<PAGE>
As filed with the Securities and Exchange Commission on March 6, 2000
Securities Act Registration No. 333-94041
Investment Company Registration No. 811-6721
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
[X]
Pre-Effective Amendment No. 3
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 9
----------------
The BlackRock Insured Municipal
2008 Term Trust Inc.
(Exact Name of Registrant as Specified In Charter)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
(800) 688-0928
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein, President
The BlackRock Insured Municipal 2008 Term Trust Inc.
345 Park Avenue
New York, New York 10154
(Name and Address of Agent for Service)
----------------
Copies to:
Richard T. Prins, Esq. Thomas A. DeCapo, Esq. Cynthia G. Cobden, Esq.
Skadden, Arps, Slate, Skadden, Arps, Slate, Meagher Simpson Thacher &
Meagher & Flom LLP Bartlett
& Flom LLP One Beacon Street 425 Lexington Avenue
Four Times Square New York, New York 10017
New York, New York 10036Boston, Massachusetts 02108
----------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
----------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
Auction Rate Municipal
Preferred Stock, Series
T7 (Liquidation
preference $25,000 per
share)................. 2,600 shares $25,000 $65,000,000 $17,160*
</TABLE>
- --------------------------------------------------------------------------------
* Previously paid
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
CROSS REFERENCE SHEET
Part A--Prospectus
<TABLE>
<CAPTION>
Items in Part A of Form N-2 Location in Prospectus
Specified in Prospectus ----------------------
---------------------------
<C> <C> <S>
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
Item 9. Management............................ Policies
Prospectus Summary;
Item 10. Capital Stock, Long-Term Debt, and Management of the Trust
Other Securities..................... Capitalization; Investment
Objective and Policies;
Description of New
Preferred Shares; The
Item 11. Defaults and Arrears on Senior Auction; Tax Matters
Securities........................... Inapplicable
Item 12. Legal Proceedings..................... Inapplicable
Item 13. Table of Contents of the Statement of
Additional Information............... Table of Contents of the
Statement of Additional
Information
Part B--Statement of Additional Information
<CAPTION>
Location in Statement of
Items In Part B of Form N-2 Additional Information
--------------------------- ------------------------
<C> <C> <S>
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 Management of the Trust
Services.............................
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>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. We may +
+not sell these securities until the Registration Statement filed with the +
+Securities and Exchange Commission is effective. This Prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 3, 2000
PROSPECTUS
$65,000,000
The BlackRock Insured Municipal 2008 Term Trust Inc.
Auction Rate Municipal Preferred Stock ("New Preferred Shares")
2,600 Shares, Series T7
Liquidation Preference $25,000 Per Share
The BlackRock Insured Municipal 2008 Term Trust Inc. is a closed-end,
diversified management investment company. The Trust's investment objective is:
. to provide current income that is exempt from regular Federal income tax;
and
. to return $15 per common share (the initial public offering price per
common share) to holders of common shares on or about December 31, 2008.
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:
. rated at the time of investment Aaa by Moody's or AAA by S&P;
. guaranteed by an entity with a Aaa or AAA rating;
. 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
. 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 $15 per common share to common shareholders on or
about December 31, 2008 (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 March , 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 40 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 16. 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.
----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price.................................... $25,000 $65,000,000
Sales Load............................................... $ $
Proceeds to Trust (before expenses)/1/................... $ $
</TABLE>
- -----
/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.
----------
Salomon Smith Barney
Merrill Lynch & Co.
PaineWebber Incorporated
Prudential Securities
A.G. Edwards & Sons, Inc.
Goldman, Sachs & Co.
March , 2000
<PAGE>
The Trust is offering 2,600 newly issued shares of Auction Rate Municipal
Preferred Stock, Series T7. 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 T7 Preferred Shares (together with the Trust's
outstanding Series T28 Preferred Shares, Series R7 Preferred Shares and Series
R28 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 "T7"
means that the auction for the New Preferred Shares normally will be held every
Tuesday 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:
. 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;
. auctions will be conducted by telephone; and
. 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, 2008 (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.
----------------
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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............................................ 22
DESCRIPTION OF NEW PREFERRED SHARES........................................ 23
THE AUCTION................................................................ 29
TAXES...................................................................... 33
DETERMINATION OF NET ASSET VALUE........................................... 34
REPURCHASE OF COMMON SHARES................................................ 34
DESCRIPTION OF CAPITAL STOCK............................................... 35
CUSTODIAN.................................................................. 37
UNDERWRITING............................................................... 38
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR.................... 38
LEGAL OPINIONS............................................................. 39
EXPERTS.................................................................... 39
REPORTS TO STOCKHOLDERS.................................................... 39
AVAILABLE INFORMATION...................................................... 39
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION.............. 40
APPENDIX A................................................................. A-1
</TABLE>
3
<PAGE>
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.
The Trust............... The BlackRock Insured Municipal 2008 Term Trust Inc.
is a diversified, closed-end management investment
company. As of December 31, 1999, the Trust had
27,207,093 shares of common stock outstanding and
8,240 preferred shares outstanding in four series:
2,060 preferred shares designated Series T7; 2,060
preferred shares designated Series R7; 2,060
preferred shares designated Series T28; and 2,060
preferred shares designated Series R28. The Trust's
common shares are traded on the New York Stock
Exchange under the symbol "BRM." The Trust will
distribute substantially all of its net assets on or
about December 31, 2008, when the Trust will
terminate.
The Offering............ The Trust is offering 2,600 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 T7
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, 2008 (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 $15 per common share (the initial
offering price per common share) to holders of common
shares on or about December 31, 2008. 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:
. rated at the time of investment Aaa by Moody's or
AAA by S&P;
. guaranteed by an entity with an Aaa or AAA rating;
. 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
4
<PAGE>
. 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 $15 per common share to
holders of common shares on or about December 31,
2008 (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:
. if an auction fails you may not be able to sell
some or all of your shares;
. because of the nature of the market for 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;
. a rating agency could downgrade the rating assigned
to the New Preferred Shares, which could affect
liquidity;
. the Trust may be forced to redeem your shares to
meet regulatory or rating agency requirements or
may voluntarily redeem your shares;
. in extraordinary circumstances the Trust may not
earn sufficient income from its investments to pay
dividends;
. if interest rates rise, the value of the Trust's
investment portfolio will decline, reducing the
asset coverage for the New Preferred Shares; and
. 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
5
<PAGE>
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 Wednesday,
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 regular 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.
6
<PAGE>
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.
7
<PAGE>
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,
----------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of the period... $ 17.06 $ 16.80 $ 15.90 $ 16.08 $ 13.88 $ 16.23 $ 14.31
-------- -------- -------- -------- -------- -------- --------
Net investment income..................... 1.21 1.20 1.18 1.17 1.19 1.15 1.14
Net realized and unrealized gain (loss) on
investments.............................. (1.23) 0.11 0.78 (0.27) 2.21 (2.39) 1.91
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations................................ (0.02) 1.31 1.96 0.90 3.40 (1.24) 3.05
-------- -------- -------- -------- -------- -------- --------
Dividends and distributions:
Dividends from net investment income to:
Common shareholders....................... (0.80) (0.80) (0.79) (0.79) (0.83) (0.88) (0.88)
Preferred shareholders.................... (0.24) (0.25) (0.27) (0.25) (0.28) (0.23) (0.20)
Distributions from net realized gain on
investments to:
Common shareholders....................... -- -- -- (0.03) (0.06) -- (0.04)
Preferred shareholders.................... -- -- -- (0.01) (0.02) -- (0.01)
Distributions in excess of net realized
gain on investments to:
Common shareholders....................... -- ** ** ** (0.01) -- --
Preferred shareholders.................... -- ** ** ** ** -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions.......... (1.04) (1.05) (1.06) (1.08) (1.20) (1.11) (1.13)
-------- -------- -------- -------- -------- -------- --------
Capital charge with respect to issuance of
shares.................................... -- -- -- -- -- -- --
Net asset value, end of period*............ $ 16.00 $ 17.06 $ 16.80 $ 15.90 $ 16.08 $ 13.88 $ 16.23
======== ======== ======== ======== ======== ======== ========
Market value, end of period*............... $ 13.75 $ 16.13 $ 15.25 $ 14.50 $ 13.50 $ 12.25 $ 15.125
======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+................... (10.14)% 11.21% 10.97% 13.56% 17.64% (13.71)% 16.05%
======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS: /(a)/
Expenses++................................. 0.93% 0.88% 0.92% 0.95% 0.95% 1.02% 0.88%
Net investment income before preferred
stock dividends++......................... 7.30% 7.10% 7.19% 7.32% 7.74% 7.80% 7.43%
Preferred stock dividends.................. 1.47% 1.49% 1.63% 1.64% 1.97% 1.55% 1.35%
Net investment income available to common
shareholders.............................. 5.83% 5.61% 5.56% 5.68% 5.77% 6.25% 6.08%
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(in thousands)............................ $452,317 $458,993 $444,895 $434,692 $417,017 $400,555 $420,532
Portfolio turnover......................... 1% 0% 11% 8% 27% 64% 15%
Net assets of common shareholders, end of
period (in thousands)..................... $435,314 $464,236 $457,192 $432,609 $437,470 $377,679 $441,543
Preferred stock outstanding (in thousands).. $206,000 $206,000 $206,000 $206,000 $206,000 $206,000 $206,000
Asset coverage per share of preferred
stock, end of period#..................... $ 77,857 $ 81,361 $ 80,508 $ 77,525 $ 78,112 $141,670 $157,171
<CAPTION>
September 28,
1992
through
December 31,
1992***
---------------
<S> <C>
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of the period... $ 14.10
---------------
Net investment income..................... 0.17
Net realized and unrealized gain (loss) on
investments.............................. 0.31
---------------
Net increase (decrease) from investment
operations................................ 0.48
---------------
Dividends and distributions:
Dividends from net investment income to:
Common shareholders....................... (0.07)
Preferred shareholders.................... (0.02)
Distributions from net realized gain on
investments to:
Common shareholders....................... --
Preferred shareholders.................... --
Distributions in excess of net realized
gain on investments to:
Common shareholders....................... --
Preferred shareholders.................... --
---------------
Total dividends and distributions.......... (0.09)
---------------
Capital charge with respect to issuance of
shares.................................... $ (0.18)
Net asset value, end of period*............ $ 14.31##
===============
Market value, end of period*............... $ 13.75
===============
TOTAL INVESTMENT RETURN+................... (1.99)%
===============
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(a)
Expenses++................................. 0.73%+++
Net investment income before preferred
stock dividends++......................... 4.97%+++
Preferred stock dividends.................. 0.71%+++
Net investment income available to common
shareholders.............................. 4.26%+++
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(in thousands)............................ $372,256
Portfolio turnover......................... 2%
Net assets of common shareholders, end of
period (in thousands)..................... $389,333
Preferred stock outstanding (in thousands).. $206,000
Asset coverage per share of preferred
stock, end of period#..................... $144,500
</TABLE>
- -------
* Net asset value and market value are published in Barron's each Saturday
and The Wall Street Journal each Monday.
** Actual amount paid to common shareholders was $0.005235, $0.004814, and
$0.00271 for the years ended December 31, 1998, 1997, and 1996,
respectively. Actual amount paid to preferred shareholders was $0.001696,
$0.00154, $0.00084 and $0.002929 per common share for the years ended
December 31, 1998, 1997, 1996 and 1995, respectively.
*** Commencement of investment operations.
# A 2-for-1 stock split with respect to the Preferred Shares occurred on
July 24, 1995.
## Net asset value immediately after the closing of the initial public
offering of common stock was $14.07.
+ 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.
(a) 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.
8
<PAGE>
THE TRUST
The BlackRock Insured Municipal 2008 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 June 30, 1992, 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,
2008, 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 September 28, 1992, upon the
closing of the initial public offering of 25,000,000 of its common shares. The
net proceeds of such offering were approximately $351.8 million. In November
1992, the Trust, pursuant to an over-allotment option granted to the
underwriters in the initial public offering, sold an additional 2.2 million of
its common shares for net proceeds of approximately $31 million.
On November 23, 1992, the Trust issued shares of preferred stock in the
following amounts and with the following designations: Preferred Shares Series
T7--1,030 shares; Preferred Shares Series T28--1,030 shares; Preferred Shares
Series R7--1,030 shares; and Preferred Shares Series R28--1,030 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, 27,207,093 common shares of the Trust were
outstanding and 8,240 preferred shares were outstanding in four series: 2,060
Preferred Shares Series T7; 2,060 Preferred Shares Series R7; 2,060 Preferred
Shares Series T28 and 2,060 Preferred Shares Series R28. The Trust's common
shares are traded on the New York Stock Exchange under the symbol "BRM".
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........ 4,120 $144,500 $50,000
12/31/1993........ 4,120 $157,171 $50,000
12/31/1994........ 4,120 $141,670 $50,000
12/31/1995**...... 8,240 $ 78,091 $25,000
12/31/1996........ 8,240 $ 77,501 $25,000
12/31/1997........ 8,240 $ 80,484 $25,000
12/31/1998........ 8,240 $ 81,339 $25,000
12/31/1999........ 8,240 $ 77,857 $25,000
</TABLE>
- --------
* 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.
The following table provides information about the Trust's outstanding
shares as of December 31, 1999:
<TABLE>
<CAPTION>
Amount Held by
the Trust or
Amount for its Amount
Title of Class Authorized Account Outstanding
-------------- ----------- -------------- -----------
<S> <C> <C> <C>
Common Shares............................ 200,000,000 0 27,207,093
Series T7 Preferred Shares............... 2,060 0 2,060
Series T28 Preferred Shares.............. 2,060 0 2,060
Series R7 Preferred Shares............... 2,060 0 2,060
Series R28 Preferred Shares.............. 2,060 0 2,060
</TABLE>
9
<PAGE>
USE OF PROCEEDS
The net proceeds of the offerings will be $64,050,000, 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 those 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 (8,240
shares issued; 10,840 preferred shares issued and
outstanding, as adjusted, at $25,000 per share
liquidation preference).......................... $206,000,000 $271,000,000
Common Shares, par value $.01 per share
(27,207,093 shares issued and outstanding)....... 272,071 272,071
Paid in capital in excess at par.................. 378,448,780 377,498,780
Undistributed net investment income............... 22,604,981 22,604,981
Accumulated net realized loss..................... (339,778) (339,778)
Unrealized appreciation of investments............ 34,328,358 34,328,358
------------ ------------
Net assets........................................ $641,314,412 $705,364,412
============ ============
</TABLE>
10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to provide current income exempt from
regular Federal income tax and to return $15 per common share to holders of
common shares on or about December 31, 2008. 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:
. rated at the time of investment Aaa by Moody's or AAA by S&P;
. guaranteed by an entity with a Aaa or AAA rating;
. 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
. 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 $15 per common share to holders of common shares
on or about December 31, 2008 (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 $15 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 $15 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
11
<PAGE>
can guarantee these results, their achievement should enable the Trust, on or
about December 31, 2008, to have available for distribution to holders of its
common shares $15 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
12
<PAGE>
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, 2008, 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
13
<PAGE>
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".
