.2. ACCEPTANCE OF AAU. You shall have accepted an AAU for an
Offering if we receive your acceptance, prior to the time specified in the
Invitation Wire for such Offering, by wire, telex, facsimile or electronic
data transmission or other written communication (any such manner of
communication being deemed "IN WRITING") (or orally, if promptly confirmed
In Writing) in the manner specified in the Invitation Wire, of our
invitation to participate in the Offering. If we receive your timely
acceptance of the invitation to participate, such AAU shall constitute a
valid and binding contract between us. Your acceptance of the Invitation
Wire shall also constitute acceptance by you of the terms of subsequent
Wires to you relating to the Offering unless we receive In Writing, within
the time and in the manner specified in such subsequent Wire, a notice from
you to the effect that you do not accept the terms of such subsequent Wire,
in which case you shall be deemed to have elected not to participate in the
Offering.
1.3. UNDERWRITERS' QUESTIONNAIRE. Your acceptance of the
Invitation Wire shall confirm that you have no exceptions to the
Underwriters' Questionnaire attached as Exhibit A hereto (or to any other
questions addressed to you in any Wires relating to the Offering previously
sent to you), other than exceptions noted by you In Writing in connection
with the Offering and received from you by us before the time specified in
the Invitation Wire or any subsequent Wire.
II. OFFERING MATERIALS
2.1. REGISTERED OFFERINGS. In the case of an Offering that will
be registered in whole or in part (a "REGISTERED OFFERING") under the
United States Securities Act of 1933, as amended (the "1933 ACT"), you
understand that the Issuer has filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement including a
prospectus relating to the Securities. The term "REGISTRATION STATEMENT"
means such registration statement as amended or deemed to be amended to the
effective date of the Underwriting Agreement and, in the event that the
Issuer files an abbreviated registration statement to register additional
Securities pursuant to Rule 462(b) under the 1933 Act, such abbreviated
registration statement. The term "PROSPECTUS" means the prospectus,
together with the final prospectus supplement, if any, relating to the
Offering first used to confirm sales of Securities and, in the case of a
Registered Offering that is an International Offering, the term
"PROSPECTUS" shall mean, collectively, each prospectus or offering
circular, together with each final prospectus supplement or final offering
circular supplement, if any, relating to the Offering, in the respective
forms first used or made available for use to confirm sales of Securities.
The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus relating
to the Offering or any preliminary prospectus supplement together with a
prospectus relating to the Offering and, in the case of a Registered
Offering that is an International Offering, the term "PRELIMINARY
PROSPECTUS" shall mean, collectively, each preliminary prospectus or
preliminary offering circular relating to the Offering or each preliminary
prospectus supplement or preliminary offering circular supplement, together
with a prospectus or offering circular, respectively, relating to the
Offering. As used herein the terms "REGISTRATION STATEMENT", "PROSPECTUS"
and "PRELIMINARY PROSPECTUS" shall include in each case the material, if
any, incorporated by reference therein. The Manager will furnish to you, or
make arrangements for you to obtain, copies of each Prospectus and
Preliminary Prospectus (but excluding for this purpose, unless otherwise
required pursuant to regulations under the 1933 Act, documents incorporated
therein by reference) as soon as practicable after sufficient quantities
thereof have been made available by the Issuer.
2.2. UNREGISTERED OFFERINGS. In the case of an Offering other
than a Registered Offering, you understand that no registration statement
has been filed with the Commission. The term "OFFERING CIRCULAR" means an
offering circular or memorandum, if any, or any other written materials
authorized by the Issuer to be used in connection with an Offering that is
not a Registered Offering. The term "PRELIMINARY OFFERING CIRCULAR" means
any preliminary offering circular or memorandum, if any, or any other
written preliminary materials authorized by the Issuer to be used in
connection with such an Offering. As used herein, the terms "OFFERING
CIRCULAR" and "PRELIMINARY OFFERING CIRCULAR" shall include the material,
if any, incorporated by reference therein. We will either, as soon as
practicable after the later of the date of the Invitation Wire or the date
made available to us by the Issuer, furnish to you (or make available for
your review in our office) a copy of any Preliminary Offering Circular or
any proof or draft of the Offering Circular. In any event, in any Offering
involving an Offering Circular, the Manager will furnish to you, or make
arrangements for you to obtain, as soon as practicable after sufficient
quantities thereof are made available by the Issuer, copies of the final
Offering Circular, as amended or supplemented, if applicable (but excluding
for this purpose documents incorporated therein by reference).
III. MANAGER'S AUTHORITY
3.1. AUTHORITY OF MANAGER TO DETERMINE FORM OF DOCUMENTS, TERMS
OF OFFERING, ETC. You authorize the Manager to act as lead manager of the
Offering of the Securities by the Underwriters (the "UNDERWRITERS'
SECURITIES") or by the Issuer or Seller pursuant to delayed delivery
contracts (the "CONTRACT SECURITIES"), if any, contemplated by the
Underwriting Agreement. You authorize the Manager, on your behalf, (a) to
determine the form of the Underwriting Agreement, (b) to execute and
deliver the Underwriting Agreement to the Issuer, Guarantor or Seller, (c)
to determine the form of any agreement or agreements between or among the
syndicates participating in the International Offering of which the
Offering is a part (each an "INTERSYNDICATE AGREEMENT"), and (d) to execute
and deliver any such Intersyndicate Agreement. You authorize the Manager
(i) to exercise any Over-allotment Option for the purchase any of or all
the Additional Securities for the accounts of the several Underwriters
pursuant to the Underwriting Agreement, (ii) to agree, on your behalf and
on behalf of the Co-Managers, to any addition to, change in or waiver of
any provision of, or the termination of, the Underwriting Agreement or any
Intersyndicate Agreement (other than an increase in the Purchase Price or
in your Original Purchase Obligation to purchase Securities, in either case
from that contemplated by the applicable AAU), (iii) to add or remove
prospective Underwriters to or from the syndicate, (iv) to exercise, in the
Manager's discretion, all the authority vested in the Manager in the
Underwriting Agreement and (v) except as described below in this Section
3.1, to take any other action as may seem advisable to the Manager in
respect of the Offering (including, without limitation, actions and
communications with the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), state blue sky or securities commissions, stock
exchanges and other regulatory bodies or organizations). If, in accordance
with the terms of the applicable AAU, the Offering of the Securities is at
varying prices based on prevailing market prices or prices related to
prevailing market prices or at negotiated prices, you authorize the Manager
to determine, on your behalf in the Manager's discretion, any Offering
Price and the Fees and Commissions applicable to the Offering from time to
time. You authorize the Manager on your behalf to arrange for any currency
transactions (including forward and hedging currency transactions) as the
Manager deems necessary to facilitate settlement of the purchase of the
Securities, but you do not authorize the Manager on your behalf to engage
in any other forward or hedging transactions in connection with the
Offering unless such transactions are specified in an applicable AAU or are
otherwise consented to by you. You further authorize the Manager, subject
to the provisions of Section 1.2 hereof, (i) to vary the offering terms of
the Securities in effect at any time, including, if applicable, the
Offering Price and Fees and Commissions set forth in the applicable AAU,
(ii) to determine, on your behalf, the Purchase Price and (iii) to increase
or decrease the number, amount or percentage of Securities being offered.
Notwithstanding the foregoing provisions of this Section 3.1, the Manager
shall notify the Underwriters, prior to the signing of the Underwriting
Agreement, of any provision in the Underwriting Agreement that could result
in an increase in the amount or percentage of Firm Securities set forth
opposite each Underwriter's name in the Underwriting Agreement by more than
25% (or such other percentage as shall have been specified in the
applicable Invitation Wire or otherwise consented to by you) as a result of
the failure or refusal of another Underwriter or Underwriters to perform
its or their obligations thereunder.
3.2. OFFERING DATE. The Offering is to be made as soon after
the Underwriting Agreement is entered into by the Issuer, Guarantor or
Seller and the Manager as in the Manager's judgment is advisable, on the
terms and conditions set forth in the Prospectus or the Offering Circular,
as the case may be, and the applicable AAU. You agree not to sell any
Securities prior to the time the Manager releases such Securities for sale
to purchasers. The date on which such Securities are released for sale is
referred to herein as the "OFFERING DATE".
3.3. ADVERTISING; SUPPLEMENTAL OFFERING MATERIAL. Any public
advertisement of the Offering shall be made by the Manager on behalf of the
Underwriters on such date as the Manager shall determine. You agree not to
advertise the Offering prior to the date of the Manager's advertisement
thereof without the Manager's consent. If the offering is made in whole or
in part in reliance on Rule 144A (or upon another exemption from
registration), you agree not to engage in any general solicitation and to
abide by any other restrictions in the AAU or the Underwriting Agreement in
connection therewith relating to any advertising or publicity. Any
advertisement you may make of the Offering after such date will be your own
responsibility and at your own expense and risk. In addition to your
agreement to comply with restrictions on the Offering pursuant to Sections
10.10 and 10.11 hereof, you also agree that you will not, in connection
with the offer and sale of the Securities in the Offering, without the
consent of the Manager, give to any prospective purchaser of the Securities
or other person not in your employ any written information concerning the
Offering, the Issuer, the Guarantor or the Seller, other than information
contained in any Preliminary Prospectus, Prospectus, Preliminary Offering
Circular or Offering Circular or in any computational materials
("COMPUTATIONAL MATERIALS") or other offering materials prepared by or with
the consent of the Manager for use by the Underwriters in connection with
the Offering and, in the case of a Registered Offering, filed with the
Commission or the NASD, as applicable (the "SUPPLEMENTAL OFFERING
MATERIALS"). You further agree to cease distribution of any COMPUTATIONAL
MATERIALS on the Offering Date.
3.4. INSTITUTIONAL AND RETAIL SALES. You authorize the Manager
to sell to institutions or retail purchasers such Securities purchased by
you pursuant to the Underwriting Agreement as the Manager shall determine.
The Selling Concession on any such sales shall be credited to the accounts
of the Underwriters as the Manager shall determine.
3.5. SALES TO DEALERS. You authorize the Manager to sell to
Dealers (as defined below) such Securities purchased by you pursuant to the
Underwriting Agreement as the Manager shall determine. A "DEALER" shall be
a person who is (a) a broker or dealer (as defined in the By-Laws of the
NASD) actually engaged in the investment banking or securities business and
(i) a member in good standing of the NASD or (ii) a foreign bank, broker,
dealer or other institution not eligible for membership in the NASD that,
in the case of either clause (a)(i) or (a)(ii), makes the representations
and agreements applicable to such institutions contained in Section 10.6
hereof or (b) in the case of Offerings of Securities that are exempt
securities under Section 3(a)(12) of the Securities Exchange Act of 1934,
as amended (the "1934 ACT"), and such other Securities as from time to time
may be sold by a "bank" (as defined in Section 3(a)(6) of the 1934 Act (a
"BANK")), a Bank that is not a member of the NASD and that makes the
representations and agreements applicable to such institutions contained in
Section 10.6 hereof. If the price for any such sales by the Manager to
Dealers exceeds an amount equal to the Offering Price less the Selling
Concession set forth in the applicable AAU, the amount of such excess, if
any, shall be credited to the accounts of the Underwriters as the Manager
shall determine.
3.6. DIRECT SALES. The Manager will advise you promptly, on the
date of the Offering, as to the Securities purchased by you pursuant to the
Underwriting Agreement that you shall retain for direct sale. At any time
prior to the termination of the applicable AAU, any such Securities that
are held by the Manager for sale but not sold, may, on your request and at
the Manager's discretion, be released to you for direct sale, and
Securities so released to you shall no longer be deemed held for sale by
the Manager. You may allow, and Dealers may reallow, a discount on sales to
Dealers in an amount not in excess of the Reallowance set forth in the
applicable AAU. You may not purchase Securities from, or sell Securities
to, any other Underwriter or Dealer at any discount or concession other
than the Reallowance, except with the consent of the Manager.
3.7. RELEASE OF UNSOLD SECURITIES. From time to time prior to
the termination of the applicable AAU, on the request of the Manager, you
shall advise the Manager of the amount of Securities remaining unsold which
were retained by or released to you for direct sale and of the amount of
Securities and Other Securities (as defined below) purchased for your
account remaining unsold which were delivered to you pursuant to Article V
hereof or pursuant to any Intersyndicate Agreement, and, on the request of
the Manager, you shall release to the Manager any such Securities and Other
Securities remaining unsold (i) for sale by the Manager to institutions,
Dealers or retail purchasers, (ii) for sale by the Issuer or Seller
pursuant to delayed delivery contracts or (iii) if, in the Manager's
opinion, such Securities or Other Securities are needed to make delivery
against sales made pursuant to Article V hereof or any Intersyndicate
Agreement.
3.8. INTERNATIONAL OFFERINGS. In the case of an International
Offering, you authorize the Manager (i) to make representations on your
behalf as set forth in any Intersyndicate Agreement or Underwriting
Agreement and (ii) to purchase or sell for your account pursuant to the
Intersyndicate Agreement (a) Securities, (b) any other securities of the
same class and series, or any securities into which the Securities may be
converted or for which the Securities may be exchanged or exercised and (c)
any other securities designated in the applicable AAU or applicable
Intersyndicate Agreement (the securities referred to in clauses (b) and (c)
above being referred to collectively as the "OTHER SECURITIES").
IV. DELAYED DELIVERY CONTRACTS
4.1. ARRANGEMENTS FOR SALES. You agree that arrangements for
sales of Contract Securities will be made only through the Manager acting
either directly or through Dealers (including Underwriters acting as
Dealers), and you authorize the Manager to act on your behalf in making
such arrangements. The aggregate amount of Securities to be purchased by
the several Underwriters shall be reduced by the respective amounts of
Contract Securities attributed to such Underwriters as hereinafter
provided. Subject to the provisions of Section 4.2, the aggregate amount of
Contract Securities shall be attributed to the Underwriters as nearly as
practicable in their respective Underwriting Percentages, except that, as
determined by the Manager in its discretion, (i) Contract Securities
directed and allocated by a purchaser to specific Underwriters shall be
attributed to such Underwriters and (ii) Contract Securities for which
arrangements have been made for sale through Dealers shall be attributed to
each Underwriter approximately in the proportion that Securities of such
Underwriter held by the Manager for sales to Dealers bear to all Securities
so held. The fee with respect to Contract Securities payable to the Manager
for the accounts of the Underwriters pursuant to the Underwriting Agreement
shall be credited to the accounts of the respective Underwriters in
proportion to the Contract Securities attributed to such Underwriters
pursuant to the provisions of this Section 4.1, less, in the case of each
Underwriter, the concession to Dealers on Contract Securities sold through
Dealers and attributed to such Underwriter.
4.2. EXCESS SALES. If the amount of Contract Securities
attributable to an Underwriter pursuant to Section 4.1 would exceed such
Underwriter's Original Purchase Obligation reduced by the amount of
Underwriters' Securities sold by or on behalf of such Underwriter, such
excess shall not be attributed to such Underwriter, and such Underwriter
shall be regarded as having acted only as a Dealer with respect to, and
shall receive only the concession to Dealers on, such excess.
V. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION
5.1. PURCHASE AND SALE OF SECURITIES; FACILITATION OF
DISTRIBUTION. In order to facilitate the distribution and sale of the
Securities, you authorize the Manager to buy and sell Securities and any
Other Securities, in addition to Securities sold pursuant to Article III
hereof, in the open market or otherwise (including, without limitation,
pursuant to any Intersyndicate Agreement), for long or short account, on
such terms as it shall deem advisable, and to over-allot in arranging
sales. Such purchases and sales and over-allotments shall be made for the
accounts of the several Underwriters as nearly as practicable in their
respective Underwriting Percentages or, in the case of an International
Offering, such purchases and sales shall be for such accounts as set forth
in the applicable Intersyndicate Agreement. Any securities which may have
been purchased by the Manager for stabilizing purposes in connection with
the Offering prior to the execution of the applicable AAU shall be treated
as having been purchased pursuant to this Section 5.1 for the accounts of
the several Underwriters or, in the case of an International Offering, for
such accounts as are set forth in the applicable Intersyndicate Agreement.