14
<PAGE>
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 $15 per common share outstanding to investors on
or about December 31, 2008.
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, 2008.
As of February 4, 2000, approximately 99.8% of the market value of the
Trust's portfolio was invested in long-term municipal obligations and
approximately 0.2% was invested in short and medium term securities. 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.
15
<PAGE>
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.
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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.
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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.
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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 a 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 in municipal research
and strategy as a Vice President since 1996 and as an Associate Vice President
from 1993 to 1996.
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.
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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
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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
Princeton Administrators, L.P. (the "Administrator"), 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, 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:
. the salaries and expenses of all personnel of the Administrator; and
. 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
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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, 2008 (when the Trust will
terminate).
A dividend payment date and an auction date for the Trust's outstanding
Series T28 Preferred Shares may coincide with a dividend payment date and an
auction date for the Series T7 Preferred Shares (including the New Preferred
Shares). The Series T28 Preferred Shares generally will have a dividend period
of 28 days in length. The Series T7 Preferred Shares (including the New
Preferred Shares) generally will have a dividend period of seven days in
length. The New Series T7 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 that may occur 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.
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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 2,600 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 Wednesday. If dividends are payable on a Wednesday 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 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
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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
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Preferred Shares, out of 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:
. without consideration being given to the time value of money;
. 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
. 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:
. 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
. 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:
. 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);
. 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;
. any additional dividend required to be paid on or before the date of such
declaration has been paid; and
. 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
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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, 2008 (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
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<PAGE>
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:
. the sale of all or substantially all the property or business of the
Trust;
. the merger or consolidation of the Trust into or with any other
corporation; or
. 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 $950,000, would have
been computed as follows:
<TABLE>
<S> <C> <C> <C> <C>
Value of Trust assets less liabilities
not constituting senior securities = $702,323,993 = 259%
---------------------------------- ------------
Senior securities representing indebtedness $271,000,000
plus
liquidation value of the preferred shares
</TABLE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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:
. 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 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
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<PAGE>
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 Tuesday,
and each subsequent dividend period will normally begin on the following
Wednesday.
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:
. pursuant to a bid or sell order placed with the auction agent in
accordance with the auction procedures;
32
<PAGE>
. to a Broker-Dealer; or
. to such other persons as may be permitted by the Trust;
provided, however, that
. 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
. 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, 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
33
<PAGE>
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
34
<PAGE>
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 2,600 shares of unissued capital stock as New Preferred Shares.
Common Shares
The Trust's charter provides that the Trust will terminate on December 31,
2008, 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, 2008 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, 2008 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 September
28, 1992 under the symbol BRM.
35
<PAGE>
At February 4, 2000, there were 27,207,093 common shares of the Trust issued
and outstanding, and the net asset value per common share was $15.89 and the
closing price per common share on the NYSE was $14.063.
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 2,600 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) 66 2/3% 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
36
<PAGE>
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.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, each underwriter named below has severally agreed to purchase, and
the Trust has agreed to sell to such underwriter, the number of New Preferred
Shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
Number of
Series T7
Name Preferred Shares
---- ----------------
<S> <C>
Salomon Smith Barney Inc....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
PaineWebber Incorporated....................................
Prudential Securities Incorporated..........................
A.G. Edwards & Sons, Inc. ..................................
Goldman, Sachs & Co. .......................................
-----
Total..................................................... 2,600
=====
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the 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.
38
<PAGE>
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.
39
<PAGE>
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
<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-12
Additional Information Concerning the Auctions for
New Preferred Shares.......................................... S-13
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>
40
<PAGE>
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 3.00% to 5.00% under the regular Federal income tax law and
tax rates applicable to individuals for 2000.
<TABLE>
<CAPTION>
Tax exempt yield of:
---------------------------------
(Taxable Income*)
- ------------------------------------ 3.00% 3.50% 4.00% 4.50% 5.00%
Marginal
Income
Tax is equivalent to a fully
Single Return Joint Return Bracket taxable yield of:
- ----------------- ----------------- -------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $26,250 Up to $43,850 15.00% 3.53% 4.12% 4.71% 5.29% 5.88%
$26,251- $63,550 $ 43,851-$105,950 28.00 4.17 4.86 5.56 6.25 6.94
$63,551-$132,600 $105,951-$161,450 31.00 4.35 5.07 5.80 6.52 7.25
$132,601-$288,350 $161,451-$288,350 36.00 4.69 5.47 6.25 7.03 7.81
Over $288,350 Over $288,350 39.60 4.97 5.79 6.62 7.45 8.28
</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 the 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.
A-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$65,000,000
The BlackRock
Insured Municipal
2008 Term Trust Inc.
Auction Rate Municipal Preferred Stock
2,600 Shares, Series T7
----------------
PROSPECTUS
March , 2000
----------------
Salomon Smith Barney
Merrill Lynch & Co.
PaineWebber Incorporated
Prudential Securities
A.G. Edwards & Sons, Inc.
Goldman, Sachs & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED March 3, 2000
THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
STATEMENT OF ADDITIONAL INFORMATION
The BlackRock Insured Municipal 2008 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>
<CAPTION>
TABLE OF CONTENTS
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-12
Additional Information Concerning the Auctions for New Preferred Shares.... S-13
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.
S-1
<PAGE>
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,
2008, except in temporary defensive situations in which case investments in
short-term assets may be increased.
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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 33 1/3% 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
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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
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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
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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
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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 33 1/3% of the value of the Trust's total assets (including such loans).
Loan arrangements made by the Trust will comply with all other applicable
regulatory requirements, including the rules of the New York Stock Exchange,
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 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 or an affiliate
acts as investment advisor.
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<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Andrew F. Brimmer Director President of Brimmer & Company, Inc., a Washington, D.C. based economic and
4400 MacArthur Blvd., N.W. financial consulting firm. Director of CarrAmerica Realty Corporation and
Suite 302 Borg-Warner Automotive. Formerly member of the Board of Governors the Federal
Washington, DC 20007 Reserve System. Formerly Director of AirBorne Express, BankAmerica
Age: 72 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 Conference Board, Inc., a leading
845 Third Avenue global business membership organization, from 1995-present. Former Executive
New York, NY 10022 Dean of the John F. Kennedy School of Government at Harvard University from
Age: 52 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 Executive Officer of Empire
9495 Blind Pass Road Federal Savings Bank of America and Banc PLUS Savings Association, former
Unit #602 Chairman of the Board, President and Chief Executive Officer of Northeast
St. Petersburg, FL 33706 Savings. Former Director of ISFA (the owner of INVEST, a national securities
Age: 61 brokerage service designed for banks and thrift institutions).
</TABLE>
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<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Frank J. Fabozzi Director Consultant. Editor of THE JOURNAL OF PORTFOLIO MANAGEMENT and Adjunct
858 Tower View Circle Professor of Finance at the School of Management at Yale University.
New Hope, PA 18938 Director, Guardian Mutual Trusts Group. Author and editor of several books on
Age: 50 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 Financial Management, Inc.,
Age: 47 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 School of Management,
P.O. Box 1595 University of California since July 1, 1993. Director, Jacobs Engineering
Pauma Valley, CA 92061 Group, Inc., Rockwell International Corporation, Payden & Rygel Investment
Age: 69 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 1996-present, September
220 South Sixth Street 1987-August 1993). Formerly U.S. Ambassador to Japan (1993-1996). Formerly
Minneapolis, MN 55402 Vice President of the United States, U.S. Senator and Attorney General of the
Age: 71 State of Minnesota. 1984 Democratic Nominee for President of the United
States.
</TABLE>
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<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Ralph L. Schlosstein* Director and President President of BlackRock Financial Management, Inc., BlackRock Advisors, Inc.
Age: 48 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. since January 1991. Managing
Age: 40 Director of BlackRock Financial Management, Inc. since January 1991. Director
of BlackRock Financial Management, Inc. from April 1988 to January 1991. From
February 1987 to April 1988, Vice President at The First Boston Corporation in
the Fixed Income Research Department. Previously Vice President and Senior
Portfolio Manager at Criterion Investment Management Company (now
Nicholas-Applegate).
Henry Gabbay Treasurer Managing Director of BlackRock Advisors, Inc. since January 1990. Managing
Age: 52 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 March 1988. Vice Chairman of
Age: 42 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 Management, Inc. since January 1996.
Age: 39 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).
</TABLE>
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<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Karen H. Sabath Secretary Managing Director of BlackRock Advisors, Inc. and BlackRock Financial
Age: 34 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 Management, Inc. since January 1991.
Age: 41 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. since January 1996. Managing
Age: 37 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 BlackRock Financial Management,
Age: 40 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.
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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 $12,000 $160,000
Richard E. Cavanagh $12,000 $160,000
Kent Dixon $12,000 $160,000
Frank J. Fabozzi $12,000 $160,000
Laurence D. Fink N/A N/A
James Grosfeld** $10,500 $140,000
James Clayburn LaForce, Jr. $12,000 $160,000
Ralph L. Schlosstein N/A N/A
Walter F. Mondale $12,000 $160,000
</TABLE>
* 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.
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.
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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 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.
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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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 shares of 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.
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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.
S-18
<PAGE>
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 800 Scudders Mill Road, Plainsboro, New Jersey
08536 or by telephone request at (800) 688-0928.
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.
S-19
<PAGE>
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.
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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
A-2
<PAGE>
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.
A-3
<PAGE>
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.
B-1
<PAGE>
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.
B-2
<PAGE>
APPENDIX C-1
ARTICLES OF AMENDMENT
OF
THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
The undersigned, on behalf of THE BLACKROCK INSURED MUNICIPAL 2008 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 November 19, 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 4,120 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 four series of 1,030 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 T7, Auction Rate
Municipal Preferred Stock, Series R7, Auction Rate Municipal Preferred Stock,
Series T28 and Auction Rate Municipal Preferred Stock, Series R28.
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:
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DESIGNATION
SERIES T7: A series of 1,030 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 T7." Each share of Auction Rate Municipal Preferred Stock, Series T7,
shall be issued on November 23, 1992; have an Initial Dividend Rate of 2.75%
per annum and the Initial Dividend Payment Date shall be December 2, 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 T7, shall constitute a separate series of preferred
stock of the Corporation, and each share of Auction Rate Municipal Preferred
Stock, Series T7, shall be identical.
SERIES R7: A series of 1,030 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 R7." Each share of Auction Rate Municipal Preferred Stock, Series R7,
shall be issued on November 23, 1992; have an Initial Dividend Rate of 2.75%
per annum and the Initial Dividend Payment Date shall be December 4, 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 R7, shall constitute a separate series of preferred
stock of the Corporation, and each share of Auction Rate Municipal Preferred
Stock, Series R7, shall be identical.
SERIES T28: A series of 1,030 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 T28". Each share of Auction Rate Municipal Preferred Stock, Series
T28, shall be issued on November 23, 1992; have an Initial Dividend Rate of
3.80% per annum and the Initial Dividend Payment Dates as set forth herein;
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 T28, shall constitute a separate series of preferred
stock of the Corporation, and each share of Auction Rate Municipal Preferred
Stock, Series T28, shall be identical.
SERIES R28: A series of 1,030 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 R28." Each share of Auction Rate Municipal Preferred Stock, Series R28
shall be issued on November 23, 1992; have an Initial Dividend Rate of 3.05%
per annum and the Initial Dividend Payment Date shall be January 15, 1993;
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 R28, shall constitute a separate series of preferred
stock of the Corporation, and each share of Auction Rate Municipal Preferred
Stock, Series R28, shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
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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
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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
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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 2008 Term Trust
Inc., a Maryland corporation.
"Date of Original Issue" means November 23, 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-1+ 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.
C-1-4
<PAGE>
"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 R28 Preferred Shares and Series T28 Preferred
Shares) or 7-day Dividend Period (in the case of Series R7 Preferred Shares and
Series T7 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.
"First Initial Dividend Payment Date" means, with respect to the Series
T28 Preferred Shares, December 1, 1992.
"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 the Series T7
Preferred Shares, Series R28 Preferred Shares, Series R7 Preferred Shares and
Other Preferred Shares, the initial Dividend Payment Date specified herein, and
means, with respect to the Series T28 Preferred Shares, each of the First
Initial Dividend Date, the Last Initial Dividend Payment Date, and the first day
of each calendar month during the Initial Dividend Period.
"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.
C-1-5
<PAGE>
"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.
"Last Initial Dividend Period" means, with respect to the Series T28
Preferred Shares, May 18, 1994.
"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
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<PAGE>
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
</TABLE>
______________
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB-, BBB or BBB+ by
S&P.
; 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-1+ or S&P-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
C-1-7
<PAGE>
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 A& 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 F 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. 33-53114 and 811-
6721) 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 clearinghouse 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.
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<PAGE>
"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.
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<PAGE>
"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 T7, Auction Rate Municipal Preferred Stock, Series R7,
Auction Rate Municipal Preferred Stock, Series T28, or Auction Rate Municipal
Preferred Stock, Series R28.
"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
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<PAGE>
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-1+ 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
December 31, 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 owners 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.
C-1-11
<PAGE>
"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 of 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 Issue 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:
S&P Collateral Period Rating Category
------------------
AAA* AA* A* BBB*
---- --- -- ----
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.
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-1+ by S&P or 125% if such Municipal Obligations are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 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-
1+ 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
C-1-12
<PAGE>
MIG-1 or VMIG-1 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 the Series T7 Preferred
Shares, Series R7 Preferred Shares and Series R28 Preferred Shares, 277% during
the Initial Dividend Period, and, with respect to the Series T28 Preferred
Shares, 198% 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%
C-1-13
<PAGE>
<TABLE>
<S> <C>
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%
</TABLE>
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 T7 Preferred Shares" means the Auction Rate Municipal
Preferred Stock, Series T7, 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 R7 Preferred Shares" means the Auction Rate Municipal
Preferred Stock, Series R7, 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 T28 Preferred Shares" means the Auction Rate Municipal
Preferred Stock, Series T28, 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 R28 Preferred Shares" means the Auction Rate Municipal
Preferred Stock, Series R28, 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 T28 Preferred
Shares and Series R28 Preferred Shares or 7 in the case of the Series T7
Preferred Shares or Series R7 Preferred Shares), evenly divisible by seven (in
each case subject to adjustment as provided in paragraph 2(c)(iii)).
C-1-14
<PAGE>
"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 each of the Series T7 Preferred Shares, Series T28 Preferred
Shares and R28 Preferred Shares, 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 respective credit ratings of the Series T7
Preferred Shares, Series T28 Preferred Shares and R28 Preferred Shares or (ii)
with respect to the Series R7 Preferred Shares shall mean a nationally
recognized securities rating organization and two nationally recognized
securities rating organizations, respectively, selected by Kidder, Peabody & Co.
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 R7
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
C-1-15
<PAGE>
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 corporate 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 (3) 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 individual 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
C-1-16
<PAGE>
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 Kidder, Peabody & Co. Incorporated 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, with respect to each series of Preferred Shares, PaineWebber
Incorporated, Prudential Securities Incorporated and Shearson Lehman Brothers
Inc., solely with respect to the Series T7 Preferred Shares, Legg Mason Wood
Walker, Incorporated, solely with respect to the Series T7 Preferred Shares and
Series T28 Preferred Shares, A.G. Edwards & Sons, Inc., solely with respect to
the Series R28 Preferred Shares, Oppenheimer & Co., Inc., and, solely with
respect to the series R7 Preferred Shares, Kemper Securities, Inc.; or the
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 T28 Preferred Shares,
dividends will be payable commencing on the First Initial Dividend
Payment Date, on the first day of each calendar month thereafter, subject to the
exceptions set forth herein, through the
C-1-17
<PAGE>
first day of the Last Initial Dividend Payment Date. With respect to the Series
T7 Preferred Shares, Series R7 Preferred Shares and Series R28 Preferred Shares,
dividends will be payable commencing on the Initial Dividend Payment Date with
respect to each series of Preferred Shares. Following the Last Initial Dividend
Payment Date with respect to the Series T28 Preferred Shares and following the
Initial Dividend Payment Date for the Series T7 Preferred Shares, Series R7
Preferred Shares and Series R28 Preferred Shares, dividends on the Preferred
Shares will be payable, at the option of the Corporation, (ii) with respect to
any Dividend Period of 35 or fewer days on the day next succeeding the last day
thereof, (iii) 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, monthly 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 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 T28 Preferred Shares,
excluding the Last Initial Dividend Payment Date, and, with respect to the
Series T7 Preferred Shares, Series R7 Preferred Shares and Series R28 Preferred
Shares, excluding the Initial Dividend Payment Date (the "Initial Dividend
Period"), the Applicable Rate shall be the Initial Dividend Rate. Commencing on
the Last Initial Dividend Payment Date, with respect to the Series T28 Preferred
Shares, and on the Initial Dividend Payment Date, with respect to the Series T7
Preferred Shares, Series R7 Preferred Shares and Series R28 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 T28
Preferred Shares and Series R28 Preferred Shares) or a 7-day Dividend Payment
Period (in the case of the Series T7 Preferred Shares and Series R7 Preferred
Shares). Except in the
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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 T28 Preferred Shares and Series R28 Preferred
Shares or 7 in the case of Series T7 Preferred Shares and Series R7
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
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<PAGE>
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 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 T28 Preferred Shares and Series R28 Preferred Shares) or a
7-day Dividend Period (in the case of Series T7 Preferred Shares and Series
R7 Preferred Shares) provided that if the then-current Dividend Period in
the case of the Series T28 Preferred Shares and Series R28 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 T28 Preferred Shares and Series R28 Preferred Shares) or
a 7-day Dividend Period (in the case of Series T7 Preferred Shares and
Series R7 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 T28 Preferred Shares and Series R28 Preferred Shares) or a 7-day
Dividend Period (in the case of Series T7 Preferred Shares and Series R7
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.
C-1-20
<PAGE>
(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, (3) 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.
(c) 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
C-1-21
<PAGE>
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, however, that Series T28 Preferred Shares
are optionally redeemable by the Corporation during the Initial Dividend
Period only on the Business Day next preceding the end of the Initial
Dividend Period; and further 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
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<PAGE>
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
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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
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<PAGE>
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
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<PAGE>
(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
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<PAGE>
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 reattain the Preferred Shares Basic Maintenance Amount on or prior to the
Preferred Shares Basic Maintenance Cure Date.
C-1-26
<PAGE>
(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 alterative 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
C-1-27
<PAGE>
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.
C-1-28
<PAGE>
(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 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
C-1-29
<PAGE>
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
Credit Ratings 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>
C-1-30
<PAGE>
The Corporation will take all reasonable action necessary to enable
Moody's and S&P to provide a rating for all four 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 Kidder,
Peabody & Co. 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
T7 Preferred Shares, Series T28 Preferred Shares, Series R28 Preferred Shares,
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 R7
Preferred Shares only, Kidder, Peabody & Co. 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:
C-1-31
<PAGE>
(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:
C-1-32
<PAGE>
Appendix C-2
THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
ARTICLES OF AMENDMENT
---------------------
THE BLACKROCK INSURED MUNICIPAL 2008 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 T7," "Auction
Rate Municipal Preferred Stock, Series R7," "Auction Rate Municipal Preferred
Stock, Series T28" and the "Auction Rate Municipal Preferred Stock, Series R28"
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 15, 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 T7," "Auction Rate Municipal Preferred Stock, Series
R7," "Auction Rate Municipal Preferred Stock, Series T28" and the "Auction Rate
Municipal Preferred Stock, Series R28" 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 T7: A series of 2,060 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 T7." Each share of Auction Rate Municipal Preferred
Stock, Series T7 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 T7 shall constitute a separate
series of preferred stock of the Corporation, and each share of the Auction
Rate Municipal Preferred Stock, Series T7 shall be identical."
"SERIES R7: A series of 2,060 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 R7." Each share of Auction Rate Municipal Preferred
Stock, Series R7 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 R7 shall constitute a separate
series of preferred stock of the Corporation, and each share of the Auction
Rate Municipal Preferred Stock, Series R7 shall be identical."
"SERIES T28: A series of 2,060 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 T28." Each share of Auction
<PAGE>
Rate Municipal Preferred Stock, Series T7 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 T28 shall
constitute a separate series of preferred stock of the Corporation, and
each share of the Auction Rate Municipal Preferred Stock, Series T28 shall
be identical."
"SERIES R28: A series of 2,060 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 R28." Each share of Auction Rate Municipal
Preferred Stock, Series R28 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 R28 shall constitute a separate
series of preferred stock of the Corporation, and each share of the Auction
Rate Municipal Preferred Stock, Series R28 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 Class 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 T7" shall be
converted into two (2) shares of the "Auction Rate Municipal Preferred Stock,
Series T7," 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 T7"
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 R7" shall be
converted into two (2) shares of the "Auction Rate Municipal Preferred Stock,
Series R7," 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 R7"
pursuant to the Charter of the Corporation (as amended by these Articles of
Amendment) and the Maryland General Corporation Law.
SIXTH: Effective as of the Effective Date, each share of the issued and
-----
outstanding "Auction Rate Municipal Preferred Stock, Series T28" shall be
converted into two (2) shares of the "Auction Rate Municipal Preferred Stock,
Series T28," 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
T28" pursuant to the Charter of the Corporation (as amended by these Articles of
Amendment) and the Maryland General Corporation Law.
SEVENTH: Effective as of the Effective Date, each share of the issued and
-------
outstanding "Auction Rate Municipal Preferred Stock, Series R28" shall be
converted into two (2) shares of the "Auction Rate Municipal Preferred Stock,
Series R28," 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
R28" pursuant to the Charter of the Corporation (as amended by these Articles of
Amendment) and the Maryland General Corporation Law.
C-2-2
<PAGE>
EIGHTH: 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 By-laws of the Corporation and the Maryland
General Corporation Law.
NINTH: 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.
TENTH: 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 T7," "Auction Rate Municipal
Preferred Stock, Series R7," "Auction Rate Municipal Preferred Stock, Series
T28" and the "Auction Rate Municipal Preferred Stock, Series R28," 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 1,030
authorized shares of the "Auction Rate Municipal Preferred Stock, Series T7." As
of the Effective Date, there will be 2,060 shares of the "Auction Rate Municipal
Preferred Stock, Series T7." Prior to the Effective Date, there were 1,030
authorized shares of the "Auction Rate Municipal Preferred Stock, Series R7." As
of the Effective Date, there will be 2,060 shares of the "Auction Rate Municipal
Preferred Stock, Series R7." Prior to the Effective Date, there were 1,030
authorized shares of the "Auction Rate Municipal Preferred Stock, Series T28."
As of the Effective Date, there will be 2,060 shares of the "Auction Rate
Municipal Preferred Stock, Series T28." Prior to the Effective Date, there were
1,030 authorized shares of the "Auction Rate Municipal Preferred Stock, Series
R28." As of the Effective Date, there will be 2,060 shares of the "Auction Rate
Municipal Preferred Stock, Series R28."
C-2-3
<PAGE>
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 13 day of June,
1995.
ATTEST: THE BLACKROCK INSURED MUNICIPAL
2008 TERM TRUST INC.
/s/ Karen H. Sabath By /s/ Ralph L. Schlosstein (SEAL)
- --------------------------------- ---------------------------
Karen H. Sabath Ralph L. Schlosstein
Secretary President
The undersigned, being the duly elected and acting President of The
BlackRock Insured Municipal 2008 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 2008 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.
/s/ Ralph L. Schlosstein
-----------------------
Ralph L. Schlosstein
President
C-2-4
<PAGE>
Appendix C-3
FORM OF
ARTICLES SUPPLEMENTARY
of The BlackRock Insured Municipal 2008 Term Trust Inc.
THE BLACKROCK INSURED MUNICIPAL 2008 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 2,600 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 T7
from 2,060 to 4,660.
SECOND: All of the authorized shares of the Auction Rate Municipal
Preferred Stock, Series T7 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 T7 as provided in the Corporation's Charter; provided, however, that the
Initial Dividend Period for such 2,600 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 2008 TERM TRUST INC.
By:_____________________________
Ralph L. Schlosstein
President
Attest:
____________________________________
Karen H. Sabath
Secretary
<PAGE>
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 $ 17,160
Printing and engraving expenses 100,000
Legal fees 90,000
Accounting expenses 5,000
Rating Agency fees 39,500
Blue Sky filing fees and expense 5,000
Miscellaneous expenses 43,340
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.
C-1
<PAGE>
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At February 4, 2000:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
Common Stock, $.01 par value 990
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
C-2
<PAGE>
(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.
C-3
<PAGE>
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 6th day of February, 2000.
THE BLACKROCK INSURED MUNICIPAL 2008 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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
* President (Principal Executive March 6, 2000
- ----------------------------- Officer) and Director
Ralph L. Schlosstein
* Treasurer (Principal Financial and March 6, 2000
- ----------------------------- Accounting Officer)
Henry Gabbay
* Director March 6, 2000
- -----------------------------
Laurence D. Fink
* Director March 6, 2000
- -----------------------------
Andrew F. Brimmer
* Director March 6, 2000
- -----------------------------
Richard E. Cavanagh
* Director March 6, 2000
- -----------------------------
Kent Dixon
* Director March 6, 2000
- -----------------------------
Frank J. Fabozzi
* Director March 6, 2000
- -----------------------------
James Clayburn LaForce, Jr.
* Director March 6, 2000
- -----------------------------
Walter F. Mondale
</TABLE>
______________
* Signed by Karen Sabath pursuant to power of attorney, dated January 3, 2000.
/s/ Karen Sabath
- ----------------
<PAGE>
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 T7
Preferred Shares*
(3) Form of Specimen Stock Certificate Representing Series T28
Preferred Shares*
(4) Form of Specimen Stock Certificate Representing Series R7
Preferred Shares*
(5) Form of Specimen Stock Certificate Representing Series R28
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. (1) Form of Code of Ethics of the Trust+
(2) Code of Ethnics of the Advisor+
s. Powers of Attorney*
______________
* Previously filed.
+ Filed herewith.
<PAGE>
March 6, 2000
The BlackRock Insured Municipal 2008 Term
Trust Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as special Maryland counsel to The BlackRock Insured
Municipal 2008 Term Trust Inc., a Maryland corporation (the "Corporation"), in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of 2,600 shares of the Corporation's Auction Rate Municipal
Preferred Stock, Series T7 (Liquidation Preference $25,000 per share) of the
Corporation (the "Shares") pursuant to the Corporation's registration statement
on Form N-2, as amended (the "Registration Statement"). The Shares will be
issued pursuant to the Articles Supplementary to be filed with the Maryland
State Department of Assessments and Taxation. In this capacity, we have examined
such corporate records, certificates and documents as we deemed necessary for
the purpose of this opinion, including the form of Articles Supplementary of the
Corporation filed as an Exhibit to the Registration Statement.
Based on our examination, we advise you that in our opinion the Shares
to be issued by the Corporation have been duly and validly authorized and,
assuming that the Articles Supplementary are duly filed with and accepted by the
Maryland State Department of Assessments and Taxation prior to the issuance of
the Shares, when issued upon the terms set forth in the Registration Statement
as filed with the Commission, the Shares will be legally issued, fully paid and
non-assessable.
<PAGE>
The BlackRock Insured Municipal 2008
Term Trust Inc.
March 6, 2000
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission thereunder. The opinion
expressed herein is limited to the matters set forth in this letter and no other
opinion should be inferred beyond the matters expressly stated.
Very truly yours,
MILES & STOCKBRIDGE P.C.
By:___________________________________
Principal
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-Effective Amendment No.
9 to the Registration Statement of The BlackRock Insured Municipal 2008 Term
Trust, Inc. (Investment Company Registration No. 811-6721) of our report dated
February 11, 2000, relating to the financial statements of the BlackRock Insured
Municipal 2008 Term Trust, 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
March 6, 2000
<PAGE>
FORM
OF
CODE OF ETHICS
I. INTRODUCTION
This Code of Ethics (the "Code") has been adopted by the Board of
[Directors/Trustees] of the BlackRock investment companies listed on Schedule 1
(each a "Fund") in compliance with Rule 17j-1 (the "Rule") under the Investment
Company Act of 1940, as amended (the "1940 Act"), to establish standards and
procedures necessary to ensure that personnel of the Fund, in connection with
their personal trading activities, comply with their ethical and legal
obligations with respect to the Fund and the anti-fraud provisions under the
Rule.
II. STATEMENT OF GENERAL PRINCIPALS
This Code is based on the principle that the officers, directors and
employees of the Fund owe a fiduciary duty to the shareholders of the Fund, to
conduct their personal securities transactions in a manner that does not
interfere with Fund portfolio transactions or otherwise take unfair advantage of
their relationship to the Fund. Persons covered by this Code must adhere to
this general principle as well as comply with the Code's specific provisions to
avoid any actual or potential conflict of interest or any abuse of such person's
position of trust and responsibility and to prevent such persons from engaging
in conduct prohibited by the 1940 Act.