Your net commitment pursuant to the foregoing authorization shall not
exceed at the close of business on any day an amount equal to 20% of your
Underwriting Percentage of the aggregate initial Offering Price of the Firm
Securities, it being understood that, in calculating such net commitment,
the initial Offering Price shall be used with respect to the Securities so
purchased or sold and, in the case of all Other Securities, shall be the
purchase price thereof. Your net commitment for short account (i.e., "naked
short") shall be calculated by assuming that all Securities that may be
purchased upon exercise of any over-allotment option then exercisable are
acquired (whether or not actually acquired) and, in the case of an
International Offering, after giving effect to the purchase of any
Securities or Other Securities that the Manager has agreed to purchase for
your account pursuant to any applicable Intersyndicate Agreement. On demand
you shall take up and pay for any Securities or Other Securities so
purchased for your account and any Securities released to you pursuant to
Section 3.7 hereof and you shall deliver to the Manager against payment any
Securities or Other Securities so sold or over-allotted for your account or
released to you. The Manager agrees to notify you if it engages in any
stabilization transaction requiring reports to be filed pursuant to Rule
17a-2 under the 1934 Act and to notify you of the date of termination of
stabilization. You agree not to stabilize or engage in any syndicate
covering transaction (as defined in Rule 100 of Regulation M under the 1934
Act ("Regulation M")) in connection with the Offering without the prior
consent of the Manager. You further agree to provide to Salomon Smith
Barney any reports required of you pursuant to Rule 17a-2 not later than
the date specified therein and you authorize Salomon Smith Barney to file
on your behalf with the Commission any reports required by such Rule.
If the limitations of Rule 101 of Regulation M ("Rule 101") do
not apply to you with respect to the Securities, Other Securities or other
reference securities (as defined in Rule 100 of Regulation M) because they
satisfy the exception for actively-traded securities in subsection (c)(1)
of Rule 101 or the exception for Rule 144A securities in subsection (b)(10)
of Rule 101, you agree that promptly upon notice from the Manager (or, if
later, at the time stated in the notice) you will comply with Rule 101 as
though such exception were not available but the other provisions of Rule
101 (as interpreted by the Commission and after giving effect to any
applicable exemptions) did apply. If the securities in question are NASDAQ
securities (as defined in Rule 100 of Regulation M) you may engage in
passive market making in accordance with Rule 103 of Regulation M (except
that the daily net purchase volume limitation will not apply and the
maximum displayed bid size shall be 5,000 shares excluding transactions
effected in the SOES system) unless the notice from the Manager also states
that passive market making is not permitted.
5.2. PENALTY WITH RESPECT TO SECURITIES REPURCHASED BY THE
MANAGER. If pursuant to the provisions of Section 5.1 and prior to the
termination of the Manager's authority to cover any short position incurred
under the applicable AAU or such other date as the Manager shall specify in
a Wire, either (A) the Manager purchases or contracts to purchase for the
account of any Underwriter in the open market or otherwise any Securities
which were retained by, or released to, you for direct sale or any
Securities sold pursuant to Section 3.4 for which you received a portion of
the Selling Concession set forth in the applicable AAU, or any Securities
which may have been issued on transfer or in exchange for such Securities,
and which Securities were therefore not effectively placed for investment
or (B) if the Manager has advised you by Wire that trading in the
Securities will be reported to the Manager pursuant to the "Initial Public
Offering Tracking System" of The Depository Trust Company ("DTC") and the
Manager determines, based on notices from DTC, that your customers sold an
amount of Securities during any day that exceeds the amount previously
notified to you by Wire, then you authorize the Manager either to charge
your account with an amount equal to such portion of the Selling Concession
set forth in the applicable AAU received by you with respect to such
Securities or, in the case of clause (B), such Securities as exceed the
amount specified in such Wire or to require you to repurchase such
Securities or, in the case of clause (B), such Securities as exceed the
amount specified in such Wire, at a price equal to the total cost of such
purchase, including transfer taxes, accrued interest, dividends and
commissions, if any.
5.3. COMPLIANCE WITH REGULATION M. You represent that, at all
times since you were invited to participate in the Offering, you have
complied with the provisions of Regulation M applicable to such Offering,
in each case as interpreted by the Commission and after giving effect to
any applicable exemptions. If you have been notified in a Wire that the
Underwriters may conduct passive market making in compliance with Rule 103
of Regulation M in connection with the Offering, you represent that, at all
times since your receipt of such Wire, you have complied with the
provisions of such Rule applicable to such Offering, as interpreted by the
Commission and after giving effect to any applicable exemptions.
5.4. STANDBY UNDERWRITINGS. You authorize the Manager in its
discretion, at any time on, or from time to time prior to, the expiration
of the conversion right of convertible securities identified in the
applicable AAU in the case of securities called for redemption, or the
expiration of rights to acquire securities in the case of rights offerings,
for which, in either case, standby underwriting arrangements have been
made: (i) to purchase convertible securities or rights to acquire
Securities for your account, in the open market or otherwise, on such terms
as the Manager determines and to convert convertible securities or exercise
rights so purchased; and (ii) to offer and sell the underlying common stock
or depositary shares for your account, in the open market or otherwise, for
long or short account (for purposes of such commitment, such common stock
or depositary shares being considered the equivalent of convertible
securities or rights), on such terms consistent with the terms of the
Offering set forth in the Prospectus or Offering Circular as the Manager
determines. On demand you shall take up and pay for any securities so
purchased for your account or you shall deliver to the Manager against
payment any securities so sold, as the case may be. During such period you
may offer and sell the underlying common stock or depositary shares, but
only at prices set by the Manager from time to time, and any such sales
shall be subject to the Manager's right to sell to you the underlying
common stock or depositary shares as above provided and to the Manager's
right to reserve your Securities purchased, received or to be received upon
conversion. You agree not to bid for, purchase, attempt to induce others to
purchase, or sell, directly or indirectly, any convertible securities or
rights or underlying common stock or depositary shares, provided, however,
that no Underwriter shall be prohibited from (a) selling underlying common
stock owned beneficially by such Underwriter on the day the convertible
securities were first called for redemption, (b) converting convertible
securities owned beneficially by such Underwriter on such date or selling
underlying common stock issued upon conversion of convertible securities so
owned, (c) exercising rights owned beneficially by such Underwriter on the
record date for a rights offering or selling the underlying common stock or
depositary shares issued upon exercise of rights so owned or (d) purchasing
or selling convertible securities or rights or underlying common stock or
depositary shares as a broker pursuant to unsolicited orders.
VI. PAYMENT AND SETTLEMENT
6.1. PAYMENT AND SETTLEMENT. You shall deliver to the Manager
on the date and at the place and time specified in the applicable AAU (or
on such later date and at such place and time as may be specified by the
Manager in a subsequent Wire) the funds specified in the applicable AAU,
payable to the order of Salomon Smith Barney Inc., for (i) an amount equal
to the Offering Price plus (if not included in the Offering Price) accrued
interest, amortization of original issue discount or dividends, if any,
specified in the Prospectus or Offering Circular, less the applicable
Selling Concession in respect of the Firm Securities to be purchased by
you, (ii) an amount equal to the Offering Price plus (if not included in
the Offering Price) accrued interest, amortization of original issue
discount or dividends, if any, specified in the Prospectus or Offering
Circular, less the applicable Selling Concession in respect of such of the
Firm Securities to be purchased by you as shall have been retained by or
released to you for direct sale as contemplated by Section 3.6 hereof or
(iii) the amount set forth or indicated in the applicable AAU, as the
Manager shall advise. You shall make similar payment as the Manager may
direct for Additional Securities, if any, to be purchased by you on the
date specified by the Manager for such payment. The Manager will make
payment to the Issuer or Seller against delivery to the Manager for your
account of the Securities to be purchased by you, and the Manager will
deliver to you the Securities paid for by you which shall have been
retained by or released to you for direct sale. If the Manager determines
that transactions in the Securities are to be settled through the
facilities of DTC or other clearinghouse facility, payment for and delivery
of Securities purchased by you shall be made through such facilities, if
you are a member, or, if you are not a member, settlement shall be made
through your ordinary correspondent who is a member.
VII. EXPENSES
7.1. MANAGEMENT FEE. You authorize the Manager to charge your
account as compensation for the Manager's and Co-Managers' services in
connection with the Offering, including the purchase from the Issuer or
Seller of the Securities, as the case may be, and the management of the
Offering, the amount, if any, set forth as the management fee, global
coordinators fee, praecipium or other similar fee in the applicable AAU.
Such amount shall be divided among the Manager and any Co-Managers named in
the applicable AAU as they may determine.
7.2. GENERAL EXPENSES. You authorize the Manager to charge your
account with your Underwriting Percentage of all expenses of a general
nature incurred by the Manager and Co-Managers under the applicable AAU in
connection with the Offering, including the negotiation and preparation
thereof, or in connection with the purchase, carrying, marketing and sale
of any securities under the applicable AAU and any Intersyndicate
Agreement, including, without limitation, legal fees and expenses, transfer
taxes, costs associated with approval of the Offering by the NASD and the
costs of currency transactions (including forward and hedging currency
transactions) entered into to facilitate settlement of the purchase of
Securities permitted under Section 3.1 hereof.
VIII. MANAGEMENT OF SECURITIES AND FUNDS
8.1. ADVANCES; LOANS; PLEDGES. You authorize the Manager to
advance the Manager's own funds for your account, charging current interest
rates, or to arrange loans for your account for the purpose of carrying out
the provisions of the applicable AAU and any Intersyndicate Agreement and
in connection therewith, to hold or pledge as security therefor all or any
securities which the Manager may be holding for your account under the
applicable AAU and any Intersyndicate Agreement, to execute and deliver any
notes or other instruments evidencing such advances or loans and to give
all instructions to the lenders with respect to any such loans and the
proceeds thereof. The obligations of the Underwriters under loans arranged
on their behalf shall be several in proportion to their respective Original
Purchase Obligations and not joint. Any lender is authorized to accept the
Manager's instructions as to the disposition of the proceeds of any such
loans. In the event of any such advance or loan, repayment thereof shall,
in the discretion of the Manager, be effected prior to making any
remittance or delivery pursuant to Section 8.2, 8.3 or 9.2 hereof.
8.2. RETURN OF AMOUNT PAID FOR SECURITIES. Out of payment
received by the Manager for Securities sold for your account which have
been paid for by you, the Manager will remit to you promptly an amount
equal to the price paid by you for such Securities.
8.3. DELIVERY AND REDELIVERY OF SECURITIES FOR CARRYING
PURPOSES. The Manager may deliver to you from time to time prior to the
termination of the applicable AAU pursuant to Section 9.1 hereof against
payment, for carrying purposes only, any Securities or Other Securities
purchased by you under the applicable AAU or any Intersyndicate Agreement
which the Manager is holding for sale for your account but which are not
sold and paid for. You shall redeliver to the Manager against payment any
Securities or Other Securities delivered to you for carrying purposes at
such times as the Manager may demand.
IX. TERMINATION; INDEMNIFICATION
9.1. TERMINATION. Each AAU shall terminate at the close of
business on the later of the date on which the Underwriters pay the Issuer
or Seller for the Securities and 45 full days after the applicable Offering
Date, unless sooner terminated by the Manager. The Manager may in its
discretion by notice to you prior to the termination of such AAU alter any
of the terms or conditions of the Offering to the extent permitted by
Articles III or IV hereof, or terminate or suspend the effectiveness of
Article V hereof, or any part thereof. No termination or suspension
pursuant to this paragraph shall affect the Manager's authority under
Section 3.1 hereof to take actions in respect of the Offering or under
Article V hereof to cover any short position incurred under such AAU or in
connection with covering any such short position to require you to
repurchase Securities as specified in Section 5.2 hereof.
9.2. DELIVERY OR SALE OF SECURITIES; SETTLEMENT OF ACCOUNTS.
Upon termination of each AAU or prior thereto at the Manager's discretion,
the Manager shall deliver to you any Securities paid for by you pursuant to
Section 6.1 hereof and held by the Manager for sale pursuant to Section 3.4
or 3.5 hereof but not sold and paid for and any Securities or Other
Securities that are held by the Manager for your account pursuant to the
provisions of Article V hereof or any Intersyndicate Agreement.
Notwithstanding the foregoing, at the termination of such AAU, if the
aggregate initial Offering Price of any such Securities and the aggregate
purchase price of any Other Securities so held and not sold and paid for
does not exceed an amount equal to 20% of the aggregate initial Offering
Price of the Securities, the Manager may, in its discretion, sell such
Securities and Other Securities for the accounts of the several
Underwriters, at such prices, on such terms, at such times and in such
manner as it may determine. Within the period specified by applicable NASD
Rules or, if no period is so specified, as soon as practicable after
termination of such AAU, your account shall be settled and paid. The
Manager may reserve from distribution such amount as the Manager deems
advisable to cover possible additional expenses. The determination by the
Manager of the amount so to be paid to or by you shall be final and
conclusive. Any of your funds in the Manager's hands may be held with the
Manager's general funds without accountability for interest
Notwithstanding any provision of this Master AAU other than
Section 10.12, upon termination of each AAU or prior thereto at the
Manager's discretion, the Manager (i) may allocate to the accounts of the
Underwriters the expenses described in Section 7.2 hereof and any losses
incurred upon the sale of Securities or Other Securities pursuant to the
applicable AAU or any Intersyndicate Agreement (including any losses
incurred upon the sale of securities referred to in Section 5.4(ii)
hereof), (ii) may deliver to the Underwriters any unsold Securities or
Other Securities purchased pursuant to Section 5.1 hereof or any
Intersyndicate Agreement and (iii) may deliver to the Underwriters any
unsold Securities purchased pursuant to the applicable Underwriting
Agreement, in each case in the Manager's discretion. The Manager shall have
full discretion to allocate expenses and Securities to the accounts of any
Underwriter as the Manager decides, except that (a) no Underwriter (other
than the Manager or a Co-Manager) shall bear more than its share of such
expenses, losses or Securities (such share shall not exceed such
Underwriter's Underwriting Percentage and shall be determined pro rata
among all such Underwriters based on their Underwriting Percentages), (b)
no such Underwriter shall receive Securities that, together with any
Securities purchased by such Underwriter pursuant to Section 6.1 (but
excluding any Securities that such Underwriter is required to repurchase
pursuant to Section 5.2) exceed such Underwriter's Original Purchase
Obligation and (c) no Co-Manager shall bear more than its share, as among
the Manager and the other Co-Managers, of such expenses, losses or
Securities (such share to be determined pro rata among the Manager and all
Co-Managers based on (1) their relative Underwriting Percentages as a
percentage of the total combined Underwriting Percentages of the Manager
and all Co-Managers, or (2) if the Manager so determines, their relative
Offering Economics (as hereinafter defined) as a percentage of the combined
Offering Economics of the Manager and all Co-Managers together. The
Manager's or a Co-Manager's "OFFERING ECONOMICS" equals the sum of its
Management Fee Share, its Underwriting Fee Share and its Selling Concession
Share (each as hereinafter defined). The Manager's or a Co-Manager's
"MANAGEMENT FEE SHARE" is the dollar amount of its share, as agreed among
the Manager and any Co-Managers, of the amount payable by all Underwriters
to some or all of the Manager and any Co-Manager as a global coordinators'
fee, praecipium, management fee or other fee. The Manager's or a
Co-Manager's "UNDERWRITING FEE SHARE" is the dollar amount of its
Underwriting Percentage of the aggregate initial Offering Price of the Firm
Securities less the Purchase Price thereof, less the Selling Concession
thereon. The Manager's or a Co-Manager's "SELLING CONCESSION SHARE" is the
dollar amount of any Selling Concession credited to it on sales from the
institutional pot or on sales made for the account of any other
Underwriter. If any Securities or Other Securities returned to you pursuant
to clause (ii) or (iii) above were not paid for by you pursuant to Section
6.1 hereof, you shall pay to the Manager an amount per security equal to
the amount set forth in Section 6.1(i), in the case of Securities returned
to you pursuant to clause (iii) above, or the purchase price of such
securities, in the case of Securities or Other Securities returned to you
pursuant to clause (ii) above.