III DEFINITIONS
For purposes of this Code, the following definitions shall apply.
A. "Access Person" means any trustee, officer, general partner, or
Advisory Person of the Fund or of the Advisor.
B. "Advisor" means BlackRock Advisors, Inc., investment adviser to the
Fund.
C. "Advisory Person" means:
1. Any employee of the Fund or the Advisor or of any company in a
control relationship to the Fund or the Advisor who, in connection with such
person's regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a Security by the Fund, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and
<PAGE>
2. Any natural person in a control relationship to the Fund or the
Advisor who obtains information concerning recommendations made to the Fund with
regard to the purchase or sale of a held in the name of members of such
person's immediate family sharing the same household including any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law and adoptive relationships; or Security.
D. "Beneficial Ownership" of a security is interpreted in the same manner
as it is under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") in determining whether a person is subject to the
provisions of Section 16 of the 1934 Act and the rules promulgated thereunder.
A person is considered the beneficial owner of securities in which such person
has the opportunity to directly or indirectly through any contract, arrange
ment, understanding, relationship or otherwise, profit or share in any profit
derived from a transaction in securities. Generally, a person is regarded as
having beneficial ownership of securities
1. held in the name of members of such person's immediate family
sharing the same household including any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-
law, daughter-in-law, brother-in-law, or sister-in-law and adoptive
relationships; or
2. if such person has the right to acquire securities immediately or
some time in the future, such as through the exercise or conversion of any
derivative security, whether or not presently exercisable.
E. "Compliance Personnel" shall mean appropriate management or compliance
personnel appointed by the Board from time to time to review reports and monitor
personal investment activity pursuant to the Rule and this Code.
F. "Initial Public Offering" or "IPO" is an offering of securities
registered under the Securities Act of 1933 (the "1933 Act"), by issuers not
previously subject to the reporting requirements of the Exchange Act.
G. "Investment Personnel" means:
1. portfolio managers and any other employees of the Fund or the
Advisor or of any company in a control relationship to the Fund or the Advisor
who, in connection with his or her regular functions or duties, makes or
participates in making investment recommendations to the Fund regarding the
purchase or sale of securities; and
2
<PAGE>
2. any natural person in a control relationship to the Fund or the
Advisor who obtain information about investment recommendations made to the Fund
regarding the purchase or sale of securities.
H. "Limited Offering" is an offering that is exempt from registration
under the 1933 Act and includes private placement offerings that are exempt from
registration under the 1933 Act as well as offerings that are not public under
the 1933 Act.
I. "Purchase or sale of a Security" includes, inter alia, the writing of
----- ----
an option to purchase or sell a Security.
J. "Security" has the meaning set forth in Section 2(a)(36) of the 1940
Act but does not include direct obligations of the U.S. government, bankers'
acceptances, bank certificates of deposit, commercial paper, high-quality short-
term debt securities, including repurchase agreements, and shares issued by
registered open-end investment companies.
K. "Security held or to be acquired" by the Fund means any Security
which, within the most recent 15 days (i) is or has been held by the Fund; (ii)
is being or has been considered by the Fund or its Advisor for purchase by the
Fund or (iii) any option to purchase or sell, and any security convertible into
or exchangeable for a Security.
IV. STANDARDS OF CONDUCT
A. It shall be a violation of the Code for any affiliated person of the
Fund or the Advisor, in connection with the purchase or sale, directly or
indirectly, of a "Security held or to be acquired" by the Fund:
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make to the Fund any untrue statement of a material fact or
omit to state to the Fund a material fact necessary in order to make the
statements made to the Fund, in light of the circumstances under which they are
made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
3
<PAGE>
B. The Fund shall use reasonable diligence and institute the procedures
set forth below which are reasonably necessary to prevent violations of this
Code and shall investigate any matter the facts of which suggest that the Code
has been violated.
C. All employees, officers and directors of the Fund are encouraged to
seek advice from counsel with respect to any action or transaction which may
violate the provisions of this Code and to refrain from any action or
transaction which might lead to the appearance of a viola tion.
V. REPORTING REQUIREMENTS
A. Initial and Annual Holdings Reports. No later than 10 days after
-----------------------------------
becoming an Access Person and thereafter, annually, each Access Person must
furnish a report showing (i) the date of the report, (ii) the title, number of
shares and principal amount of each Security, which had been owned directly or
indirectly, by the Access Person and (iii) the name of any broker, dealer or
bank with an account holding any securities for the direct or indirect benefit
of the Access Person, as of the date the reporting person became an Access
Person, or in the case of annual reports, no more than 30 days before the annual
report is submitted by the Access Person.
B. Quarterly Transaction Reports. No later than 10 days after the end of
-----------------------------
the calendar quarter with respect to:
1. any transaction in a Security during the quarter in which an
Access Person had any direct or indirect beneficial ownership, such Access
Person must furnish a report showing (i) the date of the report; (ii) the date
of the transaction, the title, the interest rate and maturity date (if
applicable), the number of shares, and the principal amount of each Security in
volved; (iii) the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition); (iv) the price at which the transaction was
effected; and (v)the name of the broker, dealer or bank with or through which
the transaction was effected; and
2. any account established by an Access Person in which any
securities were held during the quarter for the direct or indirect benefit of
such Access Person, such Access Person must furnish a report showing (i) the
name of the broker, dealer or bank with which established the account; (ii) the
date the account was established; and (iii) the date report submitted.
C. Any report required to be made pursuant to paragraphs A and B may
contain a statement that the report shall not be construed as an admission by
the person making such report that he has any direct or indirect beneficial
ownership in the security to which the report relates.
4
<PAGE>
D. Any report required to be made pursuant to paragraphs A and B shall be
consid ered to be made if:
1. Such reporting person requests that each broker who effects
transactions for such reporting person provides to the Fund monthly account
information (in the form attached as Exhibit A).
2. In the event no reportable transactions occurred during the
quarter, such reporting person so notes on the report and returns such report
signed and dated.
3. Such reporting person is otherwise required to file (and files)
such reports pursuant to the code of ethics of the Advisor.
E. Compliance Personnel appointed by the Fund and the Advisor shall
review all securities transactions and holdings reports required to be filed
under paragraphs A and B, and the Fund will maintain a record of the names of
such persons performing the review.
F. Notwithstanding the provisions of paragraphs A
and B, no person shall be required to make a report:
1. With respect to transactions effected for any account over which
such person does not have any direct or indirect influence or control; or
2. If such person is not an "interested person" of the Fund within
the meaning of Section 2(a)(19) of the 1940 Act and would be required to make
such a report solely by reason of being a director of the Fund, except where
such director knew or, in the ordinary course of fulfilling his official duties
as a director of the Fund, should have known that during the 15-day period
immediately preceding or after the date of the transaction in a security by the
director, such security is or was purchased or sold by the Fund or such purchase
or sale by the Fund is or was considered by the Fund or the Advisor.
VI. PRIOR APPROVAL OF CERTAIN INVESTMENTS
A. Investment Personnel must obtain written approval before directly or
indirectly acquiring beneficial ownership in any securities in an initial public
offering or a limited offering transaction.
1. Approvals for transactions must be obtained in writing by
completing and signing a form provided for that purpose by the Fund, which form
shall set forth the details of the proposed transaction. An example of such
form is attached as Exhibit B.
5
<PAGE>
2. Compliance Personnel assigned by the Fund will review each
request for approval and determine whether to pre-clear such transaction and the
Fund will maintain a written record of each approval of, and rationale
supporting, a pre-clearance transaction.
B. Compliance Personnel may refuse to grant clearance of a personal
transaction in such person's sole discretion without being required to specify
any reason for the refusal.
C. Generally, Compliance Personnel will consider the following factors in
making a pre-clearance determination:
1. whether the investment opportunity should be reserved for the
Fund and its shareholders; and
2. whether the opportunity is being offered to an individual by
virtue of such person's position with the Fund.
Whether the Fund has the ability to invest in a particular security
(as a result of investment restrictions or otherwise) is not a basis for pre-
clearance.
VII ADMINISTRATION AND ENFORCEMENT
The administration of this Code shall be the responsibility of Compliance
Personnel of the Fund whose duties shall include:
A. Maintaining a list of all Access Persons who are under duty to make
reports or pre-clear transactions under this Code and providing each such person
with a copy of the Code and informing them of their duties and obligations
hereunder.
B. Approving or denying requests for pre-clearance transactions submitted
to the Fund and maintaining a record of such decision and if approved,
supporting reasons of such approval.
C. Reviewing all quarterly securities transactions and holdings reports
required to be filed pursuant to this Code, and maintaining a record of such
review, including the name of the Compliance Personnel performing the review.
D. Preparing listings of all transactions effected by such persons and
comparing all reported personal securities transactions with completed
portfolio transactions of the Fund and securities being considered for purchase
or sale by the Fund to determine whether a violation of this Code may have
occurred.
6
<PAGE>
E. Conducting such inspections or investigations as shall reasonably be
required to detect and report any apparent violations of this Code to the Board
or any person or persons appointed by the Board to deal with such information.
F. Submitting reports to the Board containing a description of any
violation and sanction imposed and other significant information concerning the
appropriateness of this Code.
VII RESPONSIBILITIES OF ADVISOR
A. The Advisor (including, where applicable, any sub-advisor) of the Fund
shall submit for Board review and approval, (i) a copy of its code of ethics
adopted by such Advisor pursuant to the Rule; (ii) promptly report to the Board
for review and approval, any amendments to such code of ethics; (iii)furnish to
the Board upon request, copies of any reports made pursuant to its code of
ethics by any person who is an Access Person as to the Fund; and (iv)
immediately furnish to the Board, without request, all material information
regarding any violation of its code of ethics by any Access Person or Investment
Personnel as to the Fund.
B. On an annual basis, the Advisor shall prepare a written report to the
Board that (i) describes any issues arising under the Code since the last report
including, but not limited to, information about material violations of the Code
and sanctions imposed in response to such violations; and (ii) certifies that it
has adopted procedures reasonably necessary to prevent violations of the Code.
IX. MAINTENANCE OF RECORDS
Compliance Personnel of the Fund shall maintain and cause to be maintained
in an easily accessible place, the following records:
A. A copy of any code of ethics adopted by the Fund pursuant to the Rule
which is or has been in effect during the past five years;
B. A list of all persons who are, or within the preceding five years have
been, required to make reports pursuant to the Rule and this Code;
C. A copy of each report made pursuant to the Rule and this Code within
the preceding five years;
D. A copy of any decision and reasons supporting such decision to approve
a pre-clearance transaction pursuant to this
7
<PAGE>
Code, made within the past five years after the end of the fiscal year in which
such approval is granted; and
E. A copy of any record or report of violation of this Code and any
action taken as a result of such violation.
X. CODE VIOLATIONS AND SANCTIONS
A. Compliance Personnel or any officer or [director/trustee] of the Fund
who discovers a violation or apparent violation of this Code by any other person
shall bring the matter to the attention of the President of the Fund who shall
then report the matter to the Board. The Board shall determine whether a
violation has occurred and, if it so finds, may impose such sanc tions, if any,
as it considers appropriate. Before making any determination that a violation
has been committed by any person, the Board shall give such person an
opportunity to supply additional explanatory material.
B. Any violation of this Code will be subject to the imposition of such
sanctions by the Fund that the Board may deem appropriate under the
circumstances to achieve the purposes of the Rule and this Code which may
include suspension without pay, dismissal and/or restitu tion of an amount
equal to the difference between the price paid or received by the Fund and the
more advantageous price paid or received by the offending person or any other
sanction which the Board shall determine to be reasonable and proper.
I. ADOPTION OF CODE OF ETHICS
This Code has been adopted by the Board of [Directors/Trustees] of the
Fund, including a majority of the [Directors/Trustees] who are not "interested
persons," as that term is defined in the 1940 Act, at a meeting held on [
].
Prior to adopting this Code, the Board reviewed and approved the code of
ethics adopted by the Fund's Advisor, including all procedures or provisions
related to the enforcement of this Code. The Board based its approval of this
Code and the code of ethics of the Advisor on (i) certifications from the Fund
and the Advisor that adequate procedures are in place to prevent violations of
the codes and (ii) a determination that such codes are adequate and contain
provisions reasonably necessary to ensure that personnel of the Fund and the
Advisor comply with the Rule and this Code.
8
<PAGE>
SCHEDULE 1
CODE OF ETHICS
OF
BLACKROCK FUNDS
BlackRock Advantage Term Trust
BlackRock Broad Investment Grade 2009 Term Trust
BlackRock California Insured Municipal 2008 Term Trust
BlackRock California Investment Quality Municipal Trust
BlackRock Florida Insured Municipal 2008 Term Trust
BlackRock Florida Investment Quality Municipal Trust
BlackRock High Yield Trust
BlackRock Income Trust
BlackRock Insured Municipal 2008 Term Trust Inc,
BlackRock Insured Municipal Term Trust
BlackRock Investment Quality Municipal Trust
BlackRock Investment Quality Term Trust
BlackRock Municipal Target Term Trust
BlackRock New Jersey Investment Quality Municipal Trust
BlackRock New York Insured Municipal 2008 Term Trust
BlackRock New York Investment Quality Municipal Trust
BlackRock North American Government Income Trust
BlackRock Pennsylvania Strategic Municipal Trust
BlackRock Strategic Municipal Trust
9
<PAGE>
EXHIBIT __
To:
This letter will confirm that in lieu of submitting a quarterly
report, I have instructed all brokers with whom I have a brokerage account to
submit to you on a monthly basis all transactions which were effected in
securities of which I had or by reason of such transaction acquired, direct or
indirect, beneficial ownership and which are required to be reported pursuant to
Rule 17j-1 of the Investment Company Act of 1940, as amended, and the Fund's
Code of Ethics.
Very truly yours,
____________________________________
Dated:_____________________
10
<PAGE>
EXHIBIT __
INITIAL SECURITIES
HOLDINGS REPORT
Sign and return no later than 10 days after becoming obligated to file this
report. Use reverse side if additional space is needed.
The following lists all securities in which I have any direct or indirect
beneficial ownership.
- ----------------------------------
Title Number Broker/Dealer
of of Principal Holding
Date Security Shares Amount Account
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_____
Name:_________________________
Date:_____________________ Signature:_____________________
11
<PAGE>
EXHIBIT ___
ANNUAL SECURITIES
HOLDINGS REPORT
Sign and return to the Fund. Use reverse side if additional space is
needed.
The following lists all securities in which I have or had any direct or
indirect beneficial ownership during the last calendar year. Information
provided on this report is current as of not more than 30 days before the date
report submitted.
- ----------------------------------
Title Number Broker/Dealer
of of Principal Holding
Date Security Shares Amount Account
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_____
Name:_________________________
Date:_____________________ Signature:_____________________
12
<PAGE>
EXHIBIT __
QUARTERLY SECURITIES
TRANSACTIONS REPORT
Sign and return to the Fund no later than the 10/th/ day of the month
following the end of the quarter. Use reverse side if additional space is
needed. If no transactions took place write "None".
The following lists all transactions in securities in which I had any
direct or indirect beneficial ownership during the last calendar quarter.
Purchases and Acquisitions
- --------------------------------------------------------------------------------
Interest Broker/Dealer
Title Number Rate/ making Trans.
of of Maturity Principal Unit Total or Holding
Date Security Shares Date Amount Price Price an Account
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_____
Sales and Other Dispositions
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_____
Name:__________________________
Date:_____________________ Signature:_____________________
13
<PAGE>
EXHIBIT __
Initial Public Offering Approval Request
______________________________ ________________________________
Name (Please Print) Department & Job Title
1. Name of company:_________________________________________________________
2. Type of security: [ ] Equity [ ] Fixed income
3. Planned date of transaction:_____________________________________________
4. Size of offering:________________________________________________________
5. Number of shares to be purchased:________________________________________
6. Is it a "hot issue"?_____________________________________________________
7. What firm is making this IPO available to you?___________________________
8. Do you do business with this firm in connection with managing fund or
client accounts?_________________________________________________________
9. Do you believe this IPO is being made available to you in order to
influence brokerage order flow for fund or client accounts?______________
10. Have you in the past received IPO allocations from this firm?
[ ] Yes [ ] No
If "yes", please provide a list of all previously purchased IPO's________
_________________________________________________________________________
11. Are other Firm personnel or clients involved? [ ] Yes [ ] No
If "yes", please describe:______________________________________________
_________________________________________________________________________
12. Does a fund that you manage have an investment objective that would make
this IPO an opportunity that should first be made available to a fund or
client you manage money for? [ ] Yes [ ] No
13. Describe how you became aware of this investment opportunity:____________
_________________________________________________________________________
I understand that approval, if granted, is based upon the information provided
herein and I agree to observe any conditions imposed upon such approval.
I represent (i) that I have read and understand the firm's code of ethics with
respect to personal trading and recognize that I am subject thereto; (ii) that
the above trade is in compliance with the code; (iii) that to the best of my
knowledge the above trade does not represent a conflict of interest, or an
appearance of a conflict of interest, with any client or fund; and (iv) that I
have no knowledge of any pending client orders in this security nor is the above
trade in a related security which indirectly would result in a transaction in a
security in which there are pending client orders. Furthermore, I acknowledge
that no action should be taken by me to effect the trade(s) listed above until I
have received formal approval.
14
<PAGE>
Signature Date
Date Received by Compliance Personnel:____________________________
Approved:____________________ Disapproved:____________________ Date:________
Name Name:
Title: Title:
15
<PAGE>
EXHIBIT __
Private Placement Approval Request
(attach a copy of the Private Placement Memorandum, Offering Memorandum or any
other relevant documents)
______________________________ ________________________________
Name (Please Print) Department & Job Title
14. Name of corporation, partnership or other entity (the "Organization")
___________________________________________________________________________
15. Is the organization: [ ] Public [ ] Private
16. Type of security or fund:
17. Nature of participation (e.g., Stockholder, General Partner, Limited
Partner). Indicate all applicable:
___________________________________________________________________________
18. Planned date of transaction:_______________________________________________
19. Size of offering (if a fund, size of fund):________________________________
20. Size of your participation:________________________________________________
21. Would investment carry limited or unlimited liability?
[ ] Limited [ ] Unlimited
22. Would the investment require any use of the Firm's premises, facilities or
materials? [ ] Yes [ ] No
If "yes", please describe:_________________________________________________
23. Are other Firm personnel or clients involved? [ ] Yes [ ] No
If "yes", please describe:________________________________________________
24. Describe the business to be conducted by the Organization:_________________
___________________________________________________________________________
If organization is a fund:
. Describe investment objectives of fund (e.g.,value, growth or speciality)
_________________________________________________________________________
. Does a fund that you manage have an investment objective that would make
this private placement an opportunity that should first be made available
to a fund or client you manage money for? [ ] Yes [ ] No
If "yes", please describe which client or fund:____________________________
____________________________________________________________________________
_____________________
25. Will you participate in any investment decisions? [ ] Yes [ ] No
If "yes", please describe:
___________________________________________________________________________
16
<PAGE>
26. Describe how you became aware of this investment opportunity:
___________________________________________________________________________
I understand that approval, if granted, is based upon the information provided
herein and I agree to observe any conditions imposed upon such approval. I will
notify the firm in writing if any aspect of the investment is proposed to be
changed (e.g., investment focus of fund, compensation, involvement in
organization's management) and I hereby acknowledge that such changes may
require further approvals, or disinvestment by me.
I represent (i) that I have read and understand the Code of Ethics with respect
to personal trading and recognize that I am subject thereto; (ii) that the above
trade is in compliance with the Code; (iii) that to the best of my knowledge the
above trade does not represent a conflict of interest, or an appearance of a
conflict of interest, with any client or fund; and (iv) that I have no knowledge
of any pending client orders in this security nor is the above trade in a
related security which indirectly would result in a transaction in a security in
which there are pending client orders. Furthermore, I acknowl edge that no
action should be taken by me to effect the trade(s) listed above until I have
received formal approval.
Signature Date
Date Received by [Compliance Personnel]:______________________________________
Approved:_______________________ Disapproved:_____________________________
Name Name:
Title: Title:
Date: ____________________________
17
<PAGE>
EXHIBIT __
Code of Ethics
Exception Reporting Form
Account Name(s) _________________________________________________
Account Number(s) #_____________________________________________
Trade/Exception Date(s) ___/___/___
Settlement Date(s), if any ___/___/___
How was exception detected? ______________________________________
Detection Date ___/___/___
Reporting Date ___/___/___
Reporting Person/
Name: _______________________________________
Phone # _____________________________________
Details of the exception:______________________________________
Portfolio Manager/Analyst Trade? [ ] Yes [ ] No
Was there a direct conflict of interest with a client account? [ ] Yes [ ] No
Effects of the exception (i.e., ______________________________________
interest costs and gains/losses ______________________________________
Corrective action taken or to ______________________________________
be taken (please provide ______________________________________
details of correcting trades) ______________________________________
List any changes to ______________________________________
procedures or controls ______________________________________
Was Board of Directors of the [ ] Yes [ ] No
Fund notified (if required)? ______________________________________
If yes, in what form and when? ______________________________________
Details of reimbursement or ______________________________________
payment (amount, date, payee) ______________________________________
Any additional notes ______________________________________
18
<PAGE>
EXHIBIT __
To:
This letter will confirm that in lieu of submitting a quarterly report, I
have instructed all brokers with whom I have a brokerage account to submit to
you on a monthly basis all transactions which were effected in securities of
which I had or by reason of such transaction acquired, direct or indirect,
beneficial ownership and which are required to be reported pursuant to Rule
17j-1 of the Investment Company Act of 1940, as amended, and the Fund's Code of
Ethics.
Very truly yours,
______________________________________
Dated:______________________
19
<PAGE>
ANNUAL CERTIFICATION
UNDER RULE 17J-1 OF THE
INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") and pursuant to the Code of Ethics (the "Code") for the
BlackRock invesment companies listed below (the "Funds"), each of the Funds
hereby certifies to such Fund's Board of Directors that such Fund has adopted
procedures reasonably necessary to prevent Access Persons (as defined in the
Code) from violating the Code.
Date:____________________ By:_______________________
Name:
Title:
BlackRock Advantage Term Trust
BlackRock Broad Investment Grade 2009 Term Trust
BlackRock California Insured Municipal 2008 Term Trust
BlackRock California Investment Quality Municipal Trust
BlackRock Florida Insured Municipal 2008 Term Trust
BlackRock Florida Investment Quality Municipal Trust
BlackRock High Yield Trust
BlackRock Income Trust
BlackRock Insured Municipal 2008 Term Trust Inc,
BlackRock Insured Municipal Term Trust
BlackRock Investment Quality Municipal Trust
BlackRock Investment Quality Term Trust
BlackRock Municipal Target Term Trust
BlackRock New Jersey Investment Quality Municipal Trust
BlackRock New York Insured Municipal 2008 Term Trust
BlackRock New York Investment Quality Municipal Trust
BlackRock North American Government Income Trust
BlackRock Pennsylvania Strategic Municipal Trust
BlackRock Strategic Municipal Trust
20
<PAGE>
ANNUAL CERTIFICATION
UNDER RULE 17J-1 OF THE
INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") and pursuant to the Code of Ethics for BlackRock
Advisors, Inc. ("BlackRock") and the Code of Ethics for the Funds (collectively,
the "Code"), BlackRock certifies to the Board of Directors of the Funds that
BlackRock has adopted procedures reasonably necessary to prevent Access Persons
(as defined in the Code) from violating the Code.
Date:____________________ By:_______________________
Name:
Title:
21
<PAGE>
Exhibit 99.(R)(2)
EMPLOYEE INVESTMENT TRANSACTION POLICY
--------------------------------------
For
BLACKROCK, INC.
And
ITS AFFILIATED COMPANIES
Effective October 1, 1998
<PAGE>
EMPLOYEE INVESTMENT TRANSACTION POLICY
--------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS i
I. PREAMBLE.............................................................................. 1
A. General Principles............................................................... 1
B. The General Scope Of The Policy's Application To Personal Investment Transactions 3
C. The Organization Of This Policy.................................................. 3
D. Questions........................................................................ 4
II. PERSONAL INVESTMENT TRANSACTIONS...................................................... 4
A. In General....................................................................... 4
B. Reporting Obligations............................................................ 4
1. Use Of Broker-Dealers And Futures Commission Merchants...................... 4
2. Initial Report.............................................................. 5
3. New Accounts................................................................ 6
4. Timely Reporting Of Investment Transactions................................. 6
5. Related Accounts............................................................ 6
6. Exemptions From Reporting................................................... 6
C. Prohibited Or Restricted Investment Transactions................................. 7
1. Initial Public Offerings.................................................... 7
2. Private Placements.......................................................... 7
D. Investment Transactions Requiring Prior Notification............................. 8
1. Prior Notification Procedure................................................ 8
2. Exemptions From Prior Notification.......................................... 9
(a) Transactions Exempt From Prior Notification.......................... 9
(b) Securities Exempt From Prior Notification............................ 9
(c) Futures Contracts Exempt From Prior Notification..................... 9
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
E. Ban On Short-Term Trading Profits................................................ 10
F. Blackout Periods................................................................. 10
1. Specific Blackout Periods................................................... 10
2. Exemptions From Blackout Restrictions....................................... 11
III. INSIDE INFORMATION AND SERVICE AS A DIRECTOR.......................................... 11
A. Inside Information............................................................... 11
B. Service As A Director............................................................ 12
IV. EXEMPTIONS............................................................................ 12
V. COMPLIANCE............................................................................ 13
A. Certifications................................................................... 13
1. Upon Receipt Of This Policy................................................. 13
2. Annual Certificate Of Compliance............................................ 13
B. Supervisory Procedures........................................................... 14
1. The Compliance Committee.................................................... 14
2. The Compliance Officer...................................................... 14
3. Post-Trade Monitoring And Investigations.................................... 14
4. Remedial Actions............................................................ 15
5. Reports Of Violations Requiring Significant Remedial Action................. 15
6. Annual Reports.............................................................. 15
VI. EFFECTIVE DATE........................................................................ 15
</TABLE>
Appendices
- ----------
I. Definitions Of Capitalized Terms
II. Acknowledgment Of Receipt Of The Policy
III. Annual Certification Of Compliance With The Policy
IV. Initial Report Of Accounts
V. Request For Duplicate Broker Reports
VI. Investment Transaction Prior Notification Form
VII. Fully Discretionary Account Form
ii
<PAGE>
EMPLOYEE INVESTMENT TRANSACTION POLICY
--------------------------------------
FOR BLACKROCK, INC. AND
ITS AFFILIATED COMPANIES
I. PREAMBLE
A. General Principles
This Employee Investment Transaction Policy (the "Policy") is based on
the principle that you, as an officer, director or other Advisory Employee of an
Advisor affiliated with BlackRock, Inc. ("BlackRock"), owe a fiduciary duty of
undivided loyalty to the registered investment companies, institutional
investment clients, personal trusts and estates, guardianships, employee benefit
trusts, and other Advisory Clients which that Advisor serves./1/ Accordingly,
you must avoid transactions, activities, and relationships that might interfere
or appear to interfere with making decisions in the best interests of those
Advisory Clients.
At all times, you must observe the following general principles:
1. You must place the interests of Advisory Clients first. As a
fiduciary you must scrupulously avoid serving your own personal
interests ahead of the interests of Advisory Clients. You must
adhere to this general fiduciary principle as well as
___________________
/1/ This Policy uses a number of capitalized terms, e.g., Advisor, Advisory
Client, Advisory Employee, Beneficial Ownership, Exempt Security, Fixed Income
Security, Fully Discretionary Account, Futures Contract, Immediate Family,
Investment Transaction, Personal Account, Portfolio Employee, Portfolio Manager,
Related Account, and Security. The first time a capitalized term is used, a
definition is stated in the text or in a footnote. The full definitions of these
capitalized terms are set forth in Appendix I. To understand your
responsibilities under the Policy, it is important that you review and
understand all of the definitions of capitalized terms in Appendix I. As
indicated in Appendix I:
The term "Advisor" means any entity affiliated with BlackRock, whether
now in existence or formed after the date hereof, that is registered as
(i) an investment advisor under the Investment Advisers Act of 1940, as
amended, or (ii) a broker-dealer under the Securities Exchange Act of
1934, as amended, other than any such investment advisor or broker-
dealer that has adopted its own employee investment transaction policy.
The term "Advisory Client" means a registered investment company, an
institutional investment client, a personal trust or estate, a
guardianship, an employee benefit trust, or another client with which
the Advisor by which you are employed or with which you are associated
has an investment management, advisory or sub-advisory contract or
relationship.