9.3. POST-SETTLEMENT EXPENSES. Notwithstanding any settlement
on the termination of the applicable AAU, you agree to pay any transfer
taxes which may be assessed and paid after such settlement on account of
any sales or transfers under such AAU or any Intersyndicate Agreement for
your account and your Underwriting Percentage of (i) all expenses incurred
by the Manager in investigating, preparing to defend or defending against
any action, claim or proceeding which is asserted or instituted by any
party (including any governmental or regulatory body) relating to (a) the
Registration Statement, any Preliminary Prospectus or Prospectus (or any
amendment or supplement thereto), any Preliminary Offering Circular or
Offering Circular (or any amendment or supplement thereto) or Supplemental
Offering Materials, (b) the violation of any applicable restrictions on the
offer, sale, resale or purchase of Securities or Other Securities imposed
by United States Federal or state laws or foreign laws and the rules and
regulations of any regulatory body promulgated thereunder or pursuant to
the terms of such AAU, the Underwriting Agreement or any Intersyndicate
Agreement or (c) any claim that the Underwriters constitute a partnership,
an association or an unincorporated business or other separate entity and
(ii) any liability, including attorneys' fees, incurred by the Manager in
respect of any such action, claim or proceeding, whether such liability
shall be the result of a judgment or arbitrator's determination or as a
result of any settlement agreed to by the Manager, other than any such
expense or liability as to which the Manager actually receives indemnity
pursuant to Section 9.4, contribution pursuant to Section 9.5, indemnity or
contribution pursuant to the Underwriting Agreement or damages from an
Underwriter for breach of its representations, warranties, agreements, or
covenants contained in the applicable AAU. None of the foregoing provisions
of this Section 9.3 shall relieve any defaulting or breaching Underwriter
from liability for its defaults or breach.
9.4. INDEMNIFICATION. You agree to indemnify and hold harmless
each other Underwriter and each person, if any, who controls any such
Underwriter within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, to the extent and upon the terms which you
agree to indemnify and hold harmless any of the Issuer, the Guarantor, the
Seller, any person controlling the Issuer, the Guarantor, the Seller, its
directors and, in the case of a Registered Offering, its officers who
signed the Registration Statement and, in the case of an Offering other
than a Registered Offering, its officers, in each case as set forth in the
Underwriting Agreement. You further agree to indemnify and hold harmless
any investment banking firm identified in a Wire as the qualified
independent underwriter as defined in Rule 2720 of the NASD's Conduct Rules
("QIU") for an Offering and each person, if any, who controls such QIU
within the meaning of either Section 15 of the 1933 Act or Section 20 of
the 1934 Act, from and against any and all losses, claims, damages and
liabilities related to, arising out of or in connection with such
investment banking firm's activities as QIU for the Offering. You agree
with the other Underwriters to reimburse such QIU for all expenses,
including fees and expenses of counsel as they are incurred, in connection
with investigating, preparing for, or defending any action, claim or
proceeding related to, arising out of, or in connection with such QIU's
activities as a QIU for the Offering. Each Underwriter shall be responsible
for its Underwriting Percentage of any amount due to such QIU on account of
the foregoing indemnity. You agree that such QIU shall have no additional
liability to any Underwriter or otherwise as a result of its serving as QIU
in connection with the Offering. You further agree that to the extent the
indemnification provided to a QIU under this Section 9.4 is unavailable to
such QIU or insufficient in respect of any losses, claims, damages or
liabilities (and expenses relating thereto), whether as a matter of law or
public policy or as a result of the default of any Underwriter in
performing its obligations under this Section 9.4, you and each other
Underwriter shall contribute to the amount paid or payable by such QIU as a
result of such losses, claims, damages or liabilities (and expenses
relating thereto) in proportion to your Underwriting Percentage.
9.5. CONTRIBUTION. Notwithstanding any settlement on the
termination of the applicable AAU, you agree to pay upon request of the
Manager, as contribution, your Underwriting Percentage of any losses,
claims, damages or liabilities, joint or several, paid or incurred by any
Underwriter to any person other than an Underwriter, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus or
Prospectus (or any amendment or supplement thereto), any Preliminary
Offering Circular or Offering Circular (or any amendment or supplement
thereto) or Supplemental Offering Materials or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading (other than an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished
to the Company in writing by the Underwriter on whose behalf the request
for contribution is being made expressly for use therein) and your
Underwriting Percentage of any legal or other expenses reasonably incurred
by the Underwriter (with the approval of the Manager) on whose behalf the
request for contribution is being made in connection with investigating or
defending any such loss, claim, damage or liability or any action in
respect thereof; provided that no request shall be made on behalf of any
Underwriter guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) from any Underwriter who was not guilty of
such fraudulent misrepresentation. None of the foregoing provisions of this
Section 9.5 shall relieve any defaulting or breaching Underwriter from
liability for its defaults or breach.
9.6. SEPARATE COUNSEL. If any claim is asserted or action or
proceeding commenced pursuant to which the indemnity provided in Section
9.4 may apply, the Manager may take such action in connection therewith as
it deems necessary or desirable, including retention of counsel for the
Underwriters, and in its discretion separate counsel for any particular
Underwriter or group of Underwriters, and the fees and disbursements of any
counsel so retained shall be allocated among the several Underwriters as
determined by the Manager. Any Underwriter may elect to retain at its own
expense its own counsel and, on advice of such counsel but only with the
consent of the Manager, may settle or consent to the settlement of any such
claim, action or proceeding. The Manager may settle or consent to the
settlement of any such claim, action or proceeding. Whenever the Manager
receives notice of the assertion of any claim, action or proceeding to
which the provisions of Section 9.4 would apply, it will give prompt notice
thereof to each Underwriter, and whenever you receive notice of the
assertion of any claim or commencement of any action or proceeding to which
the provisions of Section 9.4 would apply, you will give prompt notice
thereof to the Manager. The Manager also will furnish each Underwriter with
periodic reports, at such times as it deems appropriate, as to the status
of such claim, action or proceeding, and the action taken by it in
connection therewith.
9.7. SURVIVAL OF AGREEMENTS. Regardless of any termination of
an AAU, your agreements contained in Article V and Sections 3.1, 9.3, 9.4,
9.5, 9.6 and 11.2 shall remain operative and in full force and effect
regardless of (i) any termination of the Underwriting Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Issuer, the
Guarantor, the Seller, its directors or officers or any person controlling
the Issuer, the Guarantor or the Seller and (iii) acceptance of any payment
for any Securities.
X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS
10.1. KNOWLEDGE OF OFFERING. You understand that it is your
responsibility to examine the Registration Statement, the Prospectus or the
Offering Circular, as the case may be, relating to the Offering, any
amendment or supplement thereto, any Preliminary Prospectus or Preliminary
Offering Circular and the material, if any, incorporated by reference
therein and any Supplemental Offering Materials and you will familiarize
yourself with the terms of the Securities, any applicable Indenture and the
other terms of the Offering thereof which are to be reflected in the
Prospectus or the Offering Circular, as the case may be, and the applicable
AAU and Underwriting Agreement. The Manager is authorized, with the advice
of counsel for the Underwriters, to approve on your behalf any amendments
or supplements to the Registration Statement and the Prospectus or the
Offering Circular, as the case may be.
10.2. DISTRIBUTION OF MATERIALS. You will keep an accurate
record of the names and addresses of all persons to whom you give copies of
the Registration Statement, the Prospectus, any Preliminary Prospectus (or
any amendment or supplement thereto) or any Offering Circular or any
Preliminary Offering Circular and, when furnished with any subsequent
amendment to the Registration Statement, any subsequent Prospectus, any
subsequent Offering Circular or any memorandum outlining changes in the
Registration Statement or any Prospectus or Offering Circular, you will,
upon request of the Manager, promptly forward copies thereof to such
persons.
10.3. ACCURACY OF UNDERWRITERS' INFORMATION. You confirm that
the information that you have given or are deemed to have given in response
to the Underwriters' Questionnaire attached as Exhibit A hereto (and to any
other questions addressed to you in the Invitation Wire or other Wires),
which information has been furnished to the Issuer for use in the
Registration Statement and the Prospectus or the Offering Circular, as the
case may be, or has otherwise been relied upon in connection with the
Offering, is complete and accurate. You shall notify the Manager
immediately of any development before the termination of the applicable AAU
which makes untrue or incomplete any information that you have given or are
deemed to have given in response to the Underwriters' Questionnaire (or
such other questions).
10.4. NAME; ADDRESS. Unless you have promptly notified the
Manager in writing otherwise, your name as it should appear in the
Prospectus or the Offering Circular and any advertisement, if different,
and your address are as set forth on the signature pages hereof.
10.5. CAPITAL REQUIREMENTS. You represent that your commitment
to purchase the Securities will not result in a violation of the financial
responsibility requirements of Rule 15c3-1 under the 1934 Act or of any
similar provision of any applicable rules of any securities exchange to
which you are subject or, if you are a financial institution subject to
regulation by the Board of Governors of the United States Federal Reserve
System, the United States Comptroller of the Currency or the United States
Federal Deposit Insurance Corporation, will not place you in violation of
any applicable capital requirements or restrictions of such regulator or
any other regulator to which you are subject.
10.6. COMPLIANCE WITH NASD REQUIREMENTS. You represent that you
are a member in good standing of the NASD, a Bank that is not a member of
the NASD or a foreign bank or dealer not eligible for membership in the
NASD. In making sales of Securities, if you are such a member, you agree to
comply with all applicable interpretive material ("IM") and rules of the
NASD, including, without limitation, IM-2110-1 (the NASD's interpretation
with respect to free-riding and withholding) and Rule 2740 of the NASD's
Conduct Rules, or, if you are such a foreign bank or dealer, you agree to
comply, as applicable, with IM-2110-1 and Rules 2730, 2740 and 2750 of the
NASD's Conduct Rules as though you were such a member and Rule 2420 of the
NASD's Conduct Rules as it applies to a nonmember broker or dealer in a
foreign country. If you are a Bank, you agree, to the extent required by
applicable law or the Conduct Rules of the NASD, that you will not, in
connection with the public offering of any Securities that do not
constitute "exempted securities" within the meaning of Section 3(a)(12) of
the 1934 Act or such other Securities as from time to time may be sold by a
Bank, purchase any Securities at a discount from the Offering Price from
any Underwriter or dealer or otherwise accept any Fees and Commissions from
any Underwriter or Dealer, and you agree to comply, as applicable, with
Rule 2420 of the NASD's Conduct Rules as though you were a member.
10.7. FURTHER STATE NOTICE. The Manager will file a Further
State Notice with the Department of State of New York, if required.
10.8. COMPLIANCE WITH RULE 15C2-8. In the case of a Registered
Offering and any other Offering to which the provisions of Rule 15c2-8
under the 1934 Act are made applicable pursuant to the AAU or otherwise,
you agree to comply with such Rule in connection with the Offering. In the
case of an Offering other than a Registered Offering, you agree to comply
with applicable Federal and state laws and the applicable rules and
regulations of any regulatory body promulgated thereunder governing the use
and distribution of offering circulars by underwriters.
10.9. DISCRETIONARY ACCOUNTS. In the case of a Registered
Offering of Securities issued by an Issuer that was not, immediately prior
to the filing of the Registration Statement, subject to the requirements of
Section 13(d) or 15(d) of the 1934 Act, you agree that you will not make
sales to any account over which you exercise discretionary authority in
connection with such sale except as otherwise permitted by the applicable
AAU for such Offering.
10.10. OFFERING RESTRICTIONS. If you are a foreign bank or
dealer and you are not registered as a broker-dealer under Section 15 of
the 1934 Act, you agree that while you are acting as an Underwriter in
respect of the Securities and in any event during the term of the
applicable AAU, you will not directly or indirectly effect in, or with
persons who are nationals or residents of, the United States, its
territories or possessions any transactions (except for the purchases
provided for in the Underwriting Agreement and transactions contemplated by
Articles III and V hereof) in Securities or any Other Securities.
It is understood that, except as specified in the applicable
AAU, no action has been taken by the Manager, the Issuer, the Guarantor or
the Seller to permit you to offer Securities in any jurisdiction other than
the United States, in the case of a Registered Offering, where action would
be required for such purpose.
10.11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. You agree to
make to each other Underwriter participating in an Offering the same
representations, warranties and agreements, if any, made by the
Underwriters to the Issuer, the Guarantor or the Seller in the applicable
Underwriting Agreement or any Intersyndicate Agreement and you authorize
the Manager to make such representations, warranties and agreements to the
Issuer, the Guarantor or the Seller on your behalf.
10.12. LIMITATION ON THE AUTHORITY OF THE MANAGER TO PURCHASE
AND SELL SECURITIES FOR THE ACCOUNT OF CERTAIN UNDERWRITERS.
Notwithstanding any provision of this AAU authorizing the Manager to
purchase or sell any Securities or Other Securities (including arranging
for the sale of Contract Securities) or over-allot in arranging sales of
Securities for the accounts of the several Underwriters, the Manager may
not, in connection with the Offering of any Securities, make any such
purchases, sales and/or over-allotments for the account of any Underwriter
that, not later than its acceptance of the Invitation Wire relating to such
Offering, has advised the Manager that, due to its status as, or
relationship to, a bank or bank holding company such purchases, sales
and/or over-allotments are prohibited by applicable law. If any Underwriter
so advises the Manager, the Manager may allocate any such purchases, sales
and over-allotments (and the related expenses) which otherwise would have
been allocated to your account based on your respective Underwriting
Percentage to your account based on the ratio of your Original Purchase
Obligation to the Original Purchase Obligations of all Underwriters other
than the advising Underwriter or Underwriters or in such other manner as
the Manager shall determine.
XI. DEFAULTING UNDERWRITERS
11.1. EFFECT OF TERMINATION. If the Underwriting Agreement is
terminated as permitted by the terms thereof, your obligations hereunder
with respect to the Offering of the Securities shall immediately terminate
except (i) as set forth in Section 9.7, (ii) that you shall remain liable
for your Underwriting Percentage (or such other percentage as may be
specified pursuant to Section 9.2) of all expenses and for any purchases or
sales which may have been made for your account pursuant to the provisions
of Article V hereof or any Intersyndicate Agreement and (iii) that such
termination shall not affect any obligations of any defaulting or breaching
Underwriter.
11.2. SHARING OF LIABILITY. If any Underwriter shall default in
its obligations (i) pursuant to Section 5.1, 5.2 or 5.4, (ii) to pay
amounts charged to its account pursuant to Section 7.1, 7.2 or 8.1 or (iii)
pursuant to Section 9.2, 9.3, 9.4, 9.5, 9.6 or 11.1, you will assume your
proportionate share (determined on the basis of the respective Underwriting
Percentages of the non-defaulting Underwriters) of such obligations, but no
such assumption shall relieve any defaulting Underwriter from liability to
the non-defaulting Underwriters, the Issuer, the Guarantor or the Seller
for its default.