The term "Advisory Employee" means an officer, director, or employee of
an Advisor, or any other person identified as a "control person" on the
Form ADV or the Form BD filed by the Advisor with the U.S. Securities
and Exchange Commission, (1) who, in connection with his or her regular
functions or duties, generates, participates in, or obtains information
regarding that Advisor's purchase or sale of a Security by or on behalf
of an Advisory Client; (2) whose regular functions or duties relate to
the making of any recommendations with respect to such purchases or
sales; (3) who obtains information or exercises influence concerning
investment recommendations made to an Advisory Client of that Advisor;
or (4) who has line oversight or management responsibilities over
employees described in (1), (2) or (3), above.
<PAGE>
comply with the Policy's specific provisions. Technical
compliance with the Policy will not automatically insulate from
scrutiny any Investment Transaction/2/ that indicates an abuse
of your fiduciary duties or that creates an appearance of such
abuse.
Your fiduciary obligation applies not only to your personal
Investment Transactions but also to actions taken on behalf of
Advisory Clients. In particular, you may not cause an Advisory
Client to take action, or not to take action, for your personal
benefit rather than for the benefit of the Advisory Client. For
example, you would violate this Policy if you caused an Advisory
Client to purchase a Security you owned for the purpose of
increasing the value of that Security. If you are a Portfolio
Employee,/3/ you would also violate this Policy if you made a
personal investment in a Security that might be an appropriate
___________________
/2/ For purposes of this Policy, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest.
As a general matter, the term "Security" means any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest or investment contract other than an
Exempt Security (as defined above). The term "Security" includes an option on a
Security, an index of Securities, a currency or a basket of currencies,
including such an option traded on the Chicago Board of Options Exchange or on
the New York, American, Pacific or Philadelphia Stock Exchanges as well as such
an option traded in the over-the-counter market. The term "Security" does not
include a physical commodity or a Futures Contract.
The term "Futures Contract" includes (a) a futures contract and an
option on a futures contract traded on a U.S. or foreign board of trade, such as
the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York
Mercantile Exchange, or the London International Financial Futures Exchange (a
"Publicly-Traded Futures Contract"), as well as (b) a forward contract, a
"swap", a "cap", a "collar", a "floor" and an over-the-counter option (other
than an option on a foreign currency, an option on a basket of currencies, an
option on a Security or an option on an index of Securities) (a "Privately-
Traded Futures Contract").
As a general matter, you are considered to have a "Beneficial Ownership"
interest in a Security or Futures Contract if you have the opportunity, directly
or indirectly, to profit or share in any profit derived from a transaction in
that Security or Futures Contract. You are presumed to have a Beneficial
Ownership interest in any Security or Futures Contract held, individually or
jointly, by you and/or by a member of your Immediate Family (as defined below).
In addition, unless specifically excepted by the Compliance Officer based on a
showing that your interest or control is sufficiently attenuated to avoid the
possibility of a conflict, you will be considered to have a Beneficial Ownership
interest in a Security held by: (1) a joint account to which you are a party,
(2) a partnership in which you are a general partner, (3) a limited liability
company in which you are a manager-member, (4) a trust in which you or a member
of your Immediate Family has an interest or (5) an investment club in which you
are a member.
See Appendix I for more complete definitions of the terms "Beneficial
Ownership," "Futures Contract," and "Security."
/3/ The term "Portfolio Employee" means a Portfolio Manager or an Advisory
Employee who provides information or advice to a Portfolio Manager, who helps
execute a Portfolio Manager's decisions, or who directly supervises a Portfolio
Manager. The term "Portfolio Manager" means any employee of an Advisor who has
the authority, whether sole or shared or only from time to time, to make
investment decisions or to direct trades affecting an Advisory Client.
-2-
<PAGE>
investment for an Advisory Client without first considering the
Security as an investment for the Advisory Client.
2. You must conduct all of your personal Investment Transactions in
full compliance with this Policy, the PNC Code of Ethics, and
the other policies of PNC Bank Corp. ("PNC") (including the
policies that prohibit insider trading or that restrict trading
in PNC Securities). BlackRock encourages you and your family to
develop personal investment programs. However, those investment
programs must remain within boundaries reasonably necessary to
insure that appropriate safeguards exist to protect the
interests of our Advisory Clients and to avoid even the
appearance of unfairness or impropriety. Doubtful situations
should be resolved in favor of our Advisory Clients and against
your personal Investment Transactions.
3. You must not take inappropriate advantage of your position. The
receipt of investment opportunities, perquisites, gifts or
gratuities from persons seeking to do business, directly or
indirectly, with BlackRock, an affiliate, or an Advisory Client
could call into question the independence of your business
judgment. Doubtful situations should be resolved against your
personal interests.
B. The General Scope Of The Policy's Application To Personal
Investment Transactions
Rule 17j-1 under the Investment Company Act of 1940, as amended,
requires reporting of all personal Investment Transactions in Securities (other
than certain "Exempt Securities") by Advisory Employees, whether or not they are
Securities that might be purchased or sold by or on behalf of an Advisory
Client. This Policy implements that reporting requirement.
However, since a primary purpose of the Policy is to avoid conflicts of
interest arising from personal Investment Transactions in Securities and other
instruments that are held or might be acquired on behalf of Advisory Clients,
this Policy only places restrictions on personal Investment Transactions in such
investments. This Policy also requires reporting and restricts personal
Investment Transactions in certain Futures Contracts which, although they are
not Securities, are instruments that Advisors buy and sell for Advisory Clients.
Although this Policy applies to all officers, directors and other
Advisory Employees of BlackRock, the Policy recognizes that Portfolio Managers,
and the other Portfolio Employees who provide them with advice and who execute
their decisions, occupy more sensitive positions than other Advisory Employees,
and that it is appropriate to subject their personal Investment Transactions to
greater restrictions.
C. The Organization Of This Policy
The remainder of this Policy is divided into four main topics. Section
II concerns personal investment transactions. Section III describes restrictions
that apply to Advisory Employees who receive inside information or seek to serve
on a board of directors or similar governing body. Section IV outlines the
procedure for seeking case-by-case exemptions from the Policy's requirements.
Section V summarizes the methods for ensuring compliance under this Policy. In
addition, the following Appendices are also a part of this Policy:
I. Definitions Of Capitalized Terms
II. Acknowledgment Of Receipt Of The Policy
-3-
<PAGE>
III. Annual Certification Of Compliance With The Policy
IV. Initial Report Of Accounts
V. Request For Duplicate Broker Reports
VI. Investment Transaction Prior Notification Form
VII. Fully Discretionary Account Form
D. Questions
Questions regarding this Policy should be addressed to the Compliance
Officer. If you have any question regarding the interpretation of this Policy or
its application to a potential Investment Transaction, you should consult the
Compliance Officer before you execute that transaction.
II. PERSONAL INVESTMENT TRANSACTIONS
A. In General
Subject to the limited exceptions described below, you are required to
report all Investment Transactions in Securities and Futures Contracts made by
you, a member of your Immediate Family, a trust or an investment club in which
you have an interest, or on behalf of any account in which you have an interest
or which you direct./4/ In addition, you must provide prior notification of
certain Investment Transactions in Securities and Futures Contracts that an
Advisor holds or may acquire on behalf of an Advisory Client. (The exercise of
an option is an Investment Transaction for purposes of these requirements.) The
details of these reporting and prior notification requirements are described
below.
B. Reporting Obligations
1. Use Of Broker-Dealers And Futures Commission Merchants
You must use a registered broker-dealer or futures commission merchant
to engage in any purchase or sale of a publicly traded Security or Futures
Contract. This requirement also applies to any purchase or sale of a Security or
Futures Contract in which you have, or by reason of the Investment Transaction
will acquire, a Beneficial Ownership interest. Thus, as a general matter, any
Securities or Futures Contract transactions by members of your Immediate Family
will need to be made through a registered broker-dealer or futures commission
merchant.
2. Initial Report
Soon after commencing employment or after any event that causes you to
become subject to this Policy, you must supply to the Compliance Officer copies
of the most recent statements for each and every Personal Account and Related
Account that holds or is likely to hold a
_________________
/4/ The term "Immediate Family" means any of the following persons who
reside in your household or who depend on you for basic living support: your
spouse, any child, stepchild, grandchild, parent, stepparent, grandparent,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law, including any adoptive relationships.
-4-
<PAGE>
Security or Futures Contract in which you have a Beneficial Ownership interest,
as well as copies of confirmations for any and all transactions subsequent to
the effective dates of those statements./5/ These documents should be supplied
to the Compliance Officer by attaching them to the form attached hereto as
Appendix IV.
On that same form you should supply the name of any registered broker-
dealer and/or futures commission merchant and the number for any Personal
Account and Related Account that holds or is likely to hold a Security or
Futures Contract in which you have a Beneficial Ownership interest for which you
cannot supply the most recent account statement. You must also certify, where
indicated on the form, that the contents of the form and the documents attached
thereto disclose all such Personal Accounts and Related Accounts.
In addition, you must also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract,
including its name or title;
2. The quantity (e.g., in terms of numbers of shares, units or
contracts) and value (in dollars) of the Security or
Futures Contract; and
3. The custodian of the Security or Futures Contract.
3. New Accounts
Upon the opening of a new Personal Account or a Related Account that
holds or is likely to hold a Security or a Futures Contract in which you have a
Beneficial Ownership interest, you
_________________
/5/ The term "Personal Account" means the following accounts that hold or
are likely to hold a Security or Futures Contract in which you have a Beneficial
Ownership interest:
. any account in your individual name;
. any joint or tenant-in-common account in which you have an interest
or are a participant;
. any account for which you act as trustee, executor, or custodian; and
. any account over which you have investment discretion or have the
power (whether or not exercised) to direct the acquisition or
disposition of Securities or Futures Contracts (other than an
Advisory Client's account that you manage or over which you have
investment discretion), including the accounts of any individual or
entity that is managed or controlled directly or indirectly by or
through you, such as the account of an investment club to which you
belong. There is a presumption that you can control accounts held by
members of your Immediate Family sharing the same household. This
presumption may be rebutted only by convincing evidence.
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a direct or
indirect Beneficial Ownership interest (other than an account over which you
have no investment discretion and cannot otherwise exercise control) and any
account (other than an Advisory Client's account) of any individual or entity to
whom you give advice or make recommendations with regard to the acquisition or
disposition of Securities or Futures Contracts (whether or not such advice is
acted upon).
-5-
<PAGE>
must give written notice to the Compliance Officer of the name of the registered
broker-dealer or futures commission merchant for that account and the
identifying number for that Personal Account or Related Account.
4. Timely Reporting Of Investment Transactions
You must cause each broker-dealer or futures commission merchant that
maintains a Personal Account or a Related Account that holds a Security or a
Futures Contract in which you have a Beneficial Ownership interest to provide to
the Compliance Officer, on a timely basis, duplicate copies of confirmations of
all transactions in that account and of periodic statements for that account
("Duplicate Broker Reports"). A form for that purpose is attached hereto as
Appendix V.
In addition, you must report to the Compliance Officer, on a timely basis, any
transaction in a Security or Futures Contract in which you have or acquired a
Beneficial Ownership interest that was made without the use of a registered
broker-dealer or futures commission merchant.
5. Related Accounts
The reporting obligations described above also apply to any Related
Account (as defined in Appendix I) and to any Investment Transaction in a
Related Account.
It is important that you recognize that the definitions of "Personal
Account," "Related Account" and "Beneficial Ownership" in Appendix I probably
will require you to provide, or to arrange for the broker-dealer or futures
commission merchant to furnish, copies of reports for any account used by or for
a member of your Immediate Family or a trust in which you or a member of your
Immediate Family has an interest, as well as for any other accounts in which you
may have the opportunity, directly or indirectly, to profit or share in the
profit derived from any Investment Transaction in that account, including the
account of any investment club to which you belong.
6. Exemptions From Reporting
You need not report Investment Transactions in any account, including a
Fully Discretionary Account,/6/ over which neither you nor an Immediate Family
Member has or had any direct or indirect influence or control. For example,
Investment Transactions in the account of your spouse in an employee benefit
plan would not have to be reported if neither you nor your spouse has any
influence or control over those Investment Transactions.
You also need not report Investment Transactions in Exempt Securities
nor need you furnish, or require a broker-dealer or futures commission merchant
to furnish, copies of
_________________
/6/ The term "Fully Discretionary Account" means a Personal Account or
Related Account managed or held by a broker-dealer, futures commission merchant,
investment advisor or trustee as to which neither you nor an Immediate Family
Member: (a) exercises any investment discretion; (b) suggests or receives notice
of transactions prior to their execution; and (c) you do not otherwise has any
direct or indirect influence or control. In addition, to qualify as a Fully
Discretionary Account, the individual broker, registered representative or
merchant responsible for that account must not be responsible for nor receive
advance notice of any purchase or sale of a Security or Futures Contract on
behalf of an Advisory Client. To qualify an account as a Fully Discretionary
Account, the Compliance Officer must receive and approve a written notice, in
the form attached hereto as Appendix VIII, that the account meets the foregoing
qualifications as a Fully Discretionary Account.
-6-
<PAGE>
confirmations or periodic statements for accounts that hold only Exempt
Securities./7/ This includes accounts that only hold U.S. Government securities,
money market interests, or shares in registered open-end investment companies
(i.e., mutual funds). This exemption from reporting will end immediately,
however, at such time as there is an Investment Transaction in that account in a
Security that is not an Exempt Security.
C. Prohibited Or Restricted Investment Transactions
1. Initial Public Offerings
As an Advisory Employee, you may not acquire Beneficial Ownership of any
Security in an initial public offering, except that, with the approval of the
Compliance Committee and the General Counsel of BlackRock, you may acquire
Beneficial Ownership of a Security in an initial public offering directed or
sponsored by BlackRock. For purposes of this Policy, an initial public offering
shall not include the purchase of a Security in an initial public offering by
(i) a savings bank to its depositors, (ii) a mutual insurance company to its
- --
policyholders, (iii) an issuer of debt securities (other than debt securities
---
convertible into common or preferred stock) or (iv) with respect to an Advisory
--
Employee employed by BlackRock International, Ltd. a building society to its
depositors.
2. Private Placements
If you are a Portfolio Employee, you may not acquire Beneficial
Ownership of any Security in a private placement, or subsequently sell that
interest, unless you have received the prior written approval of the Compliance
Officer and of any supervisor designated by the Compliance Officer. Approval
will not be given unless a determination is made that the investment opportunity
should not be reserved for one or more Advisory Clients, and that the
opportunity to invest has not been offered to you by virtue of your position
with an Advisor.
If you have acquired Beneficial Ownership of Securities in a private
placement, you must disclose that investment to your supervisor when you play a
part in any consideration of any investment by an Advisory Client in the issuer
of the Securities, and any decision to make such an investment must be
independently reviewed by a Portfolio Manager who does not have a Beneficial
Ownership interest in any Securities of the issuer.
D. Investment Transactions Requiring Prior Notification
_________________
/7/ The term "Exempt Security" means any Security (as defined in Appendix I)
not included within the definition of Security in SEC Rule 17j-1(e)(5) under the
Investment Company Act of 1940, as amended, including:
1. A direct obligation of the Government of the United States;
2. Shares of registered open-end investment companies (i.e., mutual
funds); and
3. High quality short-term debt instruments, including, but not limited
to, bankers' acceptances, bank certificates of deposit, commercial
paper and repurchase agreements.
See Appendix I for a more complete definition of "Exempt Security."
-7-
<PAGE>
You must give prior notification to the Compliance Officer of any
Investment Transaction in Securities or Futures Contracts in a Personal Account
or Related Account, or in which you otherwise have or will acquire a Beneficial
Ownership interest, unless that Investment Transaction, Security or Futures
Contract falls into one of the following categories that are identified as
"exempt from prior notification." The purpose of prior notification is to permit
the Compliance Officer and the Compliance Committee to take reasonable steps to
investigate whether that Investment Transaction is in accordance with this
Policy. Satisfaction of the prior notification requirement does not, however,
constitute approval or authorization of any Investment Transaction for which you
have given prior notification. As a result, the primary responsibility for
compliance with this Policy rests with you.
1. Prior Notification Procedure
Prior notification must be given by completing and submitting to the
Compliance Officer a copy of the prior notification form attached hereto as
Appendix VII. No Investment Transaction requiring prior notification may be
executed prior to notice by the Compliance Officer that the prior notification
process has been completed. The time and date of that notice will be reflected
on the prior notification form. Unless otherwise specified, an Investment
Transaction requiring prior notification must be placed and executed by the end
of trading in New York City or, in the case of Advisory Employees employed by
BlackRock International, Ltd., by the end of trading in the United Kingdom on
the day of notice from the Compliance Officer that the prior notification
process has been completed. If a proposed Investment Transaction is not
executed (with the exception of a limit order) within the time specified, you
must repeat the prior notification process before executing the transaction. A
notice from a Compliance Officer that the prior notification process has been
completed is no longer effective if you discover, prior to executing your
Investment Transaction, that the information on your prior notification form is
no longer accurate, or if the Compliance Officer revokes his or her notice for
any other reason.
The Compliance Officer may undertake such investigation as he or she
considers necessary to investigate whether an Investment Transaction for which
prior notification has been sought complies with the terms of this Policy and is
consistent with the general principles described at the beginning of this
Policy.
As part of that investigation, the Compliance Officer or a designee of
the Compliance Officer will determine whether there is a pending buy or sell
order in the same equity Security or Futures Contract, or a Related Security, on
behalf of an Advisory Client./8/ If such an order exists, the Compliance Officer
will not provide notice that the prior notification process has been completed
until the Advisory Client's order is executed or withdrawn.
2. Exemptions From Prior Notification
Prior notification will not be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Policy's prior notification requirement, and, unless otherwise indicated, remain
subject to the Policy's other requirements, including its reporting
requirements.
_________________
/8/ The term "Related Security" means, as to any Security, any instrument
related in value to that Security, including, but not limited to, any option or
warrant to purchase or sell that Security, and any Security convertible into or
exchangeable for that Security.
-8-
<PAGE>
(a) Transactions Exempt From Prior Notification
Prior notification is not required for any of the following Investment
Transactions:
1. Any Investment Transaction in a Fully Discretionary Account that has
been approved as such by the Compliance Officer.
2. Purchases of Securities under dividend reinvestment plans.
3. Purchases of Securities by an exercise of rights issued to the holders
of a class of Securities pro rata, to the extent those rights are
issued with respect to Securities of which you have Beneficial
Ownership.
4. Acquisitions or dispositions of Securities as the result of a stock
dividend, stock split, reverse stock split, merger, consolidation,
spin-off or other similar corporate distribution or reorganization
applicable to all holders of a class of Securities of which you have
Beneficial Ownership.
5. Purchases of common stock of PNC Bank Corp. under the Employee Stock
Purchase Plan.
6. With respect to Advisory Employees who are employed by BlackRock
International, Inc., automatic investments by direct debit into a
personal equity plan (PEP), or similar type of plan in Exempt
Securities if the pre-notification process was completed for the first
such investment.
7. Investment Transactions made by a person who serves on the Board of
Directors of an Advisor and is not involved with the Advisory
operations of such Advisor nor engages in the type of activities
described under (1) (2) or (3) under the term Advisory Employee as
defined in Appendix I.
(b) Securities Exempt From Prior Notification
Prior notification is not required for an Investment Transaction in an Exempt
Security, as defined in Appendix I, e.g., U.S. Government securities, shares in
registered open-end investment companies (i.e., mutual funds) and "high quality
short-term debt instruments" (as defined in Appendix I).
(c) Futures Contracts Exempt From Prior Notification
Prior notification is not required for an Investment Transaction in the
following Futures Contracts:
1. Currency futures.
2. U.S. Treasury futures.
3. Eurodollar futures.
4. Physical commodity futures (e.g., contracts for future delivery of
----
grain, livestock, fiber or metals).
5. Futures contracts to acquire Fixed Income Securities issued by a U.S.
Government agency, a foreign government, or an international or
supranational agency.
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6. Futures contracts on the Standard and Poor's 500 (S&P 500) or the Dow
Jones Industrial Average stock indexes.
7. For Advisory Employees who are employed by BlackRock International,
Ltd., futures contracts on the Financial Times Stock Exchange 100
(FTSE) Index.
E. Ban On Short-Term Trading Profits
You may not profit from the purchase and sale, or the sale and purchase,
within 60 calendar days, of the same Securities and/or Related Security. Any
such short-term trade must be reversed or unwound, or if that is not practical,
the profits must be disgorged and distributed in a manner determined by the
Compliance Committee.
This short-term trading ban does not apply to Investment Transactions in
Exempt Securities (as defined in Appendix I) or in Futures Contracts. This ban
also does not apply to a purchase or sale in connection with a Transaction
Exempt From Prior Notification (as described above in Section II.D.2.(a)), a
transaction in a Fully Discretionary Account or a transaction exempt from the
"blackout" periods pursuant to Section II.F.2 below.
You are considered to profit from a short-term trade if Securities of which
you have Beneficial Ownership (including Securities held by Immediate Family
members) are sold for more than their purchase price, even though the Securities
purchased and the Securities sold are held of record or beneficially by
different persons or entities.
F. Blackout Periods
Your ability to engage in certain Investment Transactions may be prohibited or
restricted during the "blackout" periods described below:
1. Specific Blackout Periods
a. You may not purchase or sell a Security, a Related Security,
or Futures Contract at a time when you intend or know of
another's intention to purchase or sell that same Security,
a Related Security, or Futures Contract, on behalf of an
Advisory Client of any Advisor (the "Specific Knowledge
Blackout Period").
b. In addition, if you are a Portfolio Employee, you may not
purchase or sell a Security, a Related Security or a Futures
Contract which you are actively considering or which you
have actively considered and rejected for purchase or sale
for an Advisory Client within the previous 15 calendar days
(the "15-Day Blackout Period") unless the Compliance
Officer, after consultation with your supervisor, has
approved your Investment Transaction./9/
/9/ SEC Rule 17j-1 places restrictions on the purchase or sale of any "security
held or to be acquired" by a registered investment company. Rule 17j-1(e)(6)
defines a "security held or to be acquired" by a registered investment
company as including any security which, within the most recent 15 days, "is
being or has been considered by such company or its investment adviser for
purchase by such company."
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c. Finally, if you are a Portfolio Manager, you may not
purchase or sell a Security, a Related Security, or Futures
Contract within 7 calendar days before or after a
transaction in that Security, a Related Security, or Futures
Contract, by an Advisory Client for which you are
responsible (the "7-Day Blackout Period").
For Portfolio Employees or Portfolio Managers, the Compliance Officer will not
give such notice until any applicable 15-Day Blackout Period or 7-Day Blackout
Period has expired or any required approvals or exemptions have been obtained.
An Investment Transaction that violates one of these Blackout restrictions must
be reversed or unwound, or if that is not practical, the profits must be
disgorged and distributed in a manner determined by the Compliance Committee.
2. Exemptions From Blackout Restrictions
The foregoing blackout period restrictions do not apply to Investment
Transactions in:
a. Exempt Securities, as defined in Appendix I.
b. Securities of a company listed on the Standard & Poor's 100 (S & P
100) Index.
c. A Futures Contract Exempt From Prior Notification under this Policy
(as described above).
d. A Fully Discretionary Account.
e. With respect to Advisory Employees who are employed by BlackRock
International, Ltd., securities of a company listed on the Financial
Times Stock Exchange 100 (FTSE 100).
III. INSIDE INFORMATION AND SERVICE AS A DIRECTOR
A. Inside Information
As an employee of a subsidiary of PNC, you must comply with the PNC Insider
Trading Policy. A copy of that policy is included in Section E of the PNC Code
of Ethics. In addition, as an Advisory Employee, you must notify the General
Counsel of BlackRock if you receive or expect to receive material non-public
information about an entity that issues securities. The General Counsel will
determine the restrictions, if any, that will apply to your communications and
activities while in possession of that information. In general, those
restrictions will include:
1. An undertaking not to trade, either on your own behalf or on
behalf of an Advisory Client, in the securities of the entity
about which you have material non-public information.
2. An undertaking not to disclose material non-public information
to other Advisory Employees.
3. An undertaking not to participate in discussions with or
decisions by other Advisory Employees relating to the entity
about which you have material non-public information.
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The General Counsel, in cooperation with the Compliance Officer, will maintain a
"restricted list" of entities about which Advisory Employees may have material
non-public information. This "restricted list" will be available to the
Compliance Officer when he or she conducts investigations or reviews related to
the Prior Notification Procedure described previously in Section II(D)(1) or the
Post-Trade Monitoring process described below in Section V(B)(3).
B. Service As A Director
You may not serve on the board of directors or other governing board of any
entity unless you have received the prior written approval of the General
Counsel of PNC, to the extent such approval is required under the terms of the
PNC Code of Ethics, and the General Counsel of BlackRock. If permitted to serve
on a governing board, an Advisory Employee will be isolated from those Advisory
Employees who make investment decisions regarding the securities of that entity,
through a "Chinese wall" or other procedures determined by the General Counsel
of BlackRock. In general, the "Chinese wall" or other procedures will include:
1. An undertaking not to trade or to cause a trade on behalf of an
Advisory Client in the securities of the entity on whose board
you serve.
2. An undertaking not to disclose material non-public information
about that entity to other Advisory Employees.
3. An undertaking not to participate in discussions with or
decisions by other Advisory Employees relating to the entity on
whose board you serve.
Any entity on whose board an Advisory Employee serves will be included on the
"restricted list" referenced in subsection A, above.
IV. EXEMPTIONS
The Compliance Committee, in its discretion, may grant case-by-case exceptions
to any of the foregoing requirements, restrictions or prohibitions, except that
the Compliance Committee may not exempt any Investment Transaction in a Security
(other than an Exempt Security) or a Futures Contract from the Policy's
reporting requirements. Exemptions from the Policy's prior notification
requirements and from the Policy's restrictions on acquisitions in initial
public offerings, short-term trading and trading during blackout periods will
require a determination by the Compliance Committee that the exempted
transaction does not involve a realistic possibility of violating the general
principles described at the beginning of this Policy. An application for a
case-by-case exemption, in accordance with this paragraph, should be made in
writing to the Compliance Officer, who will promptly forward that written
request to the members of the Compliance Committee.
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V. COMPLIANCE
A. Certifications
1. Upon Receipt Of This Policy
Upon commencement of your employment or the effective date of this Policy,
whichever occurs later, you will be required to acknowledge receipt of your copy
of this Policy by completing and returning to the Compliance Officer a copy of
the form attached hereto as Appendix II. By that acknowledgment, you will also
agree:
1. To read the Policy, to make a reasonable effort to understand its
provisions, and to ask the Compliance Officer questions about
those provisions you find confusing or difficult to understand.
2. To comply with the Policy, including its general principles, its
reporting requirements, its prohibitions, its prior notification
requirements, its short-term trading and blackout restrictions.
3. To advise the members of your Immediate Family about the
existence of the Policy, its applicability to their personal
Investment Transactions, and your responsibility to assure that
their personal Investment Transactions comply with the Policy.
4. To cooperate fully with any investigation or inquiry by or on
behalf of the Compliance Officer or the Compliance Committee to
determine your compliance with the provisions of the Policy.
In addition, your acknowledgment will recognize that any failure to comply with
the Policy and to honor the commitments made by your acknowledgment may result
in disciplinary action, including dismissal.
2. Annual Certificate Of Compliance
You are required to certify on an annual basis, on a copy of the form attached
hereto as Appendix III, that you have complied with each provision of your
initial acknowledgment (see above). In particular, your annual certification
will require that you certify that you have read and that you understand the
Policy, that you recognize that you are subject to its provisions, that you
complied with the requirements of the Policy during the year just ended and that
you have disclosed, reported, or caused to be reported all Investment
Transactions required to be disclosed or reported pursuant to the requirements
of the Policy.
B. Supervisory Procedures
1. The Compliance Committee
The Policy will be implemented, monitored and reviewed by the Compliance
Committee. The initial members of the Compliance Committee will be appointed by
the management committee of BlackRock. The Compliance Committee, by a simple
majority of its members, may appoint new members of the Committee, may replace
existing members of the Committee, and may fill vacancies on the Committee.
Among other responsibilities, the Compliance Committee will consider requests
for case-by-case exemptions (described above) and will conduct investigations
(described below) of any actual or suspected violations of the Policy. The
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Compliance Committee will determine what remedial actions, if any, should be
taken by an Advisor in response to a violation of the Policy. The Compliance
Committee will also provide reports (described below) regarding significant
violations of the Policy and the procedures to implement the Policy. The
Compliance Committee may recommend changes to those procedures or to the Policy
to the management of the Advisors. Finally, the Compliance Committee will
designate one person to act as Compliance Officer for all Advisors.
2. The Compliance Officer
The Compliance Officer designated by the Compliance Committee will be
responsible for the day-to-day administration of the Policy for all Advisors,
subject to the direction and control of the Compliance Committee. Based on
information supplied by the management of each Advisor, the Compliance Officer
will forward a copy of the Policy to each Advisory Employee subject to the
Policy and will notify each such person of his or her designation as an Advisory
Employee, Portfolio Employee or Portfolio Manager. The Compliance Officer will
also be responsible for administration of the reporting and prior notification
functions described in the Policy, and will maintain the reports required by
those functions. In addition, the Compliance Officer will attempt to answer any
questions from an Advisory Employee regarding the interpretation or
administration of the Policy. When necessary or desirable, the Compliance
Officer will consult with the Compliance Committee about such questions. The
Compliance Officer may designate one or more Assistant Compliance Officers to
whom the Compliance Officer may delegate any of the duties described in this
paragraph or in the succeeding paragraph, and who shall be empowered to act on
the Compliance Officer's behalf when the Compliance Officer is absent or
unavailable.