11.3. ARRANGEMENTS FOR PURCHASES. The Manager is authorized to
arrange for the purchase by others (including the Manager or any other
Underwriter) of any Securities not purchased by any defaulting Underwriter
in accordance with the terms of the applicable Underwriting Agreement or,
if the applicable Underwriting Agreement does not provide arrangements for
defaulting Underwriters, in the discretion of the Manager. If such
arrangements are made, the respective amounts of Securities to be purchased
by the remaining Underwriters and such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder, but
this shall not relieve any defaulting Underwriter from liability for its
default.
XII. MISCELLANEOUS
12.1. OBLIGATIONS SEVERAL. Nothing contained in this Salomon
Smith Barney Master AAU or any AAU constitutes you partners with the
Manager or with the other Underwriters and the obligations of you and each
of the other Underwriters are several and not joint. Each Underwriter
elects to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A, of the United States Internal Revenue Code of 1986, as amended.
Each Underwriter authorizes the Manager, on behalf of such Underwriter, to
execute such evidence of such election as may be required by the United
States Internal Revenue Service.
12.2. LIABILITY OF MANAGER. The Manager shall be under no
liability to you for any act or omission except for obligations expressly
assumed by the Manager in the applicable AAU.
12.3. TERMINATION OF MASTER AGREEMENT AMONG UNDERWRITERS. This
SALOMON SMITH BARNEY Master AAU may be terminated by either party hereto
upon five business days' written notice to the other party; provided that
with respect to any Offering for which an AAU was sent prior to such
notice, this Salomon Smith Barney Master AAU as it applies to such Offering
shall remain in full force and effect and shall terminate with respect to
such Offering in accordance with Section 9.1 hereof.
12.4. GOVERNING LAW. THIS SALOMON SMITH BARNEY MASTER AAU AND
EACH AAU SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN
THE STATE OF NEW YORK.
12.5. AMENDMENTS. This Salomon Smith Barney Master AAU may be
amended from time to time by consent of the parties hereto. Your consent
shall be deemed to have been given to an amendment to this Salomon Smith
Barney Master AAU, and such amendment shall be effective, five business
days following written notice to you of such amendment if you do not notify
Salomon Smith Barney in writing prior to the close of business on such
fifth business day that you do not consent to such amendment. Upon
effectiveness, the provisions of this Salomon Smith Barney Master AAU as so
amended shall apply to each AAU thereafter entered into except as otherwise
specifically provided in any such AAU.
12.6. NOTICES. Any notice to any Underwriter shall be deemed to
have been duly given if mailed, sent by wire, telex, facsimile or
electronic transmission or other written communication or delivered in
person to such Underwriter at the address which shall have been provided to
Salomon Smith Barney as provided in Section 10.4 hereof. Any such notice
shall take effect upon receipt thereof.
Please confirm your acceptance of this Salomon Smith Barney
Master AAU by signing and returning to us the enclosed duplicate copy
hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
By: ______________________________
Name:
Title:
CONFIRMED:........................1999
......................................
(Name of Underwriter)
By:...................................
Name:
Title:
(If person signing is not an officer
or a partner, please attach instrument
of authorization)
Address: _____________________________
_____________________________
_____________________________
Telephone: ___________________________
Fax: ___________________________
EXHIBIT A
JUNE 1, 1999
SALOMON SMITH BARNEY INC.
UNDERWRITERS' QUESTIONNAIRE
In connection with each Offering covered by the Salomon Smith
Barney Inc. Master Agreement Among Underwriters dated June 1, 1999, we
confirm that except as set forth in a timely reply by us to the Invitation
Wire:
(1) Neither we nor any of our directors, officers or partners
have a material relationship (as "material" is defined in Regulation
C under the 1933 Act) with the Issuer, the Guarantor or any Seller.
(2) (If the offer and sale of the Securities are to be
registered under the 1933 Act pursuant to a Registration Statement on
Form S-1 of Form F-1:) Neither we nor any "group" (as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of which we are a member is the
beneficial owner (determined in accordance with Rule 13d-3 under the
Exchange Act) of more than 5% of any class of voting securities of
the Issuer or the Guarantor, nor do we have any knowledge that more
than 5% of any class of voting securities of the Issuer or the
Guarantor is held or to be held subject to any voting trust or other
similar agreement.
(3) Other than as may be stated in the Salomon Smith Barney
Master Agreement Among Underwriters dated June 1, 1999, the
applicable AAU, the Intersyndicate Agreement or dealer agreement, if
any, the Prospectus, the Registration Statement or the Offering
Circular, we do not know and have no reason to believe that there is
an intention to over-allot or that the price of any security may be
stabilized to facilitate the offering of the Securities.
(4) Except as described in the Prospectus or Offering Circular,
as the case may, be and the Invitation Wire, we do not know of any
discounts or commissions to be allowed or paid to dealers, including
all cash, securities, contracts or other consideration to be received
by any dealer in connection with the sale of the securities.
(5) We have not prepared any report or memorandum for external
use in connection with the Offering. (If there are any exceptions,
(i) furnish four (4) copies of each report and memorandum to Salomon
Smith Barney Inc., 388 Greenwich Street, New York, N.Y. 10013,
Attention: Investment Banking Department/Transaction Structuring
Group, (ii) identify each class of person who received such material
and the number of copies distributed to each such class, and (iii)
indicate when such distribution commenced and ceased.)
(6) (If the offer and sale of the Securities are to be
registered under the 1933 Act pursuant to a Registration Statement on
Form S-1 or Form F-1:) We have not within the past twelve months
prepared or had prepared for us any engineering, management or
similar report or memorandum relating to broad aspects of the
business, operations or products of the Issuer or the Guarantor. (The
immediately preceding sentence does not apply to reports solely
comprised of recommendations to buy, sell or hold the Issuer's or the
Guarantor's securities, unless such recommendations have changed
within the past six months or to information already contained in
documents filed with the Commission. If there are any exceptions, (i)
furnish four (4) copies of each report and memorandum to Salomon
Smith Barney Inc. 388 Greenwich Street, New York, N.Y. 10013,
Attention: Investment Banking Department/Transaction Structuring
Group, (ii) identify each class of persons who received such material
and the number of copies distributed to each such class, and (iii)
indicate when such distribution commenced and ceased.)
(7) We are not an "affiliate" of the Issuer or the Guarantor
for purposes of Rule 2720 of the National Association of Securities
Dealers, Inc.'s ("NASD") Conduct Rules. We understand that under Rule
2720 (except as provided in Rule 2720(b)(1)(C) thereof) two entities
are "affiliates" of each other if one entity controls, is controlled
by, or is under common control with, the second entity and that
"control" is presumed to exist if one entity (or, in the case of an
NASD member, the entity and all "persons associated with" it (as
defined in the NASD By-Laws)) beneficially owns 10% or more of the
second entity's outstanding voting securities or, if the second
entity is a partnership, if the first entity has a partnership
interest in 10% or more of the second entity's distributable profits
or losses.
(8) (If the Securities are not investment grade debt securities
or preferred stock, or equity securities for which there exists a
"bona fide independent market" (as defined in Rule 2720(b)(3) of the
NASD's Conduct Rules) or otherwise exempted under Rule 2720(b)(7)(D)
of the NASD's Conduct Rules:) We do not have a "conflict of interest"
with the Issuer or the Guarantor under Rule 2720 of the NASD's
Conduct Rules. In that regard, we specifically confirm that we, our
"parent" (as defined in Rule 2720), affiliates and "persons
associated with" us (as defined in the NASD By-Laws), in the
aggregate do not (i) beneficially own 10% or more of the Issuer's or
the Guarantor's "common equity", "preferred equity", or "subordinated
debt" (as each such term is defined in Rule 2720), or (ii) in the
case of an Issuer or Guarantor which is a partnership, beneficially
own a general, limited or special partnership interest in 10% or more
of the Issuer's or Guarantor's distributable profits or losses.
(9) (If filing with the NASD is required:) Neither we nor any
of our directors, officers, partners or "persons associated with" us
(as defined in the NASD By-Laws) nor, to our knowledge, any "related
person" (defined by the NASD to include counsel, financial
consultants and advisors, finders, members of the selling or
distribution group, any NASD member participating in the offering and
any other persons associated with or related to and members of the
immediate family of any of the foregoing) or any other broker-dealer,
(a) within the last 12 months have purchased in private transactions,
or intend before, at or within six months after the commencement of
the public offering of the Securities to purchase in private
transactions, any securities of the Issuer, the Guarantor or any
Issuer Related Party (as hereinafter defined), (b) within the last 12
months had any dealings with the Issuer, the Guarantor, any Seller or
any subsidiary or controlling person thereof (other than relating to
the proposed Underwriting Agreement) as to which documents or
information are required to be filed with the NASD pursuant to its
Corporate Financing Rule, or (c) during the 12 months immediately
preceding the filing of the Registration Statement (or, if there is
none, the Offering Circular), have entered into any arrangement which
provided or provides for the receipt of any item of value (including,
but not limited to, cash payments and expense reimbursements) and/or
the transfer of any warrants, options or other securities from the
Issuer, the Guarantor or any Issuer Related Party to us or any
related person.
(10) (If filing with the NASD is required:) There is no
association or affiliation between us and (i) any officer or director
of the Issuer, the Guarantor or any Issuer Related Party, or (ii) any
securityholder of five percent or more (or, in the case of an initial
public offering of equity securities, any securityholder) of any
class of securities of the Issuer, the Guarantor or an Issuer Related
Party; it being understood that for purposes of paragraph (9) above
and this paragraph (10), the term "Issuer Related Party" includes any
Seller, any affiliate of the Issuer the Guarantor or a Seller and the
officers or general partners, directors, employees and
securityholders thereof. (If there are any exceptions, state the
identity of the person with whom the association or affiliation
exists and, if relevant, the number of equity securities or the face
value of debt securities owned by such person, the date such
securities were acquired and the price paid for such securities).
(11) (If the Securities are not issued by a real estate
investment trust:) No portion of the net offering proceeds from the
sale of the Securities will be paid to us or any of our affiliates or
"persons associated with" us (as defined in the NASD By-Laws) or
members of the immediate family of any such person.
(12) (If the Securities are debt securities and their offer and
sale is to be registered under the 1933 Act:) We are not an affiliate
(as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the
Trustee for the Securities or of its parent, if any. Neither the
Trustee nor its parent, if any, nor any of their directors or
executive officers is a "director, officer, partner, employee,
appointee or representative" of ours (as those terms are defined in
the Trust Indenture Act of 1939 or in the relevant instructions to
Form T-1). We and our directors, partners, and executive officers,
taken as a group, did not on the date specified in the Invitation
Wire, and do not, own beneficially 1% or more of the shares of any
class of voting securities of the Trustee or of its parent, if any.
If we are a corporation, we do not have outstanding and have not
assumed or guaranteed any securities issued otherwise than in our
present corporate name.
(13) (If the Issuer is a public utility:) We are not a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding
company" or of a "public-utility company", each as defined in the
Public Utility Holding Company Act of 1935.
(14) If we are, or we are affiliated with, a U.S. or non-U.S.
bank, we hereby represent that our participation in the offering of
the Securities on the terms contemplated in the applicable AAU and
the proposed Underwriting Agreement does not contravene any U.S. or
state banking law restricting the exercise of securities powers in
the United States.
Capitalized terms used but not defined herein shall have the
respective meanings given to them in the applicable AAU.
MASTER SELECTED DEALER AGREEMENT
July 1, 1999
Ladies and Gentlemen:
In connection with registered public offerings of securities for which
we are acting as manager or co-manager of an underwriting syndicate or
unregistered offerings of securities for which we are acting as manager or
co-manager of the initial purchasers, you may be offered the right as a
selected dealer to purchase as principal a portion of such securities. This
will confirm our mutual agreement as to the general terms and conditions
applicable to your participation in any such selected dealer group.
1. APPLICABILITY OF THIS AGREEMENT. The terms and conditions of this
Agreement shall be applicable to any offering of securities ("Securities"),
whether pursuant to a registration statement filed under the Securities Act
of 1933, as amended (the "Securities Act"), or exempt from registration
thereunder, in respect of which Salomon Smith Barney Inc. (acting for its
own account or for the account of any underwriting or similar group or
syndicate) is responsible for managing or otherwise implementing the sale
of the Securities to selected dealers ("Selected Dealers") and has
expressly informed you that such terms and conditions shall be applicable.
Any such offering of Securities to you as a Selected Dealer is hereinafter
called an "Offering". In the case of any Offering where we are acting for
the account of any underwriting or similar group or syndicate
("Underwriters"), the terms and conditions of this Agreement shall be for
the benefit of, and binding upon, such Underwriters, including, in the case
of any Offering where we are acting with others as representatives of
Underwriters, such other representatives.
2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASES. Any Offering will
be subject to delivery of the Securities and their acceptance by us and
any other Underwriters, may be subject to the approval of all legal matters
by counsel and the satisfaction of other conditions, and may be made on the
basis of reservation of Securities or an allotment against subscription. We
will advise you by telecopy, telex or other form of written communication
("Written Communication", which term, in the case of any Offering described
in Section 3(a) or 3(b) hereof, may include a prospectus or offering
circular) of the particular method and supplementary terms and conditions
(including, without limitation, the information as to prices and the
offering date referred to in Section 3(c) hereof) of any Offering in which
you are invited to participate. To the extent such supplementary terms and
conditions are inconsistent with any provision herein, such terms and
conditions shall supersede any such provision. Unless otherwise indicated
in any such Written Communication, acceptances and other communications by
you with respect to an Offering should be sent to the appropriate Syndicate
Department of Salomon Smith Barney Inc. We may close the subscription books
at any time in our sole discretion without notice, and we reserve the right
to reject any acceptance in whole or in part.
Unless notified otherwise by us, Securities purchased by you shall be
paid for on such date as we shall determine, on one day's prior notice to
you, by wire transfer payable in immediately available funds to the order
of Salomon Smith Barney Inc., in an amount equal to the Public Offering
Price (as hereinafter defined) or, if we shall so advise you, at such
Public Offering Price less the Concession (as hereinafter defined). If
Securities are purchased and paid for at such Public Offering Price, such
Concession will be paid after the termination of the provisions of Section
3(c) hereof with respect to such Securities. Unless notified otherwise by
us, payment for and delivery of Securities purchased by you shall be made
through the facilities of The Depository Trust Company, if you are a
member, unless you have otherwise notified us prior to the date specified
in a Written Communication to you from us or, if you are not a member,
settlement may be made through a correspondent who is a member pursuant to
instructions which you will send to us prior to such specified date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(A) REGISTERED OFFERINGS. In the case of any Offering of Securities
which are registered under the Securities Act ("Registered Offering"), we
will make available to you as soon as practicable after sufficient copies
are made available to us by the issuer of the Securities such number of
copies of each preliminary prospectus and of the final prospectus relating
thereto as you may reasonably request for the purposes contemplated by the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the applicable rules and regulations of the Securities
and Exchange Commission thereunder.
You represent and warrant that you are familiar with Rule 15c2-8 under
the Exchange Act relating to the distribution of preliminary and final
prospectuses and agree that you will comply therewith. You agree to make a
record of your distribution of each preliminary prospectus and when
furnished with copies of any revised preliminary prospectus, you will
promptly forward copies thereof to each person to whom you have theretofore
distributed a preliminary prospectus.
You agree that in purchasing Securities in a Registered Offering you
will rely upon no statement whatsoever, written or oral, other than the
statements in the final prospectus delivered to you by us. You will not be
authorized by the issuer or other seller of Securities offered pursuant to
a prospectus or by any Underwriters to give any information or to make any
representation not contained in the prospectus in connection with the sale
of such Securities.
(B) OFFERINGS PURSUANT TO OFFERING CIRCULAR. In the case of any
Offering of Securities, other than a Registered Offering, which is made
pursuant to an offering circular or other document comparable to a
prospectus in a Registered Offering, we will make available to you as soon
as practicable after sufficient copies are made available to us by the
issuer of the Securities such number of copies of each preliminary offering
circular and of the final offering circular relating thereto as you may
reasonably request. You agree that you will comply with applicable Federal,
state and other laws, and the applicable rules and regulations of any
regulatory body promulgated thereunder, governing the use and distribution
of offering circulars by brokers or dealers. You agree that in purchasing
Securities pursuant to an offering circular you will rely upon no
statements whatsoever, written or oral, other than the statements in the
final offering circular delivered to you by us. You will not be authorized
by the issuer or other seller of Securities offered pursuant to an offering
circular or by any Underwriters to give any information or to make any
representation not contained in the offering circular in connection with
the sale of such Securities.
(C) OFFER AND SALE TO THE PUBLIC. The Offering of Securities is made
subject to the conditions referred to the prospectus or offering circular
relating to the Offering and to the terms and conditions set forth in this
Agreement. With respect to any Offering of Securities, we will inform you
by a Written Communication of the public offering price, the selling
concession, the reallowance (if any) to dealers and the time when you may
commence selling Securities to the public. After such public offering has
commenced, we may change the public offering price, the selling concession
and the reallowance to dealers. The offering price, selling concession and
reallowance (if any) to dealers at any time in effect with respect to an
Offering are hereinafter referred to, respectively, as the "Public Offering
Price", the "Concession" and the "Reallowance". With respect to each
Offering of Securities, until the provisions of this Section 3(c) shall be
terminated pursuant to Section 4 hereof, you agree to offer Securities to
the public only at the Public Offering Price, except that if a Reallowance
is in effect, a Reallowance from the Public Offering Price not in excess of
such Reallowance may be allowed as consideration for services rendered in
distribution to dealers who are actually engaged in the investment banking
or securities business who are either members in good standing of the NASD
who agree to abide by the applicable rules of the NASD (see Section 3(e)
below) or foreign banks, dealers or institutions not eligible for
membership in the NASD who represent to you that they will promptly reoffer
such Securities at the Public Offering Price and will abide by the
conditions with respect to foreign banks, dealers and institutions set
forth in Section 3(e) hereof.
(D) OVER-ALLOTMENT; STABILIZATION; UNSOLD ALLOTMENTS. We may, with
respect to any Offering, be authorized to over-allot in arranging sales to
Selected Dealers, to purchase and sell Securities for long or short account
and to stabilize or maintain the market price of the Securities. You agree
that upon our request at any time and from time to time prior to the
termination of the provisions of Section 3(c) hereof with respect to any
Offering, you will report to us the amount of Securities purchased by you
pursuant to such Offering which then remain unsold by you and will, upon
our request at any such time, sell to us for our account or the account of
one or more Underwriters such amount of such unsold Securities as we may
designate at the Public Offering Price less an amount to be determined by
us not in excess of the Concession. If, prior to the later of (a) the
termination of the provisions of Section 3(c) hereof with respect to any
Offering, or (b) the covering by us of any short position created by us in
connection with such Offering for our account or the account of one or more
Underwriters, we purchase or contract to purchase for our account or the
account of one or more Underwriters in the open market or otherwise any
Securities purchased by you under this Agreement as part of such Offering,
you agree to pay us on demand for the account of the Underwriters an amount
equal to the Concession with respect to such Securities (unless you shall
have purchased such Securities pursuant to Section 2 hereof at the Public
Offering Price and you have not received or been credited with any
Concession, in which case we shall not be obligated to pay such Concession
to you pursuant to Section 2) plus transfer taxes and broker's commissions
or dealer's mark-up, if any, paid in connection with such purchase or
contract to purchase.
(E) NASD. You represent and warrant that you are actually engaged in the
investment banking or securities business and either are a member in good
standing of the NASD or, if you are not such a member, you are a foreign
bank, dealer or institution not eligible for membership in the NASD which
agrees to make no sales within the United States, its territories or its
possessions or to persons who are citizens thereof or residents therein,
and in making other sales to comply with the NASD's interpretation with
respect to free-riding and withholding. You further represent, by your
participation in an Offering, that you have provided to us all documents
and other information required to be filed with respect to you, any related
person or any person associated with you or any such related person
pursuant to the supplementary requirements of the NASD's interpretation
with respect to review of corporate financing as such requirements relate
to such Offering.
You agree that, in connection with any purchase or sale of the
Securities wherein a selling concession, discount or other allowance is
received or granted, you will (a) if you are a member of the NASD, comply
with all applicable interpretive material ("IM") and Conduct Rules of the
NASD, including, without limitation, IM 2110-1 (relating to Free-Riding and
Withholding) and Conduct Rule 2740 (relating to Selling Concessions,
Discounts and Other Allowances) or (b) if you are a foreign bank or dealer
or institution not eligible for such membership, comply with IM 2110-1 and
with Conduct Rules 2730 (relating to Securities Taken in Trade), 2740
(relating to Selling Concessions) and 2750 (relating to Transactions With
Related Persons) as though you were such a member and Conduct Rule 2420
(relating to Dealing with Non-Members) as it applies to a non-member broker
or dealer in a foreign country.
You further agree that, in connection with any purchase of securities
from us that is not otherwise covered by the terms of this Agreement
(whether we are acting as manager, as member of an underwriting syndicate
or a selling group or otherwise), if a selling concession, discount or
other allowance is granted to you, clauses (a) and (b) of the preceding
paragraph will be applicable.
(F) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. We
may buy Securities from or sell Securities to any Underwriter or Selected
Dealer and, with our consent, the Underwriters (if any) and the Selected
Dealers may purchase Securities from and sell Securities to each other at
the Public Offering Price less all or any part of the Concession. We shall
have full authority to take such action as we deem advisable in all matters
pertaining to any Offering under this Agreement. You are not authorized to
act as agent for us, any Underwriter or the issuer or other seller of any
Securities in offering Securities to the public or otherwise. Neither we
nor any Underwriter shall be under any obligation to you except for
obligations assumed hereby or in any Written Communication from us in
connection with any Offering. Nothing contained herein or in any Written
Communication from us shall constitute the Selected Dealers an association
or partners with us or any Underwriter or with one another. If the Selected
Dealers, among themselves or with the Underwriters, should be deemed to
constitute a partnership for Federal income tax purposes, then you elect to
be excluded from the application of Subchapter K, Chapter 1, Subtitle A of
the Internal Revenue Code of 1986 and agree not to take any position
inconsistent with that election. You authorize us, in our discretion, to
execute and file on your behalf such evidence of that election as may be
required by the Internal Revenue Service. In connection with any Offering
you shall be liable for your proportionate amount of any tax, claim, demand
or liability that may be asserted against you alone or against one or more
Selected Dealers participating in such Offering, or against us or the
Underwriters, based upon the claim that the Selected Dealers, or any of
them constitute an association, an unincorporated business or other entity,
including, in each case, your proportionate amount of any expense incurred
in defending against any such tax, claim, demand or liability.
(G) BLUE SKY LAWS. Upon application to us, we shall inform you as to
any advice we have received from counsel concerning the jurisdictions in
which Securities have been qualified for sale or are exempt under the
securities or blue sky laws of such jurisdictions, but we do not assume any
obligation or responsibility as to your right to sell Securities in any
such jurisdiction.
(H) COMPLIANCE WITH LAW. You agree that in selling Securities pursuant
to any Offering (which agreement shall also be for the benefit of the
issuer or other seller of such Securities), you will comply with all
applicable laws, rules and regulations, including the applicable provisions
of the Securities Act and the Exchange Act, the applicable rules and
regulations of the Securities and Exchange Commission thereunder, the
applicable rules and regulations of the NASD, the applicable rules and
regulations of any securities exchange or other regulatory authority having
jurisdiction over the Offering and the applicable laws, rules and
regulations specified in Section 3(b) hereof. Without limiting the
foregoing, (a) you agree that, at all times since you were invited to
participate in an Offering of Securities, you have complied with the
provisions of Regulation M applicable to such Offering, in each case after
giving effect to any applicable exemptions and (b) you represent that your
incurrence of obligations hereunder in connection with any Offering of
Securities will not result in the violation by you of Rule 15c3-1 under the
Exchange Act, if such requirements are applicable to you.
4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall
continue in full force and effect until terminated by a written instrument
executed by each of the parties hereto. This Agreement may be supplemented
or amended by us by written notice thereof to you, and any such supplement
or amendment to this Agreement shall be effective with respect to any
Offering to which this Agreement applies after the date of such supplement
or amendment. Each reference to "this Agreement" herein shall, as
appropriate, be to this Agreement as so amended and supplemented. The terms
and conditions set forth in Section 3(c) hereof with regard to any Offering
will terminate at the close of business on the 30th day after the
commencement of the public offering of the Securities to which such
Offering relates, but in our discretion may be extended by us for a further
period not exceeding 30 days and in our discretion, whether or not
extended, may be terminated at any earlier time.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and
inure to the benefit of, the parties hereto and other persons specified in
Section 1 hereof, and the respective successors and assigns of each of
them.
6. GOVERNING LAW. This Agreement and the terms and conditions set
forth herein with respect to any Offering together with such supplementary
terms and conditions with respect to such Offering as may be contained in
any Written Communication from us to you in connection therewith shall be
governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts made and to be performed within the State of
New York.
Please confirm by signing and returning to us the enclosed copy of
this Agreement that your subscription to or your acceptance of any
reservation of any Securities pursuant to an Offering shall constitute (i)
acceptance of and agreement to the terms and conditions of this Agreement
(as supplemented and amended pursuant to Section 4 hereof; together with
and subject to any supplementary terms and conditions contained in any
Written Communication from us in connection with such Offering, all of
which shall constitute a binding agreement between you and us, individually
or as representative of any Underwriters, (ii) confirmation that your
representations and warranties set forth in Section 3 hereof are true and
correct at that time, (iii) confirmation that your agreements set forth in
Sections 2 and 3 hereof have been and will be fully performed by you to the
extent and at the times required thereby and (iv) in the case of any
Offering described in Section 3(a) or 3(b) hereof, acknowledgment that you
have requested and received from us sufficient copies of the final
prospectus or offering circular, as the case may be, with respect to such
Offering in order to comply with your undertakings in Section 3(a) or 3(b)
hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
By: _____________________
Name:
Title:
CONFIRMED:..................1999
................................
(Name of Dealer)
by:..............................
Name:
Title:
Address:
Telephone:
Fax:
FORM OF BROKER-DEALER AGREEMENT
Dated as of
Relating to
AUCTION RATE MUNICIPAL PREFERRED STOCK
(the "Preferred Shares")
SERIES ___, SERIES ___, SERIES ___ and SERIES ___
of
THE BLACKROCK ________________________
BROKER-DEALER AGREEMENT dated as of ______________, between Deutsche
Bank, a New York banking corporation (the "Auction Agent") (not in its
individual capacity but solely as agent of The BlackRock __________________
(the "Company"), pursuant to authority granted to it in the Auction Agent
Agreement dated as of ______________, between the Company and the Auction
Agent (the "Auction Agent Agreement")) and ______________ (together with
its successors and assigns hereinafter referred to as "BD").
The Company has duly authorized and issued ____ shares of Auction
Rate Municipal Preferred Stock, Series ___, with a par value of $.0l per
share and a liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series ___ Preferred Shares"), ____ shares of Auction
Rate Municipal Preferred Stock, Series ___, with a par value of $.0l per
share and a liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series ___ Preferred Shares"), _____ shares of
Auction Rate Municipal Preferred Stock, Series ___, with a par value of
$.0l per share and a liquidation preference of $25,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series ___ Preferred Shares") and ____ shares of
Auction Rate Municipal Preferred Stock, Series ___, with a par value of
$.0l per share and a liquidation preference of $25,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series ____ Preferred Shares") each pursuant to the
Company's Articles Supplementary (as defined below). The Series ___
Preferred Shares, the Series ___ Preferred Shares, the Series ___ Preferred
Shares and the Series ___ Preferred Shares are sometimes herein together
referred to as the "Preferred Shares".
The Company's Articles Supplementary provide that the dividend rate
on the Series ___ Preferred Shares, the Series ___ Preferred Shares, the
Series ___ Preferred Shares and the Series ___ Preferred Shares for each
Dividend Period therefor after the Initial Dividend Period shall be the
Applicable Rate therefor, which in each case, in general, shall be the rate
per annum that a commercial bank, trust company or other financial
institution appointed by the Company advises results from implementation of
the Auction Procedures (as defined below). The Board of Directors of the
Company has adopted a resolution appointing Deutsche Bank as Auction Agent
for purposes of the Auction Procedures, and pursuant to Section 2.5(d) of
the Auction Agent Agreement, the Company has authorized and directed the
Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary of the Company.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles
Supplementary of the Company, establishing the powers, preferences and
rights of the Series ___ Preferred Shares, the Series ___ Preferred Shares,
the Series ___ Preferred Shares and the Series ___ Preferred Shares filed
on ___________ in the office of the State Department of Assessments and
Taxation of the State of Maryland.
(b) "Auction" shall have the meaning specified in Section 3.1
hereof.
(c) "Auction Procedures" shall mean the Auction Procedures
that are set forth in Paragraph 11 of the Articles Supplementary.
(d) "Authorized Officer" shall mean each Senior Vice
President, Vice President, Assistant Vice President, Trust Officer,
Assistant Secretary and Assistant Treasurer of the Auction Agent assigned
to its Corporate Trust and Agency Group and every other officer or employee
of the Auction Agent designated as an "Authorized Officer" for purposes of
this Agreement in a communication to BD.
(e) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of this Agreement in a
communication to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement
and any substantially similar agreement between the Auction Agent and a
Broker-Dealer.
(g) "Purchaser's Letter" shall mean a letter addressed to
the Company, the Auction Agent and a Broker-Dealer, substantially in the
form attached hereto as Exhibit A.
(h) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit B.
1.3 Rules of Construction. Unless the context or use indicates
another or different meaning or intent, the following rules shall apply to
the construction of this Agreement:
(a) Words importing the singular number shall include the
plural number and vice versa.
(b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other
words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day
shall be to New York City time.
2. Notification of Dividend Period and Advance Notice of Allocation
of Taxable Income.
(a) The provisions contained in paragraph 2 of the
Articles Supplementary concerning the notification of a Special Dividend
Period will be followed by the Auction Agent and BD and the provisions
contained therein are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if
such provisions were fully set forth herein.
(b) Whenever the Company intends to include any net
capital gains or other taxable income in any dividend on Preferred Shares,
the Company will notify the Auction Agent of the amount to be so included
at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Company, it will in turn notify
BD, who, on or prior to such Auction Date, will notify its Existing Holders
and Potential Holders believed to be interested in submitting an Order in
the Auction to be held on such Auction Date.
3. The Auction.
3.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction
Procedures will be followed by the Auction Agent for the purpose of
determining the Applicable Rate for the Series ___ Preferred Shares, the
Series ___ Preferred Shares, the Series ___ Preferred Shares or the Series
___ Preferred Shares, as the case may be, for the next Dividend Period
therefor. Each periodic operation of such procedures is hereinafter
referred to as an "Auction."