3. Post-Trade Monitoring And Investigations
The Compliance Officer will review the Duplicate Broker Reports and other
information supplied for each Advisory Employee so that the Compliance Officer
can detect and prevent potential violations of the Policy. This information may
also be disclosed to the Advisor's auditors, attorneys and regulators. If,
based on his or her review of information supplied for an Advisory Employee, or
based on other information, the Compliance Officer suspects that the Policy may
have been violated, the Compliance Officer will perform such investigations and
make such inquiries as he or she considers necessary. You should expect that,
as a matter of course, the Compliance Officer will make inquiries regarding any
personal Investment Transaction in a Security or Futures Contract that occurs on
the same day as a transaction in the same Security or Futures Contract on behalf
of an Advisory Client. If the Compliance Officer reaches a preliminary
conclusion that an Advisory Employee may have violated this Policy, the
Compliance Officer will report that preliminary conclusion in a timely manner to
the Compliance Committee and will furnish to the Committee all information that
relates to the Compliance Officer's preliminary conclusion. The Compliance
Officer may also report his or her preliminary conclusion and the information
relating to that preliminary conclusion to the Advisor's auditors, attorneys and
regulators.
Promptly after receiving the Compliance Officer's report of a possible
violation of the Policy, the Compliance Committee, with the aid and assistance
of the Compliance Officer, will conduct an appropriate investigation to
determine whether the Policy has been violated and will determine what remedial
action should be taken by the Advisor in response to any such violation(s). For
purposes of these determinations, a majority of the Compliance Committee will
constitute a quorum and action taken by a simple majority of that quorum will
constitute action by the Committee.
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4. Remedial Actions
The remedial actions that may be recommended by the Compliance Committee may
include, but are not limited to, disgorgement of profits, imposition of a fine,
censure, demotion, suspension or dismissal. As part of any sanction, e.g., for
violation of the Policy's restrictions on short-term trading or trading during
blackout periods, you may be required to reverse or unwind a transaction and to
forfeit any profit or to absorb any loss from the transaction. If an Investment
Transaction may not be reversed or unwound, you may be required to disgorge any
profits associated with the transaction, which profits will be distributed in a
manner prescribed by the Compliance Committee in the exercise of its discretion.
Profits derived from Investment Transactions in violation of this Policy may not
be offset by any losses from Investment Transactions in violation of this
Policy. Finally, evidence suggesting violations of criminal laws will be
reported to the appropriate authorities, as required by applicable law.
In determining what, if any, remedial action is appropriate in response to a
violation of the Policy, the Compliance Committee will consider, among other
factors, the gravity of your violation, the frequency of your violations,
whether any violation caused harm or the potential of harm to any Advisory
Client, whether you knew or should have known that your Investment Transaction
violated the Policy, whether you engaged in an Investment Transaction with a
view to making a profit on the anticipated market action of a transaction by an
Advisory Client, your efforts to cooperate with the Compliance Officer's
investigation, and your efforts to correct any conduct that led to a violation.
In rare instances, the Compliance Committee may find that, for equitable
reasons, no remedial action should be taken.
5. Reports Of Violations Requiring Significant Remedial Action
In a timely manner, and not less frequently than annually, the Compliance
Committee will report to the management committee of BlackRock, and to the
directors or trustees of each investment company that is an Advisory Client, any
known Policy violation requiring significant remedial action (as defined below)
and the disposition of that violation. For this purpose, a significant remedial
action means any action that has a significant financial effect on the violator.
Evidence suggesting violations of criminal laws will be reported to the
appropriate authorities, as required by applicable law.
6. Annual Reports
The Compliance Committee will furnish an annual report to the management
committee of BlackRock, and to the directors or trustees of each investment
company that is an Advisory Client, that, at a minimum, will:
1. Summarize existing procedures and restrictions concerning personal
investing by Advisory Employees and any changes in those procedures
and restrictions that were made during the previous year;
2. Summarize any violations of the Policy that resulted in significant
remedial action during the previous year; and
3. Describe any changes in existing procedures or restrictions that the
Compliance Committee recommends based upon its experience under the
Policy, evolving industry practices, or developments in applicable
laws or regulations.
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VI. EFFECTIVE DATE
The provisions of this Policy will take effect on October 1, 1998. Amendments
to this Policy will take effect at the time such amendments are promulgated and
distributed to the Advisory Employees governed by this Policy.
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APPENDIX I
Definitions Of Capitalized Terms
The following definitions apply to the capitalized terms used in the Policy:
Advisor
The term "Advisor" means any entity affiliated with BlackRock, whether now in
existence or formed after the date hereof, that is registered as (i) an
investment advisor under the Investment Advisers Act of 1940, as amended, or
(ii) a broker-dealer under the Securities Exchange Act of 1934, as amended,
other than any such investment advisor or broker-dealer that has adopted its own
employee investment transaction policy.
Advisory Client
The term "Advisory Client" means a registered investment company, an
institutional investment client, a personal trust or estate, a guardianship, an
employee benefit trust, or another client with which the Advisor by which you
are employed or with which you are associated has an investment management,
advisory or sub-advisory contract or relationship.
Advisory Employee
The term "Advisory Employee" means an officer, director, or employee of an
Advisor, or any other person identified as a "control person" on the Form ADV or
the Form BD filed by the Advisor with the U.S. Securities and Exchange
Commission, (1) who, in connection with his or her regular functions or duties,
generates, participates in, or obtains information regarding that Advisor's
purchase or sale of a Security by or on behalf of an Advisory Client; (2) whose
regular functions or duties relate to the making of any recommendations with
respect to such purchases or sales; or (3) who obtains information or exercises
influence concerning investment recommendations made to an Advisory Client of
that Advisor or who has line oversight or management responsibilities over
employees who obtain such information or who exercise such influence.
Beneficial Ownership
As a general matter, you are considered to have a "Beneficial Ownership"
interest in a Security or Futures Contract if you have the opportunity, directly
or indirectly, to profit or share in any profit derived from a transaction in
that Security. You are presumed to have a Beneficial Ownership interest in any
Security or Futures Contract held, individually or jointly, by you and/or by a
member of your Immediate Family (as defined below). In addition, unless
specifically excepted by the Compliance Officer based on a showing that your
interest or control is sufficiently attenuated to avoid the possibility of a
conflict, you will be considered to have a Beneficial Ownership interest in a
Security or Futures Contract held by: (1) a joint account to which you are a
party, (2) a partnership in which you are a general partner, (3) a limited
liability company in which you are a manager-member, or (4) a trust in which you
or a member of your Immediate Family has a vested interest. Although you may
have a Beneficial Ownership interest in a Security or Futures Contract held in a
Fully Discretionary Account (as defined below), the application of this Policy
to such a Security or Futures Contract may be modified by the special exemptions
provided for Fully Discretionary Accounts.
As a technical matter, the term "Beneficial Ownership" for purposes of this
Policy will be interpreted in the same manner as it would be under SEC Rule 16a-
1(a)(2) in determining
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whether a person has beneficial ownership of a security for purposes of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder.
BlackRock
The term "BlackRock" means BlackRock, Inc.
Compliance Committee
The term "Compliance Committee" means the committee of persons who have
responsibility for implementing, monitoring and reviewing the Policy, in
accordance with Section V(B)(1) of the Policy.
Compliance Officer
The term "Compliance Officer" means the person designated by the Compliance
Committee as responsible for the day-to-day administration of the Policy in
accordance with Section V(B)(2) of the Policy.
Duplicate Broker Reports
The term "Duplicate Broker Reports" means duplicate copies of confirmations of
transactions in your Personal or Related Accounts and of periodic statements for
those accounts.
Exempt Security
The term "Exempt Security" means any Security (as defined below) not included
within the definition of Security in SEC Rule 17j-1(e)(5) under the Investment
Company Act of 1940, as amended, including:
1. A direct obligation of the Government of the United States;
2. Shares of registered open-end investment companies; and
3. High quality short-term debt instruments, including, but not limited to,
bankers' acceptances, bank certificates of deposit, commercial paper and
repurchase agreements. For these purposes, a "high quality short-term debt
instrument" means any instrument having a maturity at issuance of less
than 366 days and which is rated in one of the highest two rating
categories by a Nationally Recognized Statistical Rating Organization, or
which is unrated but is of comparable quality.
4. For Advisory Employees employed by BlackRock International, Ltd., shares
of authorized unit trusts, open-ended investment companies (OEIC's) and
direct obligations of the Government of the United Kingdom.
Fixed Income Securities
For purposes of this Policy, the term "Fixed Income Securities" means fixed
income Securities issued by agencies or instrumentalities of, or unconditionally
guaranteed by, the Government of the United States, corporate debt Securities,
mortgage-backed and other asset-backed Securities, fixed income Securities
issued by state or local governments or the political subdivisions thereof,
structured notes and loan participations, foreign government debt Securities,
and debt Securities of international agencies or supranational agencies. For
purposes
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of this Policy, the term "Fixed Income Securities" will not be interpreted to
include U.S. Government Securities or any other Exempt Security (as defined
above).
Fully Discretionary Account
The term "Fully Discretionary Account" means a Personal Account or Related
Account (as defined below) managed or held by a broker-dealer, futures
commission merchant, investment advisor or trustee as to which neither you nor
an Immediate Family Member (as defined below): (a) exercises any investment
discretion; (b) suggests or receives notice of transactions prior to their
execution; and (c) otherwise has any direct or indirect influence or control.
In addition, to qualify as a Fully Discretionary Account, the individual broker,
registered representative or merchant responsible for that account must not be
responsible for nor receive advance notice of any purchase or sale of a Security
or Futures Contract on behalf of an Advisory Client. To qualify an account as a
Fully Discretionary Account, the Compliance Officer must receive and approve a
written notice, in the form attached hereto as Appendix VIII, that the account
meets the foregoing qualifications as a Fully Discretionary Account.
Futures Contract
The term "Futures Contract" includes (a) a futures contract and an option on a
futures contract traded on a U.S. or foreign board of trade, such as the Chicago
Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile
Exchange, or the London International Financial Futures Exchange (a "Publicly-
Traded Futures Contract"), as well as (b) a forward contract, a "swap", a "cap",
a "collar", a "floor" and an over-the-counter option (other than an option on a
foreign currency, an option on a basket of currencies, an option on a Security
or an option on an index of Securities, which fall within the definition of
"Security") (a "Privately-Traded Futures Contract"). You should consult with
the Compliance Officer if you have any doubt about whether a particular
Investment Transaction you contemplate involves a Futures Contract. For
purposes of this definition, a Publicly-Traded Futures Contract is defined by
its expiration month, i.e., a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in June is treated as a separate Publicly-Traded
Futures Contract, when compared to a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in July.
Immediate Family
The term "Immediate Family" means any of the following persons who reside in
your household or who depend on you for basic living support: your spouse, any
child, stepchild, grandchild, parent, stepparent, grandparent, sibling, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, including any adoptive relationships.
Investment Transaction
For purposes of this Policy, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest. The exercise of
an option to acquire a Security or Futures Contract is an Investment Transaction
in that Security or Futures Contract.
Personal Account
The term "Personal Account" means the following accounts that hold or are
likely to hold a Security or Futures Contract in which you have a Beneficial
Ownership interest:
. any account in your individual name;
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. any joint or tenant-in-common account in which you have an interest or
are a participant;
. any account for which you act as trustee, executor, or custodian; and
. any account over which you have investment discretion or have the power
(whether or not exercised) to direct the acquisition or disposition of
Securities or Futures Contracts (other than an Advisory Client's account
that you manage or over which you have investment discretion), including
the accounts of any individual or entity that is managed or controlled
directly or indirectly by or through you. There is a presumption that
you can control accounts held by members of your Immediate Family
sharing the same household. This presumption may be rebutted only by
convincing evidence.
Policy
The term "Policy" means this Employee Investment Transaction Policy.
Portfolio Employee
The term "Portfolio Employee" means a Portfolio Manager or an Advisory
Employee who provides information or advice to a Portfolio Manager, who helps
execute a Portfolio Manager's decisions, or who directly supervises a Portfolio
Manager.
Portfolio Manager
The term "Portfolio Manager" means any employee of an Advisor who has the
authority, whether sole or shared or only from time to time, to make investment
decisions or to direct trades affecting an Advisory Client.
Related Account
The term "Related Account" means any account, other than a Personal Account,
that holds a Security or Futures Contract in which you have a direct or indirect
Beneficial Ownership interest (other than an account over which you have no
investment discretion and cannot otherwise exercise control) and any account
(other than an Advisory Client's account) of any individual or entity to whom
you give advice or make recommendations with regard to the acquisition or
disposition of Securities or Futures Contracts (whether or not such advice is
acted upon).
Related Security
The term "Related Security" means, as to any Security, any instrument related
in value to that Security, including, but not limited to, any option or warrant
to purchase or sell that Security, and any Security convertible into or
exchangeable for that Security. For example, the purchase and exercise of an
option to acquire a Security is subject to the same restrictions that would
apply to the purchase of the Security itself.
Security
As a general matter, the term "Security" means any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest, or investment contract, other than an
Exempt Security (as defined above). The term "Security" includes an option on a
Security, an index of Securities, a currency or a basket of
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currencies, including such an option traded on the Chicago Board of Options
Exchange or on the New York, American, Pacific or Philadelphia Stock Exchanges
as well as such an option traded in the over-the-counter market. The term
"Security" does not include a physical commodity or a Futures Contract. The term
"Security" may include an interest in a limited liability company (LLC) or in a
private investment fund.
As a technical matter, the term "Security" has the meaning set forth in
Section 2(a)(36) of the Investment Company Act of 1940, which defines a Security
to mean:
Any note, stock, treasury stock, bond debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in
oil, gas, or other mineral rights, any put, call, straddle, option, or
privilege on any security (including a certificate of deposit) or on any
group or index of securities (including any interest therein or based on
the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign
currency, or, in general, any interest or instrument commonly known as a
"security", or any certificate of interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary
or interim certificate for, receipt for, guarantee of, warrant or right to
subscribe to or purchase any of the foregoing,
except that the term "Security" does not include any Security that is an Exempt
Security (as defined above), a Futures Contract (as defined above), or a
physical commodity (such as foreign exchange or a precious metal).
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