(b) All of the provisions contained in the Auction
Procedures and the Settlement Procedures are incorporated herein by
reference in their entirety and shall be deemed to be a part of this
Agreement to the same extent as if such provisions were fully set forth
herein.
(c) BD is delivering herewith a Purchaser's Letter
executed by BD and, in the case of _______________ , a list of persons to
whom BD will initially sell the Series ___ Preferred Shares, the Series
____ Preferred Shares, the Series ___ Preferred Shares and the Series ___
Preferred Shares, the number of shares of each such series of Preferred
Shares BD will sell to each such person and the number of shares of each
such series of Preferred Shares BD will hold for its own account. BD agrees
to act as, and assumes the obligations of and limitations and restrictions
placed upon, a Broker- Dealer under this Agreement. BD understands that
other Persons meeting the requirements specified in the definition of
"Broker-Dealer" contained in Paragraph 1 of the Articles Supplementary may
execute a Broker-Dealer Agreement and a Purchaser's Letter and participate
as Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in
Auctions for their own accounts, provided that BD or such other
Broker-Dealers, as the case may be, has executed a Purchaser's Letter.
However, the Company may by notice to BD and all other Broker-Dealers
prohibit all Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit Hold Orders
and Sell Orders.
3.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for both
series of Preferred Shares, the Auction Agent shall advise BD by telephone
of the Maximum Applicable Rate in effect on such Auction Date as determined
from the higher of the 30- day "AA" Composite Commercial Paper Rate and the
Taxable Equivalent of the Short- Term Municipal Bond Rate (except in the
case of a Special Dividend Period in which case the Maximum Applicable Rate
shall be determined from the higher of the Special Dividend Period
Reference Rate and the Taxable Equivalent of the Short-Term Municipal Bond
Rate.
(b) In the event that the Auction Date for any Auction
shall be changed after the Auction Agent has given the notice referred to
in clause (vii) of paragraph (a) of the Settlement Procedures, the Auction
Agent, by such means as the Auction Agent deems practicable, shall give
notice of such change to BD not later than the earlier of 9:15 A.M. on the
new Auction Date or 9:15 A.M. on the old Auction Date. Thereafter, BD shall
promptly notify customers of BD that BD believes are Existing Holders of
Series ___ Preferred Shares, Series ___ Preferred Shares, Series___
Preferred Shares or Series ___ Preferred Shares, as the case may be, of
such change in the Auction Date.
(c) The Auction Agent from time to time may request BD to
provide it with a list of the respective customers BD believes are Existing
Holders of shares of Series ____ Preferred Shares, Series ____ Preferred
Shares, Series ___ Preferred Shares or Series ____ Preferred Shares. BD
shall comply with any such request, and the Auction Agent shall keep
confidential any such information, including information received as to the
identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Company; and such
information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such
purposes as are described herein. The Auction Agent shall transmit any list
of customers BD believes are Existing Holders of Series ___ Preferred
Shares, Series ___ Preferred Shares, Series ___ Preferred Shares or Series
____ Preferred Shares and information related thereto only to its officers,
employees, agents or representatives in the Corporate Trust and Agency
Group who need to know such information for the purposes of acting in
accordance with this Agreement and shall prevent the transmission of such
information to others and shall cause its officers, employees, agents and
representatives to abide by the foregoing confidentiality restrictions;
provided, however, that the Auction Agent shall have no responsibility or
liability for the actions of any of its officers, employees, agents or
representatives after they have left the employ of the Auction Agent.
(d) The Auction Agent is not required to accept the
Purchaser's Letter for any Potential Holder for an Auction unless it is
received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding such Auction.
3.3 Auction Schedule; Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct
Auctions for both series of Preferred Shares in accordance with the
schedule set forth below. Such schedule may be changed at any time by the
Auction Agent with the consent of the Company, which consent shall not be
unreasonably withheld. The Auction Agent shall give notice of any such
change to BD. Such notice shall be received prior to the first Auction Date
on which any such change shall be effective.
Time Event
By 9:30 A.M. Auction Agent advises the Company and Broker-
Dealers of the Maximum Applicable Rate as
determined from the higher of the 30-day "AA"
Composite Commercial Paper Rate and the
Taxable Equivalent of the Short-Term Municipal
Bond Rate (except in the case of a Special
Dividend Period in which case the Maximum
Applicable Rate shall be the higher of the Special
Dividend Period Reference Rate and the Taxable
Equivalent of the Short-Term Municipal Bond
Rate) as set forth in Section 3.2(a) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as provided
in Paragraph 11(c)(i) of the Articles
Supplementary. Submission Deadline is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determinations pursuant to
Paragraph 11(d)(i) of the Articles Supplementary.
By approximately 3:00 P.M. Auction Agent advises Company of results of
Auction as provided in Paragraph 11(d)(ii) of
the Articles Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of Preferred Shares are allocated as
provided in Paragraph 11(e) of the Articles
Supplementary.
Auction Agent gives notice of Auction results as
set forth in Section 3.4(a) hereof.
(b) BD agrees to maintain a list of Potential Holders and
to contact the Potential Holders on such list on or prior to each Auction
Date for the purposes set forth in Paragraph 11 of the Articles
Supplementary.
(c) BD agrees not to sell, assign or dispose of any Series
___ Preferred Shares, Series ___ Preferred Shares, Series ___ Preferred
Shares or Series ___ Preferred Shares to any Person who has not delivered a
signed Purchaser's Letter to the Auction Agent.
(d) BD shall submit Orders to the Auction Agent in writing
in substantially the form attached hereto as Exhibit ___. BD shall submit
separate Orders to the Auction Agent for each Potential Holder or Existing
Holder on whose behalf BD is submitting an Order and shall not net or
aggregate the Orders of Potential Holders or Existing Holders on whose
behalf BD is submitting Orders.
(e) BD shall deliver to the Auction Agent (i) a written
notice, substantially in the form attached hereto as Exhibit ___, of
transfers of Series ___ Preferred Shares, Series ___ Preferred Shares,
Series ___ Preferred Shares or Series ___ Preferred Shares made through BD
by an Existing Holder to another Person other than pursuant to an Auction,
and (ii) a written notice, substantially in the form attached hereto as
Exhibit ___, of the failure of any Series ___ Preferred Shares, Series ___
Preferred Shares, Series ___ Preferred Shares or Series ___ Preferred
Shares to be transferred to or by any Person that purchased or sold Series
___ Preferred Shares, Series ___ Preferred Shares, Series ___ Preferred
Shares, Series ___ Preferred Shares or through ___ pursuant to an Auction.
The Auction Agent is not required to accept any notice delivered pursuant
to the terms of the foregoing sentence with respect to an Auction unless it
is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.
3.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify
BD by telephone as set forth in paragraph (a) of the Settlement Procedures.
On the Business Day next succeeding such Auction Date, the Auction Agent
shall notify BD in writing of the disposition of all Orders submitted by BD
in the Auction held on such Auction Date.
(b) BD shall notify each Existing Holder or Potential
Holder on whose behalf BD has submitted an Order as set forth in paragraph
(b) of the Settlement Procedures and take such other action as is required
of BD pursuant to the Settlement Procedures.
If any Existing Holder selling Preferred Shares in an Auction
fails to deliver such shares, the BD of any Person that was to have
purchased Series ___ Preferred Shares, Series ___ Preferred Shares, Series
___ Preferred Shares or Series ___ Preferred Shares in such Auction may
deliver to such Person a number of whole shares of such Series ___
Preferred Shares, Series ___ Preferred Shares, Series ___ Preferred Shares
or Series ___ Preferred Shares, as the case may be, that is less than the
number of shares that otherwise was to be purchased by such Person. In such
event, the number of such Series ___ Preferred Shares, Series ___ Preferred
Shares, Series ___ Preferred Shares or Series ___ Preferred Shares to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such
failure to deliver shares, such BD shall deliver to the Auction Agent the
notice required by Section 3.3(e)(ii) hereof. Notwithstanding the foregoing
terms of this Section 3.4(b), any delivery or non-delivery of Series ___
Preferred Shares, Series ___ Preferred Shares, Series ___ Preferred Shares
or Series ___ Preferred Shares which represents any departure from the
results of an Auction, as determined by the Auction Agent, shall be of no
effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the terms of Section 3.3(e)(ii)
hereof. The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 3.4(b).
3.5 Service Charge to Be Paid to BD. On the Business Day
nextsucceeding each Auction Date for each series of Preferred Shares, the
Auction Agent shall pay to BD from moneys received from the Company an
amount equal to, (a) in the case of any Auction Date immediately preceding
any Dividend Period of 28 days or less, the product of (i) a fraction the
numerator of which is the number of days in such Dividend Period
(calculated by counting the first day of such Dividend Period but excluding
the last day thereof) and the denominator of which is 365, times (ii) 1/4
of 1%, times (iii) $25,000, times (iv) the sum of (A) the aggregate number
of shares of such series of Preferred Shares placed by BD in the applicable
Auction that were (x) the subject of a Submitted Bid of an Existing Holder
submitted by BD and continued to be held as a result of such submission and
(y) the subject of a Submitted Bid of a Potential Holder submitted by BD
and were purchased as a result of such submission plus (B) the aggregate
number of shares of such series of Preferred Shares subject to valid Hold
Orders (determined in accordance with Paragraph 11 of the Articles
Supplementary) submitted to the Auction Agent by BD plus (C) the number of
shares of such series of Preferred Shares deemed to be subject to Hold
Orders by Existing Holders pursuant to Paragraph 11 of the Articles
Supplementary that were acquired by such Existing Holders through BD and
(b) in the case of any Auction Date immediately preceding any Dividend
Period of 35 days or more, that amount as mutually agreed on by the Company
and BD, based on a selling concession that would be applicable to an
underwriting of fixed or variable rate preferred shares with a similar
final maturity or variable rate dividend period, respectively, at the
commencement of the Dividend Period with respect to such Auction. For the
purposes of calculating any such fee, Preferred Shares will be placed by a
Broker-Dealer if such shares were (i) the subject of Hold Orders deemed to
have been made by Existing Holders that were acquired by such Existing
Holders through such Broker-Dealer or (ii) the subject of the following
Orders submitted by such Broker- Dealer: (A) a Submitted Bid of an Existing
Holder that resulted in such Existing Holder continuing to hold such shares
as a result of the Auction, (B) a Submitted Bid of a Potential Holder that
resulted in such Potential Holder purchasing such shares as a result of the
Auction or (C) a Submitted Hold Order.
For purposes of subclause (iv) (C) of the foregoing sentence,
if any Existing Holder who acquired Series ___ Preferred Shares, Series ___
Preferred Shares, Series ___ Preferred Shares or Series ___ Preferred
Shares through BD transfers those shares to another Person other than
pursuant to an Auction, then the Broker-Dealer for the shares so
transferred shall continue to be BD, provided, however, that if the
transfer was effected by, or if the transferee is, a Broker-Dealer other
than BD, then such Broker- Dealer shall be the Broker-Dealer for such
shares.
4. The Auction Agent.
4.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the
Company hereunder and owes no fiduciary duties to any other Person by
reason of this Agreement.
(b) The Auction Agent undertakes to perform such duties
and only such duties as are specifically set forth in this Agreement, and
no implied covenants or obligations shall be read into this Agreement
against the Auction Agent.
(c) In the absence of bad faith or negligence on its part,
the Auction Agent shall not be liable for any action taken, suffered, or
omitted or for any error of judgment made by it in the performance of its
duties under this Agreement. The Auction Agent shall not be liable for any
error of judgment made in good faith unless the Auction Agent shall have
been negligent in ascertaining (or failing to ascertain) the pertinent
facts.
4.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized by this
Agreement and upon any written instruction, notice, request, direction,
consent, report, certificate, share certificate or other instrument, paper
or document believed by it to be genuine. The Auction Agent shall not be
liable for acting upon any telephone communication authorized by this
Agreement which the Auction Agent believes in good faith to have been given
by the Company or by BD. The Auction Agent may record telephone
communications with BD.
(b) The Auction Agent may consult with counsel of its own
choice, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance,
expend or risk its own funds or otherwise incur or become exposed to
financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise
its rights hereunder either directly or by or through agents or attorneys.
4.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the
Series ___ Preferred Shares, the Series ___ Preferred Shares, the Series
___ Preferred Shares or the Series ___ Preferred Shares.
5. Miscellaneous.
5.1 Termination. Any party may terminate this Agreement at any
time upon five days' prior notice to the other party.
5.2 Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
5.3 Communications. Except for (i) communications authorized to
be made by telephone pursuant to this Agreement or the Auction Procedures
and (ii) communications in connection with the Auctions (other than those
expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given to such party, addressed to
it, at its address or telecopy number set forth below:
If to BD addressed: ___________________
___________________
___________________
___________________
Attention: ___________________
Telecopier No.:___________________
Telephone No.: ___________________
If to the Auction Agent, addressed:
Deutsche Bank
4 Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6850
Telephone No.:(212) 250-6215
or such other address or telecopy number as such party may hereafter
specify for such purpose by notice to the other party. Each such notice,
request or communication shall be effective when delivered at the address
specified herein. Communications shall be given on behalf of BD by a BD
Officer and on behalf of the Auction Agent by an Authorized Officer. BD may
record telephone communications with the Auction Agent.
5.4 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and
there are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to
the subject matter hereof.
5.5 Benefits. Nothing in this Agreement, express or implied,
shall give to any person, other than the Company, the Auction Agent and BD
and their respective successors and assigns, any benefit of any legal or
equitable right, remedy or claim under this Agreement.
5.6 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part,
except by a written instrument signed by a duly authorized representative
of the party to be charged.
(b) Failure of either party to this Agreement to exercise
any right or remedy hereunder in the event of a breach of this Agreement by
the other party shall not constitute a waiver of any such right or remedy
with respect to any subsequent breach.
5.7 Successors and Assigns. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the respective
successors and permitted assigns of each of BD and the Auction Agent. This
Agreement may not be assigned by either party hereto absent the prior
written consent of the other party; provided, however, that this Agreement
may be assigned by the Auction Agent to a successor Auction Agent selected
by the Company without the consent of BD.
5.8 Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision
or section shall not affect any remaining clause, provision or section
hereof.
5.9 Execution in Counterparts. This Agreement may be executed
in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
5.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers
as of the date first above written.
DEUTSCHE BANK
By:____________________________________
Title:
By:____________________________________
Title:
EXHIBIT A
TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL
THEN DELIVER COPIES ON YOUR BEHALF TO THE RESPECTIVE
TRUST COMPANY OR REMARKETING AGENT.
MASTER PURCHASER'S LETTER
Relating to Securities Involving Rate Settings Through Auctions or Remarketings
The Company A Remarketing Agent
The Trust Company A Broker-dealer
An Agent Member Other Persons
Dear Sirs:
1. This letter is designed to apply to publicly or privately offered
debt or equity securities ("Securities") of any issuer ("Company") which
are described in any final prospectus or other offering materials relating
to such Securities as the same may be amended or supplemented
(collectively, with respect to the particular Securities concerned, the
"Prospectus") and which involve periodic rate settings through auctions
("Auctions") or remarketing procedures ("Remarketings"). This letter shall
be for the benefit of any Company and of any trust company, auction agent,
paying agent (collectively, "trust company"), remarketing agent,
broker-dealer, agent member, securities depository or other interested
person in connection with any Securities and related Auctions or
Remarketings (it being understood that such persons may be required to
execute specified agreements and nothing herein shall alter such
requirements). The terminology used herein is intended to be general in its
application and not to exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to
sell and/or sell Securities of any Company as described in the Prospectus
relating thereto. We agree that this letter shall apply to all such
purchases, sales and offers and to Securities owned by us. We understand
that the dividend/interest rate on Securities may be based from time to
time on the results of Auctions or Remarketings as set forth in the
Prospectus.
3. We agree that any bid or sell order placed by us in an Auction or
a Remarketing shall constitute an irrevocable offer (except as otherwise
described in the Prospectus) by us to purchase or sell the Securities
subject to such bid or sell order, or such lesser amount of Securities as
we shall be required to sell or purchase as a result of such Auction or
Remarketing, at the applicable price, all as set forth in the Prospectus,
and that if we fail to place a bid or sell order with respect to Securities
owned by us with a broker-dealer on any Auction or Remarketing date, or a
broker-dealer to which we communicate a bid or sell order fails to submit
such bid or sell order to the trust company or remarketing agent concerned,
we shall be deemed to have placed a hold order with respect to such
Securities as described in the Prospectus. We authorize any broker-dealer
that submits a bid or sell order as our agent in Auctions or Remarketings
to execute contracts for the sale of Securities covered by such bid or sell
order. We recognize that the payment by such broker-dealer for Securities
purchased on our behalf shall not relieve us of any liability to such
broker-dealer for payment for such Securities.
4. We understand that in a Remarketing, the dividend or interest rate
or rates on the Securities and the allocation of Securities tendered for
sale between dividend or interest periods of different lengths will be
based from time to time on the determinations of one or more remarketing
agents, and we agree to be conclusively bound by such determinations. We
further agree to the payment of different dividend or interest rates to
different holders of Securities depending on the length of the dividend or
interest period elected by such holders. We agree that any notice given by
us to a remarketing agent (or to a broker-dealer for transmission to a
remarketing agent) of our desire to tender Securities in a Remarketing
shall constitute an irrevocable (except to the limited extent set forth in
the Prospectus) offer by us to sell the Securities specified in such
notice, or such lesser number of Securities as we shall be required to sell
as a result of such Remarketing in accordance with the terms set forth in
the Prospectus, and we authorize the remarketing agent to sell, transfer or
otherwise dispose of such Securities as set forth in the Prospectus.
5. We agree that, during the applicable period as described in
the Prospectus, dispositions of Securities can be made only in the
denominations set forth in the Prospectus and we will sell, transfer or
otherwise dispose of any Securities held by us from time to time only
pursuant to a bid or sell order placed in an Auction, in a Remarketing, to
or through a broker-dealer or, when permitted in the Prospectus, to a
person that has signed and delivered to the applicable trust company or a
remarketing agent a letter substantially in the form of this letter (or
other applicable purchaser's letter) provided that in the case of all
transfers other than pursuant to Auctions or Remarketings we or our
broker-dealer or our agent member shall advise such trust company or a
remarketing agent of such transfer. We understand that a restrictive legend
will be placed on certificates representing the Securities and
stop-transfer instructions will be issued to the transfer agent and/or
registrar, all as set forth in the Prospectus.
6. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by one or more
global certificates registered in the name of the applicable securities
depository or its nominee that we will not be entitled to receive any
certificate representing the Securities and that our ownership of any
Securities will be maintained in book entry form by the securities
depository for the account of our agent member, which in turn will maintain
records of our beneficial ownership. We authorize and instruct our agent
member to disclose to the applicable trust company or remarketing agent
such information concerning our beneficial ownership of Securities as such
trust company or remarketing agent shall request.
7. We acknowledge that partial deliveries of Securities purchased in
Auctions or Remarketings may be made to us and such deliveries shall
constitute good delivery as set forth in the Prospectus.
8. This letter is not a commitment by us to purchase any Securities.
9. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior or post-dated purchaser's
letter specific to particular Securities, and this letter may only be
revoked by a signed writing delivered to the original recipients hereof.
10. The descriptions of Auction or Remarketing procedures set forth
in each applicable Prospectus are incorporated by reference herein and in
case of any conflict between this letter, any purchaser's letter specific
to particular Securities and any such description, such description shall
control.
11. Any xerographic or other copy of this letter shall be deemed of
equal effect as a signed original.
12. Our agent member of The Depository Trust Company currently is
__________________________________________________________.
13. Our personnel authorized to place orders with broker-dealers for
the purposes set forth in the Prospectus in Auctions or Remarketings
currently is/are , telephone number ( ) - .
14. Our taxpayer identification number is __________________________.
15. In the case of each offer to purchase, purchase, offer to sell or
sale by us of Securities not registered under the Securities Act of 1933,
as amended (the "Act"), we represent and agree as follows:
A. We understand and expressly acknowledge that the Securities
have not been and will not be registered under the Act and,
accordingly, that the Securities may not be reoffered, resold or
otherwise pledged, hypothecated or transferred unless an applicable
exemption from the registration requirements of the Act is available.
B. We hereby confirm that any purchase of Securities made by us
will be for our own account, or for the account of one or more
parties for which we are acting as trustee or agent with complete
investment discretion and with authority to bind such parties, and
not with a view to any public resale or distribution thereof. We and
each other party for which we are acting which will acquire
Securities will be "accredited investors" within the meaning of
Regulation D under the Act with respect to the Securities to be
purchased by us or such party, as the case may be, will have
previously invested in similar types of instruments and will be able
and prepared to bear the economic risk of investing in and holding
such Securities.
C. We acknowledge that prior to purchasing any Securities we
shall have received a Prospectus (or private placement memorandum)
with respect thereto and acknowledge that we will have had access to
such financial and other information, and have been afforded the
opportunity to ask such questions of representatives of the Company
and receive answers thereto, as we deem necessary in connection with
our decision to purchase Securities.
D. We recognize that the Company and broker-dealers will rely
upon the truth and accuracy of the foregoing investment
representations and agreements, and we agree that each of our
purchases of Securities now or in the future shall be deemed to
constitute our concurrence in all of the foregoing which shall be
binding on us and each party for which we are acting as set forth in
Subparagraph B above.
_________________________________________
(Name of Purchaser)
By_______________________________________
Printed Name:
Title:
Dated:__________________________
Mailing Address of Purchaser
________________________________
________________________________
________________________________
EXHIBIT B
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of
each Auction and will be incorporated by reference in the Auction Agent
Agreement and each Broker-Dealer Agreement. Nothing contained in this
Appendix constitutes a representation by the Trust that in each Auction
each party referred to herein will actually perform the procedures
described herein to be performed by such party. Capitalized terms used
herein shall have the respective meanings specified in the Articles
Supplementary.
(a) On each Auction Date, the Auction Agent shall notify by
telephone the Broker-Dealers that participated in the Auction held on
such Auction Date and submitted an Order on behalf of any Existing
Holder or Potential Holder of:
(i) the Applicable Rate fixed for the next succeeding
Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted a Bid or Sell Order on behalf of an Existing Holder,
the number of shares, if any, of Preferred Shares to be sold by
such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Holder, the number of
shares, if any, of Preferred Shares to be purchased by such
Potential Holder;
(v) if the aggregate number of Preferred Shares to be
sold by all Existing Holders on whose behalf such Broker-Dealer
submitted a Bid or a Sell Order exceeds the aggregate number of
Preferred Shares to be purchased by all potential Holders on
whose behalf such Broker-Dealer submitted a Bid, the name or
names of one or more Buyer's Broker- Dealers (and the name of
the Agent Member, if any, of each such Buyer's Broker-Dealer)
acting for one or more purchasers of such excess number of
Preferred Shares and the number of such shares to be purchased
from one or more Existing Holders on whose behalf such
Broker-Dealer acted by one or more Potential Holders on whose
behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of Preferred Shares to be
purchased by all Potential Holders on whose behalf such
Broker-Dealer submitted a Bid exceeds the aggregate number of
Preferred Shares to be sold by all Existing Holders on whose
behalf such Broker-Dealer submitted a Bid or a Sell Order, the
name or names of one or more Seller's Broker-Dealers (and the
name of the Agent Member, if any, of each such Seller's
Broker-Dealer) acting for one or more sellers of such excess
number of Preferred Shares and the number of such shares to be
sold to one or more Potential Holders on whose behalf such
Broker- Dealer acted by one or more Existing Holders on whose
behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction
with respect to the Preferred Shares.
(b) On each Auction Date, each Broker-Dealer that submitted an
Order on behalf of any Existing Holder or Potential Holder shall:
(i) in the case of a Broker-Dealer that is a Buyer's
Broker- Dealer, instruct each Potential Holder on whose behalf
such Broker-Dealer submitted a Bid that was accepted, in whole
or in part, to instruct such Potential Holder's Agent Member to
pay to such Broker-Dealer (or its Agent Member) through the
Securities Depository the amount necessary to purchase the
number of Preferred Shares to be purchased pursuant to such Bid
against receipt of such shares and advise such Potential Holder
of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Holder on whose behalf
such Broker-Dealer submitted a Sell Order that was accepted,
in whole or in part, or a Bid that was accepted, in whole or in
part, to instruct such Existing Holder's Agent Member to
deliver to such Broker-Dealer (or its Agent Member) through the
Securities Depository the number of Preferred Shares to be sold
pursuant to such Order against payment therefor and advise any
such Existing Holder that will continue to hold Preferred
Shares of the Applicable Rate for the next succeeding Dividend
Period;
(iii) advise each Existing Holder on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate
for the next succeeding Dividend Period;
(iv) advise each Existing Holder on whose behalf such
Brokerer-Dealer submitted an Order of the Auction Date for the
next succeeding Auction; and
(v) advise each Potential Holder on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in
part, of the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to
(a) above, each Broker-Dealer that submitted a Bid or a Sell Order on
behalf of a Potential Holder or an Existing Holder shall, in such
manner and at such time or times as in its sole discretion it may
determine, allocated any funds received by it pursuant to (b)(i)
above and any Preferred Shares received by it pursuant to (b)(ii)
above among the Potential Holders, if any, on whose behalf such
Broker-Dealer submitted Bids, the Existing Holders, if any, on whose
behalf such Broker-Dealer submitted Bids that were accepted or Sell
Orders, and any Broker-Dealer or Broker-Dealers identified to it by
the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder shall
instruct its Agent Member as provided in (b)(i) or (ii) above,
as the case may be;
(ii) each Seller's Broker-Dealer which is not an Agent
Member of the Securities Depository shall instruct its Agent
Member to (A) pay through the Securities Depository to the
Agent Member of the Existing Holder delivering shares to such
Broker-Dealer pursuant to (b)(ii) above the amount necessary to
purchase such shares against receipt of such shares, and (B)
deliver such shares through the Securities Depository to a
Buyer's Broker-Dealer (or its Agent Member) identified to such
Seller's Broker-Dealer pursuant to (a)(v) above against payment
therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent
Member of the Securities Depository shall instruct its Agent
Member to (A) pay through the Securities Depository to a
Seller's Broker-Dealer (or its Agent Member) identified pursuant
to (a)(vi) above the amount necessary to purchase the shares to
be purchased pursuant to (b)(i) above against receipt of such
shares, and (B) deliver such shares through the Securities
Depository to the Agent Member of the purchaser thereof against
payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i)
above shall instruct the Securities Depository to execute the
transactions described under (b)(i) or (ii) above, and the
Securities Depository shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member
shall instruct the Securities Depository to execute the
transactions described in (d)(ii) above, and the Securities
Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member
shall instruct the Securities Depository to execute the
transactions described in (d)(iii) above, and the Securities
Depository shall execute such transactions.
(f) If an Existing Holder selling Preferred Shares in an
Auction fails to deliver such shares (by authorized book-entry), a
Broker-Dealer may deliver to the Potential Holder on behalf of which
it submitted a Bid that was accepted a number of whole Preferred
Shares that is less than the number of shares that otherwise was to
be purchased by such Potential Holder. In such event, the number of
Preferred Shares to be so delivered shall be determined solely by
such Broker-Dealer. Delivery of such lesser number of shares shall
constitute good delivery. Notwithstanding the foregoing terms of this
paragraph (f), any delivery or non-delivery of shares which shall
represent any departure from the results of an Auction, as determined
by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or
non-delivery in accordance with the provisions of the Auction Agent
Agreement and the Broker-Dealer Agreements.
EXHIBIT C
DEUTSCHE BANK AUCTION BID FORM
Submit To: Deutsche Bank Issue:The BlackRock
4 Albany Street Insured Municipal 2008
New York, New York 10006 Term Trust Inc.
Series:
Auction Date:
Attention: Auction Rate Securities Telephone(212) 250-6215
Facsimile(212) 250-6850
The undersigned Broker-Dealer submits the following Order on behalf
of the Bidder listed below:
Name of Bidder:____________________
EXISTING HOLDER
Shares now held _____________________ HOLD_____________________________
BID at rate of __________________
SELL ____________________________
POTENTIAL HOLDER
# of shares bid _________________
BID at rate of __________________
Notes:
(1) If submitting more than one Bid for one Bidder, use additional
Auction Bid Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Existing Holder are submitted, such
Bids shall be considered valid in the order of priority set forth in
the Auction Procedures on the above issue.
(3) A Hold or Sell may be placed only by an Existing Holder covering a
number of shares not greater than the number of shares currently
held.
(4) Potential Holders may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate
specified.
(5) Bids may contain no more than three figures to the right of the
decimal point (.001 of 1%). Fractions will not accepted.
NAME OF BROKER-DEALER ___________________
Authorized Signature ____________________
EXHIBIT D
(To be used only for transfers made other than pursuant to an Auction).
TRANSFER FORM
Re: The BlackRock _____________________________________ Series [ ] [ ]
[ ] [ ] Preferred Shares (the "Preferred Shares")
We are (check one):
o the Existing Holder named below;
o the Broker-Dealer for such Existing Holder; or
o the Agent Member for such Existing Holder.
We hereby notify you that such Existing Holder has transferred _____
shares of [Series ___] [Series ___] [Series ___] [Series ___] Preferred
Shares to __________.
_____________________________________________
(Name of Existing Holder)
_____________________________________________
(Name of Broker-Dealer)
_____________________________________________
(Name of Agent Member)
By:__________________________________________
Printed Name:
Title:
EXHIBIT E
(To be used only for failures to deliver Preferred Shares sold pursuant to
an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for _________________ (the "Purchaser"),
which purchased _______ Series [ ][ ][ ][ ] Preferred Shares of
The BlackRock _____________________ in the Auction held on
___________ from the seller of such shares.
II. We are a Broker-Dealer for _________________ (the "Seller"), which
sold _______ Series [ ][ ][ ][ ] Preferred Shares of The
BlackRock ________________________ in the Auction held on
____________ to the Purchaser of such shares.
We hereby notify you that (check one) --
_________ the Seller failed to deliver such shares to the Purchaser
_________ the Purchaser failed to make payment to the Seller upon
delivery of such shares
Name:_________________________________________
(Name of Broker-Dealer
By: __________________________________________
Printed Name:
Title:
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Trust Company]
The BlackRock Insured Municipal Term Trust Inc.
-----------------------------------------------
[Name of Issuer]
Deutsche Bank (Successor entity to Bankers Trust Co.)
-----------------------------------------------------
[Name of Trust Company]
March , 2000
---------------
[Date]
Attention: General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street 49th Floor
New York, NY 10041-0099
Re: Auction Rate Municipal Preferred Stock, Series M-7, CUSIP
---------------------------------------------------------
No. [ ]1
----------------------
[Issue description, including CUSIP number (the "Securities")]
- -------------------
1 This CUSIP number is temporary and will be used only for the
initial dividend period of the Securities. The Issuer
currently has outstanding and held at The Depository Trust
Company 2,600 Shares of Auction Rate Municipal Preferred
Stock, Series M-7 CUSIP No. 092474204 ($65,000,000 in value)
(the "Outstanding Shares"). The Issuer is now issuing
Securities, which will be 726 new shares of Auction Rate
Municipal Preferred Stock, Series M-7. The temporary CUSIP
is necessary because the initial dividend period of the
Securities (i.e., the period from the issuance of the new
preferred shares through the first auction in which such
shares participate with the other shares of the applicable
series) will be different from the current dividend period
for the outstanding shares and will likely have a different
dividend rate than the Outstanding Shares. After the initial
dividend period for the Securities, all of the preferred
shares of Auction Rate Municipal Preferred Stock, Series M-7
will be identical and will have the CUSIP number currently
used by the Outstanding Shares.
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the Securities. Trust Company shall act as transfer
agent, registrar, dividend disbursing agent, redemption agent or other such
agent with respect to the Securities. The Securities have been issued
pursuant to a prospectus, private placement memorandum, or other such
document authorizing the issuance of the Securities dated March __, 2000 the
("Document"). Salomon Smith Barney, Inc. is distributing the Securities
through The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at
DTC, and to act in accordance with its Rules with respect to the
Securities, Issuer and Trust Company make the following representations to
DTC:
1. Prior to closing on the Securities on March __, 2000 there shall
be deposited with DTC one Security certificate registered in the name of
DTC's nominee, Cede & Co., which represents 100% of the offering value of
the Securities. Said certificate shall remain in DTC's custody as provided
in the Document. If, however, the aggregate principal amount of the
Securities exceeds $400 million, one certificate shall be issued with
respect to each $400 million of principal amount and an additional
certificate shall be issued with respect to any remaining principal amount.
Each Security certificate shall bear the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration of
transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
2. Issuer: (a) understands that DTC has no obligation to, and will
not, communicate to its participants ("Participants") or to any person
having an interest in the Securities any information contained in the
Security certificate(s); and (b) acknowledges that neither DTC's
Participants nor any person having an interest in the Securities shall be
deemed to have notice of the provisions of the Security certificate(s) by
virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with no provision for revocation of consents or votes by
subsequent holders) and shall send notice of such record date to DTC no
fewer than 15 calendar days in advance of such record date. Notices to DTC
pursuant to this Paragraph by telecopy shall be directed to DTC's
Reorganization Department, Proxy Unit at (212) 855-5181 or (212) 855-5182.
If the party sending the notice does not receive a telecopy receipt from
DTC confirming that the notice has been received, such party shall
telephone (212) 855-5202. Notices to DTC pursuant to this Paragraph, by
mail or by any other means, shall be sent to:
Supervisor, Proxy Unit
Reorganization Department
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
4. In the event of a full or partial redemption of the Securities,
Issuer or Trust Company shall send a notice to DTC specifying: (a) the
number of Securities to be redeemed; and (b) the date such notice is to be
distributed to Security holders (the "Publication Date"). Such notice shall
be sent to DTC by a secure means (e.g., legible telecopy, registered or
certified mail, overnight delivery) in a timely manner designed to assure
that such notice is in DTC's possession no later than the close of business
on the business day before or, if possible, two business days before the
Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The
party sending such notice shall have a method to verify subsequently the
use of such means and the timeliness of such notice.) The Publication Date
shall be no fewer than 30 days nor more than 60 days prior to the
redemption date. Notices to DTC pursuant to this Paragraph by telecopy
shall be directed to DTC's Call Notification Department at (516) 227-4164
or (516) 227-4190. If the party sending the notice does not receive a
telecopy receipt from DTC confirming that the notice has been received,
such party shall telephone (516) 227-4070. Notices to DTC pursuant to this
Paragraph, by mail or by any other means, shall be sent to:
Manager, Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
5. In the event of an invitation to tender the Securities
(including mandatory tenders, exchanges, and capital changes), notice by
Issuer or Trust Company to Security holders specifying the terms of the
tender and the Publication Date of such notice shall be sent to DTC by a
secure means in the manner set forth in the preceding Paragraph. Notices to
DTC pursuant to this Paragraph and notices of other corporate actions by
telecopy shall be directed to DTC's Reorganization Department at (212)
855-5488. If the party sending the notice does not receive a telecopy
receipt from DTC confirming that the notice has been received, such party
shall telephone (212) 855-5290. Notices to DTC pursuant to this Paragraph,
by mail or by any other means, shall be sent to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
6. All notices and payment advices sent to DTC shall contain the
CUSIP number of the Securities.
7. The Document indicates that the dividend rate for the Securities
may vary from time to time. Absent other existing arrangements with DTC,
Issuer or Trust Company shall give DTC notice of each such change in the
dividend rate, on the same day that the new rate is determined, by
telephoning DTC's Dividend Announcement Section at (212) 855- 4550, or by
telecopy sent to (212) 855-4555. Such verbal or telecopy notice shall be
followed by prompt written confirmation sent by a secure means (e.g.,
legible telecopy, registered or certified mail, overnight delivery) in a
timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if
possible, two business days before the Publication Date. Issuer or Agent
shall forward such notice either in a separate secure transmission for each
CUSIP number or in a secure transmission for multiple CUSIP numbers (if
applicable) which includes a manifest or list of each CUSIP number
submitted in that transmission. (The party sending such notice shall have a
method to verify subsequently the use and timeliness of such notice.)
Notices to DTC pursuant to this Paragraph, by mail or by any other means,
shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
8. The Document indicates that each purchaser of Securities must
sign a purchaser's letter which contains provisions restricting transfer of
the Securities purchased. Issuer and Trust Company acknowledge that as long
as Cede & Co. is the sole record owner of the Securities, Cede & Co. shall
be entitled to all voting rights applicable to the Securities and to
receive the full amount of all dividends, liquidation proceeds, and
redemption proceeds payable with respect to the Securities, even if the
credits of Securities to the DTC accounts of any DTC Participant result
from transfers or failures to transfer in violation of the provisions of
the purchaser's letter. Issuer and Trust Company acknowledge that DTC shall
treat any Participant having Securities credited to its DTC accounts as
entitled to the full benefits of ownership of such Securities. Without
limiting the generality of the preceding sentence, Issuer and Trust Company
acknowledge that DTC shall treat any Participant having Securities credited
to its DTC accounts as entitled to receive dividends, distributions, and
voting rights, if any, in respect of Securities and, subject to Paragraphs
12 and 13, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it
of Securities to the accounts of Participants described in the preceding
two sentences shall not affect the rights of Issuer, participants in
auctions relating to the Securities, purchasers, sellers, or holders of
Securities against any Participant.) DTC shall not have any responsibility
to ascertain whether any transfer of Securities is made in accordance with
the provisions of the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of
dividend payment and distribution information to DTC as soon as the
information is available. Issuer or Trust Company shall provide this
information to DTC electronically, as previously arranged by Issuer or
Trust Company and DTC, as soon as the information is available. If
electronic transmission has not been arranged, absent any other
arrangements between Issuer or Trust Company and DTC, such information
shall be sent by telecopy to DTC's Dividend Department at (212) 855-4555 or
(212) 855-4556, and receipt of such notices shall be confirmed by
telephoning (212) 855-4550. Notices to DTC pursuant to this Paragraph, by
mail or by any other means, shall be addressed as indicated in Paragraph 7.
10. Dividend payments and distributions shall be received by Cede &
Co., as nominee of DTC, or its registered assigns, in same-day funds no
later than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit
by 1:00 p.m. (Eastern Time) on the payment date, dividend and distribution
payments due Trust Company, or at such earlier time as may be required by
Trust Company to guarantee that DTC shall receive payment in same-day funds
no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any
other arrangements between Issuer or Trust Company and DTC, such funds
shall be wired to the Dividend Deposit Account number that will be stamped
on the signature page hereof at the time DTC executes this Letter of
Representations.
11. Issuer or Trust Company shall provide DTC, no later than 12:00
noon (Eastern Time) on each payment date, automated notification of
CUSIP-level detail. If the circumstances prevent the funds paid to DTC from
equaling the dollar amount associated with the detail payments by 12:00
noon (Eastern Time), Issuer or Trust Company must provide CUSIP-level
reconciliation to DTC no later than 2:30 p.m. (Eastern Time).
Reconciliation must be provided by either automated means or written
format. Such reconciliation notice, if sent by telecopy, shall be directed
to DTC's Dividend Department at (212) 855-4633, and receipt of such
reconciliation notice shall be confirmed by telephoning (212) 855-4430.
12. Redemption payments shall be received by Cede & Co., as nominee
of DTC, or its registered assigns, in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m.
(Eastern Time) on the payment date all such redemption payments due Trust
Company, or at such earlier time as required by Trust Company to guarantee
that DTC shall receive payment in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired to the
Redemption Deposit Account number that will be stamped on the signature
page hereof at the time DTC executes this Letter of Representations.
13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) shall
be received by Cede & Co., as nominee of DTC, or its registered assigns, in
same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date.
Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such
reorganization payments due Trust Company, or at such earlier time as
required by Trust Company to guarantee that DTC shall receive payment in
same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date.
Absent any other arrangements between Issuer or Trust Company and DTC, such
funds shall be wired to the Reorganization Deposit Account number that will
be stamped on the signature page hereof at the time DTC executes this
Letter of Representations.
14. DTC may direct Issuer or Trust Company to use any other number
or address as the number or address to which notices or payments may be
sent.
15. In the event of a redemption acceleration, or any similar
transaction (e.g., tender made and accepted in response to Issuer's or
Trust Company's invitation) necessitating a reduction in the number of
Securities outstanding, or an advance refunding of part of the Securities
outstanding DTC, in its discretion: (a) may request Issuer or Trust Company
to issue and authenticate a new Security certificate; or (b) may make an
appropriate notation on the Security certificate indicating the date and
amount of such reduction in the number of Securities outstanding, except in
the case of final redemption, in which case the certificate will be
presented to Issuer or Trust Company prior to payment, if required.
16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such
event, Issuer or Trust Company shall issue, transfer, and exchange
certificates in appropriate amounts, as required by DTC and others.
17. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Trust Company (at which time DTC will confirm with
Issuer or Trust Company the aggregate principal amount of Securities
outstanding). Under such circumstances, at DTC's request, Issuer and Trust
Company shall cooperate fully with DTC by taking appropriate action to make
available one or more separate certificates evidencing Securities to any
DTC Participant having Securities credited to its DTC accounts.
18. Issuer hereby authorizes DTC to provide to Trust Company
listings of Participants' holdings, known as Security Position Listings
("SPLs") with respect to the Securities from time to time at the request of
Trust Company. Issuer also authorizes DTC, in the event of a partial
redemption of Securities, to provide Trust Company, upon request, with the
names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify
Trust Company of those Participants whose positions in Securities have been
selected for redemption by DTC. Issuer authorizes and instructs Trust
Company to provide DTC with such signatures, examples of signatures, and
authorizations to act as may be deemed necessary or appropriate by DTC to
permit DTC to discharge its obligations to its Participants and appropriate
regulatory authorities. DTC charges a customary fee for such SPLs. This
authorization, unless revoked by Issuer, shall continue with respect to the
Securities while any Securities are on deposit at DTC, until and unless
Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the
authorization of any successor thereto so to act. Requests for SPLs shall
be directed to the Proxy Unit of DTC's Reorganization Department at (212)
855-5181 or (212) 855-5182. Receipt of such requests shall be confirmed by
telephoning (212) 855-5202. Delivery by mail or by any other means, with
respect to such SPL request, shall be directed to the address indicated in
Paragraph 3.
19. Nothing herein shall be deemed to require Trust Company to
advance funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts together shall constitute but one and
the same instrument.
21. This Letter of Representations shall be governed by, and
construed in accordance with, the laws of the State of New York, without
giving effect to principles of conflicts of law.
22. The sender of each notice delivered to DTC pursuant to this
Letter of Representations is responsible for confirming that such notice
was properly received by DTC.
23. Issuer recognizes that DTC does not in any way undertake to,
and shall not have any responsibility to, monitor or ascertain the
compliance of any transactions in the Securities with the following, as
amended from time to time: (a) any exemptions from registration under the
Securities Act of 1933; (b) the Investment Company Act of 1940; (c) the
Employee Retirement Income Security Act of 1974; (d) the Internal Revenue
Code of 1986; (e) any rules of any self-regulatory organizations (as
defined under the Securities Exchange Act of 1934); or (f) any other local,
state, or federal laws or regulations thereunder.
24. Issuer and Trust Company shall comply with the applicable
requirements stated in DTC's Operational Arrangements, as they may be
amended from time to time. DTC's Operational Arrangements are posted on
DTC's website at "www.DTC.org."
25. The following rider(s), attached hereto, are hereby
incorporated into this Letter of Representations:
See Attached Riders [Rider A = Underwriters]
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES:
A. IF THERE IS A TRUST COMPANY
(AS DEFINED IN THIS LETTER OF
REPRESENTATIONS), TRUST COMPANY,
AS WELL AS ISSUER, MUST SIGN THIS
LETTER. IF THERE IS NO TRUST COMPANY,
IN SIGNING THIS LETTER ISSUER ITSELF
UNDERTAKES TO PERFORM ALL OF THE
OBLIGATIONS SET FORTH HEREIN.
B. SCHEDULE B CONTAINS STATEMENTS
THAT DTC BELIEVES ACCURATELY DESCRIBE
DTC, THE METHOD OF EFFECTING BOOK-ENTRY
TRANSFERS OF SECURITIES DISTRIBUTED
THROUGH DTC, AND CERTAIN RELATED MATTERS.
Very truly yours,
The BlackRock Insured
Municipal Term Trust Inc.
[Issuer]
By:______________________________________
[Authorized Officer's Signature]
Deutsche Bank (successor entity to
Bankers Trust Company)
[Trust Company]
By:______________________________________
[Authorized Officer's Signature]
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
cc: Underwriter
Underwriter's Counsel
SCHEDULE A
The BlackRock Insured Municipal Term Trust Inc.
----------------------------------------------------------------
Auction Rate Municipal Preferred Stock, Series M-7
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[Describe Issue]
CUSIP Number Share Total Value ($Amount)
- ------------ ----------- --------------
[Temp CUSIP]2 1,616 $40,400,000
- --------
2 This CUSIP number is temporary and will be used only for the
initial dividend period of the Securities. The Issuer currently has
outstanding and held at The Depository Trust Company 2,600 Shares
of Auction Rate Municipal Preferred Stock, Series M-7 CUSIP No.
092474204 ($65,000,000 in value) (the "Outstanding Shares"). The
Issuer is now issuing Securities, which will be 726 new shares of
Auction Rate Municipal Preferred Stock, Series M-7. The temporary
CUSIP is necessary because the initial dividend period of the
Securities (i.e., the period from the issuance of the new preferred
shares through the first auction in which such shares participate
with the other shares of the applicable series) will be different
from the current dividend period for the outstanding shares and
will likely have a different dividend rate than the Outstanding
Shares. After the initial dividend period for the Securities, all
of the preferred shares of Auction Rate Municipal Preferred Stock,
Series M-7 will be identical and will have the CUSIP number
currently used by the Outstanding Shares.
Rider A
Underwriters
[to be completed once u/w syndicate is formed]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-Effective
Amendment No. 7 to the Registration Statement of The BlackRock Insured
Municipal Term Trust, Inc. (Investment Company Registration No. 811-6512)
of our report dated February 11, 2000, relating to the financial statements
of The BlackRock Insured Municipal Term Trust, Inc., Inc. as of December
31, 1999 and for the period then ended in the Statement of Additional
Information which is part of such registration statement.
We also consent to the reference to our Firm under the heading "Report of
Independent Auditors" in the Statement of Additional Information.
Deloitte & Touche LLP
New York, New York
February 18, 2000
